Harley Davidson Reviews Finance Unit; 2Q Down 91%

Harley Davidson Inc. (HOG) said Thursday that it is reviewing "strategic options" for its loss-making finance arm as the motorcycle maker rolled out another round of job and production cuts.

The U.S. company doesn't plan to split the finance unit, despite potential regulatory pressure on non-bank consumer lenders.

Harley Davidson Financial Services, or HDFS, once a key profit center, has become a drag on the company amid double-digit falls in motorcycle demand that led to a 91% drop in second-quarter profits.

HDFS is "clearly a strategic asset, but we are looking at strategic options to help us get access to lower cost capital," unit president Larry Hund said on a conference call.

A liquidity squeeze forced the company to seek federal support for the business. The company said it managed to secure $1 billion needed to operate HDFS through 2009 but expects further delinquent loan and retail credit losses.

The finance arm remains valuable, Hund said, in helping dealers make sales and finance floor plans. Harley's market share increased year-over-year, though overall sales are down.

Discretionary spending on high-end consumer goods has tumbled over the past year. The head of Brunswick Corp. (BC), the largest U.S. motor boat producer, recently said demand may never recover to pre-crisis levels, in part because of tighter credit.

Broader economic troubles are weighing heavily on the Harley finance unit, faced with higher loan defaults, increased capital costs and fewer new loans. Declining motorcycle values have eroded the company's ability to cash in on the growing number repossessed motorcycles.

Harley Davidson reported a profit of $19.8 million, or 8 cents a share, down from $222.8 million, or 95 cents a share, a year earlier. The latest period included $101.1 million in write-downs and charges.

Revenue decreased 27% to $1.15 billion as overall motorcycle retail sales fell 30%. Retail sales fell 35% in the U.S. and weakened 18% in international markets.

Analysts polled by Thomson Reuters expected earnings of 24 cents on revenue of $1.18 billion.

Harley Davidson shares were up 6.7% at $18.66 in recent trading. The stock has more than halved from its 52-week peak last October.

Chairman and CEO Keith Wandell, who assumed the office in May, said although the fundamentals of the company's brand remains strong and its dealers' retail sales fell less than its competitors, "it is obviously a very tough environment for us right now, given the continued weak consumer spending in the overall economy for discretionary purchases."

The company's second-quarter earnings plunged 91% as it slashed shipments to keep pace with sinking demand in the tough economy.

Harley Davidson plans to eliminate 700 hourly jobs, in addition to 1,400 previous reductions, and cut production 20% from April's estimate.

 
   -By Sharon Terlep; 248-204-5532; [e-mail]. 
 

(Tess Stynes and Kerry Grace Benn contributed to this article).