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Harley-Davidson Loaned $2.3 Billion from Fed

Thursday, December 2, 2010
Documents released by the Federal Reserve disclose who benefited from a government loan program during the financial crisis of 2008. The data shows what companies the Federal Reserve purchased commercial paper from with its Commercial Paper Funding Facility (CPFF). Among those accepting the credit boost was motorcycle manufacturer Harley-Davidson. The Motor Company took the Fed up on its emergency lending on 33 separate occasions in 2008 and 2009 to the tune of $2.3 billion.
Harley Davidson Motorcycles
Documents released by the Federal Reserve disclose loaned $2.3 billion from the Fed during the 2008 financial crisis.

Commercial paper is a routine short-term funding method for companies to cover operating expenses, like payroll and rent. Increases in the issuing of commercial paper can be seen as a positive sign, as companies may be generating the funds to ramp up production and pay new hires and increase inventories. During the credit crisis in 2008, this positive scenario was not the case. The normally liquid commercial paper market had frozen with risk-averse private investment sources, like mutual funds, unwilling to lend.

The government, in the form of the Federal Reserve, stepped in with the establishment of the CPFF in October 2008. The Federal Reserve Bank of New York created the CPFF Limited Liability Company, which administered the paper purchase program. It began lending (by purchasing the beleaguered company’s issued commercial paper) on October 27, 2008 and closed on February 1, 2010. The last of the commercial paper purchases matured on April 26, 2010, as the loans were repaid with interest and fees. The CBFF LLC was dismantled four days later.

Provisions in the Dodd-Frank financial reform bill, passed earlier this year, required the public disclosure of the CPFF loans by December 1, 2010. The full purchase list (available in a spreadsheet at the Federal Reserve website: www.federalreserve.gov/newsevents/reform_cpff.htm) reveals financial giants like Citigroup, Morgan Stanley and AIG snatched up the majority of the fed money. Harley-Davidson, however, was one of a number of major American brands that also benefited from the CPFF funding lifeline, along with Caterpillar, McDonalds, GE and Verizon.

The total amount of Harley-Davidson commercial paper purchased by the government totaled $2,320,600,000. The 33 total paper purchases followed two major waves, with daily purchases as the program began on October 27 through October 31 - the first purchase being the largest at $148.9 million. Harley then issued paper sporadically throughout November and December of 2008.

A second wave of paper was issued three months later as the first round reached the to maturity date, beginning January 26 2009. The paper amounts of the second wave correspond roughly with many of the original paper amounts. The last commercial paper issuance by H-D to the CPFF was February 11, 2009.

UPDATE: Harley-Davidson representative have clarified that the "highest level of commercial paper outstanding to the Fed at any one time under this program was $1.35B."

As its final government paper was purchased, Harley-Davidson received an injection of long-term funding from a notable private investment source, Warren Buffet. The billionaire delivered $300 million to H-D on February 4, 2009. The bond purchase requires Harley to pay 15% annual interest, with the bonds maturing in 2014.

The credit crisis was a primary source of Harley-Davidson’s financial woes, as the company’s Financial Services arm hemorrhaged losses. The HDFS lost $24.9 million in Q4 of 2008, and $118 million total in 2009. HDFS is critical to Harley’s success as it finances a majority of the company’s consumer purchases.

Trade and Settlement Date Maturity Date          Commercial Paper Purchased (In Millions) 
10/27/2008  1/26/2009  148.9 
10/28/2008 1/26/2009  49.6  
10/29/2008  1/27/2009  49.6  
10/30/2008   1/28/2009   99.3  
10/31/2008   1/29/2009   49.7  
11/3/2008   1/30/2009   99.4  
11/4/2008   2/2/2009   99.4  
11/5/2008 2/3/2009 99.4
11/6/2008 2/4/2009 99.4
11/7/2008 2/5/2009 49.7
11/10/2008 2/9/2009 99.4
11/12/2008 2/10/2009 99.4
11/13/2008 2/11/2009 99.4
11/14/2008 2/12/2009 24.8 
11/17/2008 2/17/2009 24.8 
11/21/2008 2/19/2009 39.8
12/1/2008 2/27/2009 49.7 
12/19/2008 3/19/2009 19.9 
12/22/2008 3/23/2009 19.9
12/23/2008 3/23/2009 19.9
1/26/2009 4/27/2009 139.2
1/27/2009 4/27/2009 34.8 
1/28/2009 4/28/2009 24.9
1/29/2009 4/29/2009 24.9 
1/30/2009 4/30/2009 99.4
2/2/2009 5/4/2009 99.4
2/3/2009 5/4/2009 99.4
2/4/2009 5/5/2009 99.4
2/5/2009 5/6/2009 49.7 
2/6/2009 5/7/2009 9.9
2/9/2009 5/11/2009 99.4
2/10/2009 5/11/2009 99.4
2/11/2009 5/12/2009 99.4

