HDFS originations slide, losses rise

Harley-Davidson Financial Services ’ origination volume shrank in the second quarter as credit losses picked up and sales of electrified bikes plummeted on a year-over-year basis. HDFS’ retail finance receivables totaled $7 billion, up 4.5% sequentially and 2.9% YoY , according to Harley-Davidson's earnings presentation today. The retailer did not break out originations for the quarter, but Harley-Davidson (HOG) Chief Financial Officer Jonathan Root , said during the earnings call that HDFS originations declined 14% YoY. Realized retail credit losses stood at 2.6% in Q2, up 70 basis points (bps) sequentially and 120 bps YoY. The financier increased its provision for credit losses to $57.3 million in Q2 compared with $29.1 million a year ago, according to HOG’s earnings release. Allowance for loan losses ticked up 20 bps quarter over quarter and 30 bps YoY to 5.3%, according to the presentation. “We continue to stay focused on several actions underway to effectively manage the business in today's credit environment, including increased investment behind collections and stronger repossession efforts,” Root said during the call. [caption id="attachment_56000380" align="alignnone" width="1920"] Photographer: David Paul Morris/Bloomberg [/caption] HDFS’s revenue increased 7.6% QoQ and 18.2% YoY to $240 million, according to the presentation. Operating income landed at $59 million, an increase of 1.7% sequentially but a decrease of 31.4% YoY. “The Q2 decline was driven by higher borrowing costs as well as higher provision for credit losses due to an increase in credit reserves and realized credit losses,” Root said. The company raised $2 billion in funding for HDFS, according to the release. HDFS securitized 700 million euros ($770 million) in medium-term unsecured notes in April, which followed a similarly priced deal in March, and a separate $550 million asset-backed securitization transaction in February, according to the presentation. HDFS’s liquidity sat at $2.4 billion, above its 12-month threshold in Q2 and outpacing the lender’s funding plan for the year, according to the presentation. Inventory, sales climb at HOG Average dealer inventory units climbed to 52,000 compared with 27,000 a year ago but down from pre-pandemic levels of 73,000 units, according to the presentation. During Q2, HOG had to unexpectedly suspend production of U.S. manufacturing operations, Root said. The suspension was due to potential quality issues, according to a company release. Still, average inventory was up by more than 90% YoY, Root said. North American new-motorcycle retail sales climbed 1% YoY to 35,060 units, according to the release. “Across our main geographies, we've seen clear impacts on customer demand and affordability with rising interest rates giving pause to high credit customers, in addition to higher monthly payment challenges across the board,” Harley-Davidson Chief Executive Jochen Zeitz said during the call. “We've also seen the impact of inflation on discretionary purchases.” HOG continues to focus on its most profitable product categories, Zeitz said. “We continue to work with our dealers to design programs that drive traffic and help our most loyal customers with trade-ins and rates,” he said. LiveWire losses rise 85% Electric motorcycle manufacturer LiveWire , a subsidiary of Harley-Davidson before being established as a separate, publicly traded company in September 2022, logged a decline in revenue and an uptick in losses as units sold fell sharply in the second quarter. HDFS underwrites consumer loans for LiveWire and Harley-Davidson, according to the presentation. LiveWire shipped 33 units in Q2, down 47.6% sequentially and 85.3% YoY, according to the presentation. Operating losses clocked in at $32 million, up 68.4% YoY, while revenue fell 46.2% YoY to $7 million. The losses were in line with the company’s expectations, Root said during the call. Shares of Harley-Davidson, Inc. [ NYSE: HOG ] were trading up 0.08% at $37.70at market close from market open today. The manufacturer has a market capitalization of $5.42 billion. Shares of LiveWire Group, Inc. [ NYSE: LVWR ] were trading at $10.88 as of market close today, down 7.64% from market open. The manufacturer has a market capitalization of $2.2 billion. Powersports Finance Summit, a premier event for companies involved in recreational vehicle financing, returns October 30-31 at the Bellagio Las Vegas . To learn more about the 202 3 event and register, visit autofinance.live / psfs / .

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