Harley-Davidson is launching a certified pre-owned (CPO) program as part of the company’s focus on profitability following consistent declines in originations.
The new CPO program comes on the heels of the restructure announced last spring, an overhaul of the company meant to set the stage for its five-year strategic plan. The retailer is preparing to launch Harley-Davidson Certified, Chief Executive Jochen Zeitz said on the company’s fourth-quarter earnings call, but he did not provide a specific date for the program.
“This program is designed to lead our industry and reach new customers in partnership with our dealers to enhance the overall experience while also supporting growth in parts and accessories, general merchandise, and HDFS businesses,” Zeitz said. The pre-owned program “will enhance our overall customer experience and support the growth of HDFS as a complementary business. We see that as a further driver of profitability for HDFS.”
Through the exclusive program, Harley-Davidson will certify bikes no more than 5 years old with a maximum of 25,000 miles, Zeitz added, noting that about one-third of the retailer’s 3 million used motorcycles are at least 7 years old. “Those customers, we believe, are at the highest potential to also get them engaged in new motorcycles in the future,” he noted.
Motorcycle originations declined 1.4% year over year to $496 million in the fourth quarter. Third quarter originations also fell 4.2% YoY to $862 million. Total originations for 2020 clocked in at $2.9 billion, a 7% decrease from the end of 2019, according to the earnings presentation.
Still, HDFS continues to increase its penetration rate. The share of new Harley-Davidson motorcycles purchased in the U.S. and financed through Harley-Davidson Financial Services reached 67.8% in the fourth quarter, an increase of 410 basis points from the same period last year. As of yearend 2020, Harley-Davidson financed 67.6% of all branded motorcycles in the U.S.
Delinquencies at 30-plus days came in at 3.18% in the fourth quarter, a decrease of 121 basis points YoY. Annually, the 2020 delinquency rate of 1.38%, a decrease of 62 bps from 2019, was propped up by COVID-19 payment assistance programs for qualified customers, according to the earnings presentation.
After decreasing its provision for credit losses in the third quarter, the retailer saw an uptick in provision in the fourth quarter to $36 million, an increase of $10 million from last quarter. Still, provisions remain about $30 million lower than in the second quarter, during the height of the pandemic.
Meanwhile, a 59% reduction in inventory at dealerships by yearend 2020 kept motorcycle transaction prices high, according to the earnings report.
The retailer did not break out fourth-quarter gross finance receivables in its earnings presentation, and had not filed its annual 10-K with the Securities and Exchange Commission at press time. Last quarter, total gross outstandings clocked in at $7.25 billion, a decrease of 2% from the second quarter and 6% YoY.
Share of Harley-Davidson Inc. [NYSE: HOG] were trading at $32.06 as of market close today, down 2.88% since market open. Shares fell 19% on Tuesday, when Harley reported its earnings. The motorcycle manufacturer has a market capitalization of $4.91 billion.
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