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Comments
Raymond Fulton -Harley Davidson 2007 Sportster  January 19, 2011 08:45 AM
Today I wrote my 4th letter to HD regarding my defective flawed machine. They dont even answer letters anymore. Just remember- they make crap, and try to make you pay for their trash. Had the warranty
and it fried its wiring harness at 2700 miles, did not want to cover it. No Fun!
Stan -RE:Blackthistle  December 15, 2010 02:03 PM
I think no one could say it better....thanks
Shawn -Bailout  December 11, 2010 02:24 PM
By the way, this is part of the first Bailout from Bush. I like how they re-worded the term to "government loan program." So, all of those who opposed the bailouts, now oppose HD.
Shawn -Free Bikes  December 11, 2010 02:22 PM
It is time we get our free bikes.
Dude -if milwankee mike  December 9, 2010 06:20 AM
would just buy more HD panties and toilet seats they wouldn't have to ask taxpayers to bail them out. Maybe the should of asked the Chinese since that is where all their aftermarket parts and clothing is made.
Blackthistle -Bull Doo !  December 8, 2010 12:45 AM
H.D. has sold more large displacement,high priced motorcycles in N. America in the last two decades then any other M.C. company . Their clothing/trinket line sells more product than the big four Jap, Man, put together. Victory isn't crying for a handout !!! Piss the profits away and blame a bad year on the cost of labour ! In the past private companies saved for rainy days, today what the corporate oinkers don't pilfer at year end the share holders vacuum up ! I for one don't shed tears for this arrogant company, they've had the most loyal workers/customers that any company could ever dreamed of but the porkers jowls are over stuffed and they want the tax payers to buy desert .
Nick -As a taxpayer  December 6, 2010 10:19 PM
I feel I am entitled to a black T-shirt.
Roughcut -fed up  December 6, 2010 11:37 AM
The point is Harleys finance arm was doing the same thing the home lenders were. Making knowingly bad loans hoping the econemy could absorb the loses. I worked for a competeing dealership and saw first hand buyers get refused by my banks and lenders and walk right to Harleys door and get a loan on a more expensive bike. That is my outrage,
FZ6TODD -HARLEY SATURATION  December 5, 2010 02:55 PM
WHAT A PIECE OF WORK, NOW I CAN LUMP HARDLYABLESON IN WITH GM THE BIG UNION BAILOUT! OF 2010 YOUR TAX DOLLARS HARD AT WORK. WE GET TRAILERS FULL OF REPOS FROM HARLEY AT THE DEALERS AUCTION, SOAK THE AMERICAN PEOPLE LONG ENOUGH AND IT WILL COME BACK TO BITE YA IN A DOWN ECONOMY
robert mcallister -dt-175  December 5, 2010 10:36 AM
i sure hope wandell gets his income tax break too. think of the JOBS that he will create...
Maxx -Again  December 5, 2010 09:44 AM
First you read how HD is moving their assembly plant to India and now the need a loan to take jobs from american. Japanese manufactures had a simple fix for this 30yrs ago; build a quality, updated product, sell it, make a profit and not have to worry about getting tax breaks or assistant from the government. If you build a quality product and don't overprice it, people will buy it (SIMPLE).
GB -can you say  December 4, 2010 10:25 AM
Dinosaur
wildpig -thatd be mr wildpig to you  December 3, 2010 05:37 PM
well well well,, all the nonsense an yall still aint blaming the one that started ever bit of this bs--- that'd be little george bush--remember? the lil flunkie that started to wars an left em un finished an the one who left office as one o the biggest loosers in american history? the one who gave wall street 987 billion bux-- bush and his ilk are ver ver ver dangerous people......................
Analyst Biker Dude -Thanks...go here for an education  December 3, 2010 09:36 AM
http://investor.harley-davidson.com/releases.cfm#Calls

http://files.shareholder.com/downloads/HDI/1085159915x0x410531/9bbb393d-3b23-4a11-87cd-5c490c78616f/HOG_Slides_Q3_2010.pdf

