Harley-Davidson Financial Services loan-loss provision shot up 119% year over year — to $39.8 million — in 2016, driven by higher retail credit losses.
The decline came amid a 2.3% year-over-year decline in originations, to $3.1 billion. Losses — up 40 basis points to 1.8% in 4Q16 — continue to reach record highs unseen since the fourth quarter of 2010, when losses hit 2.11%.
“The increase was due to higher defaults across the portfolio, including those in oil-dependent areas, and lower used-bike values at auction,” said John Olin, Harley-Davidson Inc.’s senior vice president and chief financial officer, during the company’s earnings call on Tuesday.
The recovery value is a function of the used-bike price, James Hardiman, managing director of equity research at Wedbush Securities Inc., told Powersports Finance. “As used-bike prices have come down, credit losses have gone up at HDFS, and that’s probably the most direct and immediate result of the used-bike pricing issue.”
However, HDFS expects higher interest costs and higher credit losses in 2017 “to be partially offset by slight lending rate increase” — the rate at which HDFS borrows versus the rate at which it lends — which the captive implemented earlier this month, Olin said on the call.