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Hi There Kit,

I would say that the continued profitability of HDFS should always be a concern, especially since (historically) the margins have been higher than the bike segment. But as you said a primary difference between HDFS and GMAC is the exposure to the housing market, though some HOG's would argue that they live on their bikes. =)

From the latest Q

The 30 day delinquency rate increased by 70 basis points to 4.78% over the same quarter last year. The company expects higher delinquencies this year as opposed to last.

Pretty broad, and it sounds to me like management doesn't really know by how much this will increase. Still, a 5% delinquent rate isn't that bad.


Income from HDFS was down 41% primarily because income from securitizations was down 65%.


The company sold 540M in retail motor loans through a securitization transaction at a loss of 5.4M.

Aside from all of that,

I think that the experience that Harley sells is what separates it from cars and especially housing. People that buy bikes really want to have a bike, it's not exactly the same as buying a car for the purpose of transportation. I am of the firm belief that consumers are more apt to pay for something they want as opposed to something they need.

Obviously, and as admitted by the company, HDFS will struggle going forward. But to put it in perspective, revenue from HDFS was down 14.5% during Q1 which only amounted to about 16M. The Motorcycle segment did 1.3B in sales during the quarter (up 11%) and was fueled by international growth.

I think the wildcard in this whole equation is that potential for prolonged foreign growth. If Harley can maintain the brand building overseas, - eventually domestic sales will increase as consumers loosen up the pursestrings.

When that happens, HOG will really be cooking with gas, so to speak.

Thanks for the question.

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