HDFS is making money. H-D is making money. They are gaining market share and momentum in an industry that is struggling.

The proposed plant in India is CKD (complete knock down). That means bikes and engines made here in the U.S. are shipped partially assembled and finally put together in India to beat the 60+% tariff. By beating the tariff they can sell more bikes in India (which are essentially made here). That means more jobs and money here.
TG -Analyst Biker Dude has a point  December 3, 2010 09:13 AM
Analyst, you have a point that the loans have been paid back with interest; and, if anything, the Fed made money on the interest. However, I still find the HDFS losses staggering. How can a lending institution lose that much in that little time? Do they even have underwriters? Sub-prime mortgages have already shown their effects, why would a lender engage in the same practices with a product that depreciates? Heavily. I can see HDFS in the future as the straw that broke the horses back.
Ryno -HD Loans  December 3, 2010 08:19 AM
BaldKnob has it on this one, the anger is using gov't loans to build plants outside the US....They should ask India for the money...
Ben T. -bail out = band-aid, take over = cure?  December 3, 2010 07:35 AM
I can understand the anger around this news but personally after seeing GM turn it's self around after firing it's management, cutting the fat from it's line, and focusing on making a better product I think the best thing for Harley at this point may be a scenario where the government buys a majority of the company and makes the changes necessary to make HD a self sustaining company again.
Analyst Biker Dude -Some guys should stick to bikes, or learn to read  December 3, 2010 07:27 AM
You knuckleheads should learn to read. These are short term loans that have been or will be paid back to the Fed by H-D, with interest. It's not a bail out. It was a smart move by the Fed to help all kinds of businesses continue to operate when cash was scarce in the system.

Harley is fine. Read their annual and quarterly reports. Sales are sluggish for everyone in this business, but they continue to gain market share in the U.S. and are growing international sales.
Marcus -My taxes are paying for what!?  December 3, 2010 06:55 AM
Well seeing as how my taxes are going to help bail Harley out of the hole again if I decided to buy one will I at least get a rebate if I show the dealer my tax returns?
Mike in WV -Milwaukee Mike????  December 3, 2010 06:18 AM
Just where is Milwaukee Mike to tell everyone that everything will be ok?...That HD builds the best bikes on the planet and all metrics should bow down in respect? Well...not to beat a dead horse, butI would expect an entire restructuring of HD in order to pay off their huge debt...if that's even possible. I would say that they will try to increase oversea's production (at lower costs) in order to increase world wide sales...bikes made cheaper, but sold at a premium to increase profit. I always think it's interesting when a company that owes billions to other people can say that they made a profit. To me, that's like borrowing a million dollars, calling yourself a millionaire, living large while you can, then defaulting on your loan and filing Chapter 11. Things still look bleak for HD...and no, I'm not gloating. I would love to see HD increase their product quality and technology and sell their bikes for their real value. HD is at a critical juncture...the next year or two will determine if they last or go the way of AMF again...I'm sure someone else would step in and buy the trade name. Just food for thought.
Biker Bob -A more balanced view for the peanut gallery...  December 3, 2010 03:24 AM
Why McDonald's, Harley Davidson & Verizon Borrowed Money From The Fed
NPR's "Planet Money" blog
December 1, 2010

The Fed delivered a huge data dump today, revealing information about the boatload of loans it made during and after the financial crisis.

As expected, the data showed that the Fed loaned trillions of dollars to banks and other financial companies during the crisis. (The Fed says it hasn't lost any money on the loans, and the emergency lending programs are winding down.)

