BOSTON — Despite indications of slow recovery in the oil and gas sector, turmoil in the energy market has sparked higher losses for Harley-Davidson Financial Services.
Annualized net losses at HDFS have reached the highest level the captive has seen in six years. Net losses reached 1.98% last quarter, compared with 2.04% in 2Q10. Additionally, 30-day delinquencies were up on a year-over-year basis to 2.88%, from 2.64%.
HDFS income is expected “to be down modestly because of rising credit losses and higher interest expense,” Harley-Davidson Inc.’s Chief Financial Officer John Olin said during last quarter’s earnings call.
Credit losses were impacted by “lower recovery values of repossessed motorcycles, the impact of changing consumer behavior, and lower recoveries as a result of fewer charge-offs in prior periods,” according to Harley-Davidson’s 2015 annual report.
HDFS’ retail credit losses “may continue to increase over time due to changing consumer credit behavior and HDFS’ efforts to increase prudently structured loan approvals in the subprime lending environment,” according to the report.
The worsening performance was also due, in part, to “higher experience in oil patch states, normalizing subprime performance, and some softening in auction values,” said Ryan Green, the captive’s chief financial officer, at the American Financial Services Association’s Credit Summit for Fixed Income Investors yesterday.
Industrywide, year-to-date repossession volume is up 9% from 2015, according to Jim Woodruff, chief operating officer of National Powersport Auctions. New and used motorcycle sales “have been strong the last few years, and the mix of subprime financing has grown, so a rise in repossession volume is not surprising,” Woodruff told Powersports Finance.
HDFS has seen — through all its auction houses — a softening in auction values, Green told Powersports Finance. “There has been sort of a supply-and-demand dynamic [shift] with maybe a larger supply from us and other financial companies,” he said. “We’ve also seen more buyers, so we view it as more of a supply-demand-at-the-auction impact.”
HDFS extends loans across the spectrum, and is comfortable with terms at long as 84 months — which “perform the same as the rest of our portfolio,” Green said yesterday. “Interestingly enough, the average term on our loans hasn’t really changed; the mix is pretty consistent.”
About 40% of the company’s originations fall into the 84-month category, Green told Powersports Finance today. Although auto finance companies are just starting to extend loans terms out, 84-month terms have been the captive’s “bread and butter” for more than 15 years, Julia Landes, director of securitization at HDFS, said at last year’s AFSA Credit Summit for Fixed Income Investors.
This article was written by Larissa Padden and Natalie Mattila.