Harley-davidson Is In Big Trouble, But A $5 Billion Deal To Sell Its Motorcycle Loans Could Buy It Time

Harley-Davidson

Harley-Davidson has been struggling to move itself astir for years now. After a CEO move successful 2020, nan institution looked arsenic though it would beryllium capable to lean into what it does best – big, profitable bikes – while continuing to forestall a awesome modulation to electrical motorcycles. Unfortunately, chaos astir nan U.S. tariff policies and precocious liking rates person been hurting nan company's apical and bottommost lines. Now it's closed a rescue package: a $5 cardinal woody to waste its portfolio of existent and early motorcycle loans on pinch a portion of its financing arm.

Harley confirmed reporting from Bloomberg that bond-giant Pimco and private-equity colossus KKR person reached an agreement. They'll get a liking successful Harley-Davidson Financial Services, each nan loans HDFS is presently holding, positive immoderate caller loans Harley originates. Honestly, this is simply a good illustration of outgoing CEO Jochen Zeitz and nan Harley committee maximizing an plus astatine a cardinal time. HDFS has performed comparatively well, astir posting a $248 cardinal operating profit connected conscionable complete $1 cardinal successful gross for 2024. Harley reported Q2 net connected Wednesday morning, and they missed analysts' expectations, but HDFS remained nan sole highlight, some for its continued dependable capacity and they Pimco/KKR deal.

Harley-Davidson

Here's nan reliable point astir being a shaper of cars aliases motorcycles: you tin make a amended profit trading loans to bargain those vehicles than you tin trading nan existent hardware. But of people you still person to make nan cars aliases motorcycles to get to nan money-lending portion of nan transaction (and nan financing needs of your dealers, who get money from you to get nan vehicles they will usage to make nan loans).

Consequently, if you're Harley and you person efficaciously operated your ain bank, you tin count connected having a prima performer connected your equilibrium sheet. Plus, while higher liking rates mightiness make income much difficult, you will make much money connected nan loans you do support. These alleged "captive lenders" besides thin to steer good clear of subprime financing, meaning that their indebtedness value is excellent, default rates are low, and they tin easy waste loans to investors, getting nan liabilities disconnected nan equilibrium expanse and reducing wide debt.

One wouldn't want to springiness up specified a awesome arrangement, unless 1 were facing falling revenue, declining profits, a sliding banal price, and important costs to make nan electrical motorcycle point work. Selling nan captive to backstage equity is not unprecedented (and arsenic Bloomberg notes, HDFS has been connected nan artifact for a while). GM unloaded a mostly liking successful its ain rather successfully captive, GMAC, to Cerberus Capital Management for $7.4 successful 2006, arsenic GM was trying to stave disconnected a bankruptcy that arrived successful 2009.

Harley-Davidson

Unless nan adjacent Harley CEO wants to let nan fable to thrust disconnected into nan sunset, he aliases she needs rate to money nan ongoing turnaround. Harley had astir $2 cardinal connected manus erstwhile it reported Q1 earnings, but it besides mislaid $20 cardinal connected electric-motorcycle shaper LiveWire and saw wide gross return a hit. (LiveWire is technically a standalone entity since its 2022 spinoff, but Harley is still a mostly owner.) The institution besides withdrew its 2025 guidance, citing an "uncertain world tariff business and macroeconomic conditions.

Because Harley's accepted customers are getting older and will yet subordinate that large rally successful nan sky, nan company's situation has been to support nan profitable old-school business while simultaneously figuring retired really to get younger customers excited astir motorcycles. It's been a bumpy ride. And clearly, Harley has decided that it needs importantly much clip and importantly much money to salary for that breathing room.