But the data also showed smaller loans to some companies that aren't usually associated with the workings of the Fed; companies like McDonald's, Harley Davidson, Verizon and Toyota.

These companies used an emergency program the Fed set up to keep a key financial market going in the teeth of the crisis - commercial paper.

The commercial paper market is basically like a credit card for giant companies in every major industry; it's something they use every day to borrow money that they plan to pay back very soon.

During the crisis, when people were afraid that Wall Street would collapse, the commercial paper market basically shut down.

Back in 2008, we talked about this with Mark Peterson, CFO of ServiceMaster, a company in Memphis that owns, among other things, Terminix pest control, Merry Maids and a lawn care business.

In a conversation with Alex Blumberg and Adam Davidson, Peterson described the normal workings of the commercial paper market:

It's been a relatively boring business. Your commercial paper desks, in many companies, it could be somebody down at almost a clerical level calling every single day to Merrill Lynch and saying, "I need to borrow 50 million. At what rate can I borrow at?" Post that rate and let's get it done byeleven o'clock in the morning. The Merrill Lynch sales people go off and sell the commercial paper to money market funds and trust departments and investors all across the world. They confirm that the money has been funded into the clerk's account, and then the clerk turns it over to the treasurer and says, "Your 50 million is here." By eleven o'clock in the morning.

And here, according to Peterson, is what it felt like when that huge, boring market suddenly froze up:

Ah, I don't know, for those of you who have experienced an earthquake? You know some people say it's a soul wrenching experience. Because you realize there's a power out there that's doing something that you have no control over whatsoever. And it's massively moving everything. And that's last week. Last week there was a monster that was unleashed.

Today's Fed data dump was mandated by Dodd-Frank, the big finance bill Congress passed earlier this year. For more, see coverage from the NYT (which includes a description of the commercial paper program) and the WSJ, which details borrowing by banks.

The Fed's commercial paper program shut down earlier this year, by the way.

J Randall -Remember the Tariff  December 2, 2010 09:44 PM
Same old BS! Who can recall the tariff the Government put on the metric bikes in the 80's? Any metric bike over 750cc was penalized with a tariff tax. Thanks to a so called American company who did not want to produce a decent product! Thanks WILLIE For Sticking it to us again!!!!!!!
You're rihgt Jaimeb -of course...but  December 2, 2010 08:44 PM
Of course HD won't be paying Buffett's "investment" back....but for those situations that's what the taxpayer is for.... Buffett is in cahoots with the gov't to do their smoke and mirrors for the promise of crooked profits....
snail -15%!!!!  December 2, 2010 07:42 PM
I cannot even get over 2% interest on my CD, I should have loaned my money to HD.
Cyrax -H-D Loans  December 2, 2010 05:51 PM
If Harley Davidson were to build quality bikes instead of the junk they have been producing since 2003, They wouldn't be in this mess. They made a good bike in the 09 models however, they didn't let the dealers get rid of the 08's before they launched the 09 models. Then of all things they jacked up the 2010 models going with a 1 pipe exhaust systems trying to sell that junk to the public for a price increase. They wouldn't listen to customers who wanted a better product instead of the same designs and styling. Along came Victory who gave customers six speeds,heated seats and grips and now Harley Davidson wants to give those same features to customers at a hefty price. Then of all things they launch the 2011 models with wimpy colors and the same 96 Ci engine and have the nerve to offer a power pak for $2000.00 more and a whopping 65hp. Get real Harley Davidson...Look at your competition today and wake up or should I say catch up....What an American disappointment..
BaldKnob -Yeah stimulus  December 2, 2010 05:48 PM
More amazing every day! Giving taxpayer money to rich corporations so they can, in turn, build plants in India to sub out work for the Wisconson's that just got hosed. Nice job HinduDavidson.
Jaimeb -H-D Loans  December 2, 2010 05:27 PM
Something is wrong here. Obviously there are more loses here than the HDFS $143MM loss, as Warren Buffet's $300MM capital injection would have covered twice that amount.

Paying back $2.3B + 15% interest is very difficult in this economy. Either most of it is sitting in the bank as cushion or, if not, I fear H-D won't be able to pay this back - much less by 2014.

Maybe Harleys will go for half price in 2015.