Harley-Davidson to Lean on HDFS More in 2017, Despite Rising Losses

DSCN3640It appears that Harley-Davidson Inc. will be relying more on its captive Harley-Davidson Financial Services this year — despite rising credit losses — as more discounts and financial incentives are anticipated from foreign manufacturers.

“Harley-Davidson’s primary promotional tool over the years has been financing incentives,” said James Hardiman, managing director of equity research at Wedbush Securities Inc. “They’ve been hesitant over the years to discount their bikes directly because they feel it hurts their competitive positioning, and potentially weakens the brand. One of the reasons, quite frankly, that they continue to have a captive finance division is so they can use those financing incentives as a promotional tool without impacting the brand.”

Many of Harley-Davidson’s problems manifested around late 2014 and early 2015 when Japanese manufacturers — such as Yamaha Motor Corp., Honda Motor Co., and Suzuki Cycles — began aggressively discounting their bikes, said a person familiar with Harley-Davidson, who wished to remain unnamed.

The heavy discounting from competitors, coupled with Harley-Davidson’s unwillingness to discount its products, quickly placed the OEM in a position where it was being outsold by competitors, the unnamed source told Powersports Finance.

“Then 2016 came along, and what we’ve seen is a continuation of a highly promotional environment, less so from Japan but more from European players this time and also Polaris Industries Inc., who has been discounting their Indian motorcycles like crazy,” he added.

Given the market and environmental conditions, HDFS becomes a pretty integral part of Harley-Davidson, said David MacGregor, chief executive, director of research, and senior analyst at Longbow Research. “I would expect that they have to continue relying heavily on HDFS. And unless there are some things adjusted in the credit model, I would expect the credit experience to continue.”

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