How Harley-Davidson explains the U.S. economy

January 29, 2013

Harley-Davidson is more than just an iconic American brand. It is also a surprisingly good reflection of the forces shaping the U.S. economy as a whole. The motorcycle company reported its fourth quarter earnings Tuesday, and the details show a firm that is as typically American as the roaring sound of a hog on the highway.

Here are the five ways the company’s financial results explain the forces shaping the U.S. economy.


The U.S. economy in a nutshell. (Jahi Chikwendiu-The Washington Post)

Coming back—but not all the way. Harley-Davidson shipped 247,625 motorcycles in 2012, up 6.2 percent from 2011 (that’s an extra 14,508 motorcycles shipped out the door). The company forecasts a similar gain in 2013. That is up handily from the recent past; the company shipped only 223,023 motorcycles in 2009, as the steep global downturn meant consumers were in no shape to spend tens of thousands of dollars on a motorcycle. But while the gains since then have been decent, it’s worth remembering that Harley—and the U.S. economy as a whole, isn’t anywhere near back to its potential. In 2006, the company shipped a whopping 349,196 motorcycles. In other words, it would take much stronger growth for Harley-Davidson’s production to return to the track it was on before the recession. The same is true of the U.S. economy as a whole; economic output in 2012 was something close to $1 trillion below the level that the Congressional Budget Office estimates is the U.S. economy’s potential. The missing motorcycles are part of that “output gap.”

Changing consumer demographics. The drivers of U.S. consumer spending are more and more diverse, which can be a challenge for companies that are strongest among more middle-aged whites. Harley is dealing with that by pushing particularly hard on what it calls “outreach” segments of the market, as opposed to just its “core customers” of people who have traditionally bought the company’s motorcycles. As Keith Wandell, Harley-Davidson's chief executive, explained in an October conference call with analysts, growth in sales to young adults, women, African Americans, and Hispanics was going gangbusters. “In fact, through nine months, sales to outreach customers grew at nearly twice the rate as sales to core riders, thus ensuring new riders coming into the Harley-Davidson family,” said Wandell. If the Republican party had been as successful at expanding its appeal beyond middle-aged white men as Harley-Davidson, Mitt Romney would be president right now.

Households using debt more responsibly. Harley-Davidson has a finance arm that offers loans for purchase of its bikes, and those loans were part of the vast expansion of household debt leading up to 2007 and the wave of defaults since then. But Harley’s data fits a broader story in the U.S. economy—households are becoming more responsible with debt. In 2007, before the recession, Harley’s “annual loss experience” on motorcycle loans—how much of each dollar lent out had to be written down because the buyer couldn’t pay—was 1.91 percent. It spiked to 2.86 percent during the recession. But now it has fallen not just down to its pre-crisis levels but far below, to 0.79 percent, the lowest in a decade. Executives in a conference call described it as a key positive surprise for the year.  Only 3.94 percent of outstanding loans were more than 30 days delinquent on payments this year, compared with 6.15 percent before the crisis. Translation: People borrowing money to buy motorcycles are being more cautious than they were in the pre-crisis days. It’s hard to know for sure how much of this is due to higher lending standards and how much due to Americans’ wariness of taking on too much debt, but either way, it is a healthy sign, that household debt is not the problem weighing on Americans it was in the not-too-distant past.


Source: Harley-Davidson

Exports are the key to growth. There is a widespread notion that the world doesn’t want to buy American products. It isn’t backed up by the data—and Harley-Davidson is a prime example. The United States remains the company’s biggest market, but growth is coming from abroad, particularly emerging markets. Shipments of motorcycles in the United States were up 6.6 percent, to Japan up 2.3 percent, and to recession-stricken Europe down 5.9 percent. But apparently the emerging middle class of Asia and Latin America can’t get enough Harleys. Sales in Asia outside of Japan rose 25.6 percent and Latin American sales rose a whopping 39 percent. Those are off of small bases, but it shows how a company like Harley-Davidson can keep expanding even amid slow growth in the United States and other developed economies.

Doing more with fewer workers. Rising productivity is the key to rising wealth over the long-term, but over short time periods, it is part of the story of high unemployment. And Harley-Davidson has had great success building more motorcycles with fewer people. The company started 2012 with 6,000 employees in its motorcycle division, who shipped 247,625 of them. That works out to more than 41 motorcycles produced per worker. Compare that to a decade ago. The company started 2002 with 8,100 workers, who produced 263,653 units. That’s 33 motorcycles per worker. In other words, the company is making pretty much the same volume of output as it did a decade ago, but with more than 2,000 fewer employees. That is great for shareholders: Someone who bought Harley-Davidson stock (ticker symbol: HOG) at the end of 2002 and reinvested dividends since then has earned more than 33 percent on their money over the past decade, despite a catastrophic financial crisis during that period. It is less great for workers; Harley’s ability to produce the same output with so many fewer workers is America’s middle-class jobs crisis in a nutshell.

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Sarah Kliff · January 29, 2013