Tuesday, July 20, 2010

HOG Profit Surges As Financial Services Unit Gets Toe-Hold

Last American motorcycle manufacturer's approach to financing V-Twin market

Pre-trade prices rose 5 % prior to the market's opening this morning on Harley-Davidson (HOG) shares.

Analysts attributed the uptick to news from yesterday when the venerable Milwaukee manufacturer posted second quarter net income of $71.2 million - .30 per share, up from .08 per share in the first quarter at $19.8 million.

The key to the good news is that a new financial services division has started to show a profit.

Though sales revenue has remained flat, profitability has risen on a more aggressive and liberalized credit posture tailored to the motorcycle market in cooperation with Eagle Savings Bank, a seller's assist program that enables Hog owners to peddle their used bike for a trade on a new one, and such gimmicks as on-line payment calculation, instant pricing and custom ordering.

Financing on selected models is as low as 1% APR throughout this month, according to advertisements.

At $25.15 per share, the price rose by 6.52% on the news, up by $1.54 on volume of 120,188 compared to a Monday closing price of $23.61 on volume of 26,569 shares.

The stock has shown a volatile performance in its 52-week history with a high of $36.13 and a low of $19.16.

Marketing plans shifted after company executives joined the Davidson family in buying Harley-Davidson back from the conglomerate American Machine & Foundry. The emphasis has been on hand assembling a large array of custom bikes at the factory in Milwaukee rather than allowing dealers and aftermarket purveyors to assist owners in rebuilding and customizing the same engines and transmissions on frames they acquired many years in the past.

Prior to the sea change in Harley's marketing philosophy, it was a marginalized company manufacturing basic units that were sold and serviced, then customized by sellers of aftermarket products.

As one savvy observer noted, “You can only sell so many motorcycles to fat guys with tattoos wearing black t-shirts.”

Today's Harley dealer is not authorized to work on year models that are older than a typical financing period and the emphasis is on financial flow plan that features an extended warranty, service plan, and the HOG Owners Group, which offers first-time buyers the companionship of instant riding partners without all the folderol of the “one-percenter” gang image so often exploited in motion pictures and television dramas.

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