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HDFS Adjusts Underwriting Amid Rising Credit Losses

  • Natalie Mattila
  • October 18, 2016
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National Powersport Auctions and Harley-Davidson Financial Services partnered to put on a special dealer-only V-Twin Motorcycle Auction at the American International Motorcycle Expo last week in Orlando. Among those were a high percentage of repossessed Harley-Davidson motorcycles. / Photo by Natalie Mattila

Annualized net losses continue to rise at Harley-Davidson Financial Services — reaching 1.6% in the third quarter, which has caused the company to “adjust” its underwriting in oil-dependent areas, John Olin, Harley-Davidson Inc.’s chief financial officer, said during the company’s third-quarter earnings call today.

The losses are at the highest level the captive has seen since 2011 when losses were at 1.1%, according to the earnings report. HDFS also saw a 10.2% drop — to $884.1 million — in year-over-year originations in 3Q.

Additionally, 30-day delinquencies rose 45 basis points to 3.61% in 3Q, from 3.16% the same time a year prior. “The increase was a result of higher losses on loans in oil-dependent areas, normalizing subprime performance, and lower used-bike values at auction,” Olin added.

Also of note, wholesale and retail finance receivables outstanding were up 1.4% year over year to $7.3 billion in 3Q. However, financial services operating income was down 4.6% to $69.5 million in 3Q, from $72.8 million the same time a year prior.

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Harley-Davidson motorcycles lined up for auction at the American International Motorcycle Expo last week in Orlando. / Photo by Natalie Mattila

Even with the steady rise in losses over the last several quarters, “they are at historic lows [overall] and much better than they were prior to the downturn, but HDFS is keeping an eye on it,” Olin said. “HDFS is doing a tremendous job working collections and tweaking underwriting.”

The rising credit losses are “certainly a concern,” Olin said. However, when looking at losses over a long period of time, “we are within our models in our pricing and within our expectation of overall losses,” he added.

Harley-Davidson is not providing any projections for credit losses going forward, but “HDFS is addressing what we’ve got and making changes as necessary to continue to maintain our industry leading profitably in the U.S.,” Olin said.

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