H-D's financial numbers are out and as usual make interesting reading as
well as generating lots of investor activity. Shares were sold off in very
active trading as investors reacted to the slowing registrations of bikes.
The price seems to have leveled off over the last couple of days. Some
analysts have downgraded the stock while other are maintaining their "BUY"
ratings.
Here in Milwaukee were the stock is watch very closely by lots of people I
think guarded optimism prevails. Profits are up nicely but more importantly
dealers are still getting big markups over MSRP and used bike sale pricing
is very good. The slower registrations are a concern but dealers could
easily lower prices if needed to bring in sales.
Personally I think that we are seeing the beginning of a return from outer
space to some place in the stratosphere. I don't think H-D has any
long-term issues but I don't think the surcharges that many dealers have
collected can be maintained. This will manifest itself first in slowing
registrations BUT as dealers react to slower retail sales they have the
classic slow sales weapon available to them, lower prices. While none of
them likes to lower prices even if a dealer gets MSRP they are still making
substantial profits on each unit sold and more importantly the Motor Company
still gets the same amount of $ for each bike they sell.
I suspect the Motor Company would be happy to see ALL it's dealers selling
bikes at MSRP. While it will make some dealers unhappy most will be glad
that bikes are still selling and many of them, the ones with long term
relationships with the Motor Company and their customers will actually
welcome this situation. For a sales person demand exceeding supply is
mostly a good thing but it can reach a point (and I would argue that H-D has
been at this point for many years) where people feel that they are being
taken advantage of. A customer who feels that they have been ripped off is
unlikely to come back and buy again. Long term that is very bad thing.
So I think the Motor Company is still in good shape. Profits will hold up
as long as the dealers are willing to buy all the bikes H-D can produce.
After all it is sales to dealers not to customers that make money for H-D.
Dealers currently have lots of room to move on pricing, they can drop prices
and reduce waiting lists while still making tons of money. I think we will
see a short-term reduction in registrations followed by a drop in the
premiums charged to buyers as well as a drop in length of time you wait for
a bike. This will lead to the registration numbers going back up.
A perfect world for H-D would every bike they can make being sold at or near
MSRP shortly after hitting the dealer's floor. Bikes selling at premiums
above MSRP make no extra money for the company and may alienate customers.
Long waiting lists don't help either. Harley-Davidson has been working hard
to build enough capacity to meet customer demand and they may be about to
succeed.
Dave
