Can Harley-Davidson survive the downturn?
Posted
Nov 19 2008, 04:37 PM
by
Kim Peterson
Rating:
America has a strong -- and growing -- used motorcycle market. Add a plunging economy to that, and the road is getting a little rough for Harley-Davidson these days.
Harley shares have taken a beating lately, falling 41% in less than three weeks. Shares are down 70% year to date. Sure, the stock looks cheap, but analysts warn that the earnings potential for the company is unclear.
One reason is that core Harley buyers are simply getting older. Only 12% of buyers are under 35, and long-term demand will slow as baby boomers "exit their peak riding years," wrote a JPMorgan analyst in a recent client note. The analyst expects motorcycle registrations to drop 14.7% next year in the U.S. and 4.2% internationally.
Harley also made bad business decisions. It sold bikes to buyers who clearly couldn't afford it, handing out $20,000 motorcycles with no money down, according to BusinessWeek. And now, a lot of subprime borrowers simply can't, or won't, repay those risky bike loans.
That's led to concerns about the credit rating for Harley's financial services unit. Standard & Poor's has placed Harley on "CreditWatch Negative" status and will meet with management with concerns.
Harley is responding by cutting back shipments to retailers, in hopes that it will reduce its inventory levels. The company has said that earnings will drop about 18% in 2008 -- the second straight year of decline after 20 years of growth, according to Standard & Poor's.
Harley shares are in the $13 range now, and option traders expect the stock to drop below $10 by Dec. 19.
Photo credit: M62, Creative Commons license
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