American Motorcycle Dealer AMD 250 May 2020 | Page 4

Harley - Do the Right Thing! ack in the month known as January, on pre-COVID earth, there was a surprisingly sanguine (resigned maybe?) response to Harley's 2019 full-year fiscals. The "decline in the decline" in Harley's motorcycle sales was grasped at by desperate analysts as a lifeboat of less bad news in an otherwise continuing sea of market and manufacturer disappointment. My, what a difference three months can make! Those of you reading this edition of AMD Magazine in print will likely be doing so after Harley has released its Q1 numbers, and if we thought its 2019 performance lacked lustre, get set for meltdown. As the European new motorcycle registration statistics published in this edition show, there's no hiding place when it comes to the effects the global coronavirus pandemic are having on most industries, our own included. We don't normally include that level of detail about European registrations here in AMD, it is primarily part of the information service that International Dealer News provides for 'mainstream' market dealers and vendors in Europe. Six times a year IDN goes into detail on the available motorcycle sales data from several of Europe's primary markets - something we have been doing ever since IDN launched in 1997. During that time, we have had a front row seat to witnessing market contraction, expansion, contraction and, since 2014, expansion again as the seemingly inevitable cycles of boom and bust wash over us and shape our lives and business prospects. But never in all that time have we seen anything even remotely resembling what started happening from mid-March onwards. While we are still only at the earliest stages of this uniquely complex iteration of the cycle, we can already see more than enough to tell us that, as I said last month, this is not trivial. Recovery from the 2008/2009 financial crisis saw us rocking along the bumpy bottom of a broad U-curve for a long, long time - with recovery coming in unconvincing, fragile spurts of growth, interspersed with ongoing uncertainty and, in the case of the United States, ongoing demographic driven market atrophy. Nobody knows what kind of shape recovery from this mess will have. There are those who think that it will be a short, sharp 'V' shaped phenomena, with consumer confidence just waiting to burst through a dam of fear as the world gets 'spendy' again as soon as people are allowed to go shopping without being guilt-shamed. On the other hand, there are those who think things will never be the same again, that coronavirus is going to usher in the dawning of a new age of Aquarius as society decides to come over all 'touchy/feely' and 'reconnect with its inner soul' in a frenzy of mending its wicked ways. Urm, no. That is so not going to happen. But neither is this going to turn out to have been an unpleasant but short, sharp shock. As ever, the truth lies elsewhere, maybe not even anywhere in the middle between those two unlikely scenarios. At this stage, anyone who claims to have the answers hasn't understood the question. None of us can yet know how this will play out. Those who say that this crisis is unprecedented are right, it is. But primarily because of its own unique and particularly complex matrix of issues, not in the simplistic, factual, statistical ways that most 'talking heads' are superficially sound-biting. The needs of attending to the primary issue of keeping us all safe and healthy appear B to militate directly against our financial interests, and, working on the assumption that one is lucky enough to dodge the disease, putting our apparent economic best interests first instead could go a long way towards compromising our safety. There is no win in sight yet. Of the many dynamics at play in this complex matrix of impacts and implications, it is time that is the most difficult dynamic to calibrate, the most difficult factor to get our minds around. On the one hand, the health issue needs time to mend, and we rush the process at our peril. On the other hand though, one senses that there must be some kind of economic formula at play whereby every week of economic stasis will cost us exponentially more time in economic purgatory. Sadly, time is one of the commodities that a market such as ours, one that is still short of capital resources as a result of an anaemic recovery from the last downturn, simply does not have. Harley, especially, doesn't have time on its side. Those 2019 fiscals, regardless of the validity of pointing to a continuing decline in the decline in unit sales, did reveal a business that continued to make profits, continued to be cash-rich and continued to stick doggedly to its "More Roads to Oblivion" stated aim to "deliver superior return on invested capital that falls within the top quartile of the S&P 500." Indeed, Harley was so wedded to the strategy, and apparently so blind to the evolving disaster that was about to engulf us all, that rather than moving to preserve its cash pile, as most other publicly traded businesses the world over have done, a February 20 announcement saw Harley increase its dividend yet again, and double its financial commitment to share buybacks. Fast forward six weeks to mid-April when I am writing this, and even though production is still suspended and all employees are being asked to wear a minimum of between 10% and 20% pay cuts, there is still no sign that Harley is going to follow trend and suspend share buybacks and dividend payments. The assumptions that justified spending its cash pile on increasing dividends and share buyback capacity were based on an original and now discarded 2020 forecast of around $4.53 billion to $4.66 billion of revenues in its core motorcycles product segment. With virtually zero cash coming into the business at this time, it would now appear unwise for Harley to continue to justify such a yield and such a strategy while wage cuts and the fear of permanent unemployment hover over Juneau Avenue. If it is serious about cost reductions, and as serious as Zeitz says it is about valuing the loyalty of Harley's employees, then Harley must not let the looming pressure of the May 15 Annual Meeting and the likely investor psycho dramas that will play out afterwards deflect it from doing the right thing, and doing it right now. 'this is NOT trivial' Robin Bradley Co-owner/Editor-in-Chief [email protected]