Harley-Davidson's Rosy Earnings: A Sign of the Class Divide?
Something strange is going on with the economy, aside from the theatrics in Washington over raising the debt ceiling. Persistent high unemployment is creating a class rift, with people who rode out the recession able to spend, while the Have-Nots struggle to stay afloat. Need an indicator? How about Harley-Davidson (HOG)?
Two Americas
Harleys are not cheap bikes: You're talking eight grand for the entry level Sportster, on up to more than $30,000 for larger more tricked-out models. Additionally, they tend to appeal to a starkly divided market: Loyalists who would never ride anything else, but who might not be in possession of princely wealth; and monied poseurs who like to shed the banker pinstripes for black leather and saddle up on a hulking mass of rumbling chrome.
But it turns out that the Milwaukee company is also a harbinger of class warfare. This is from Mercenary Trader, via Business Insider:
In today's market, there is an increasing difference between the "have's and the have-not's." For individuals who are lucky (or prepared) enough to have stable employment in high-demand areas, the environment is just fine. But for those who are struggling with unemployment (or underemployment), negative housing equity, and tapped out savings accounts, the picture is much different.Chalk up Harley's suddenly very positive sales and optimistic forecasts to a select group of affluent consumers. They have overcome their Great Recession anxiety and realize that it's not just safe to spend again, but desirable, given the good deals they can command with cash or un-savaged credit scores in hand....Shoppers who are worried about their jobs are a much tougher sell than shoppers who are confident that their income will keep rolling in.
Not going to change any time soon
The U.S. economy isn't generating enough growth to drive unemployment down. The jobless tally might not get any worse, but if it stabilizes at the current level -- just north of 9 percent -- the unemployed and under-employed can look forward to scrimping to buy the necessities while they also watch the wealthy spend at pre-2008 levels.
To the victors go the Harleys, in other words.
This is not a knock on Harley-Davidson, however. Its revival is one of the great success stories in U.S. manufacturing. But there are indications that highly discretionary spending isn't limited to loud motorcycles. Auto industry analytics firm TrueCar.com fired off the following today, as the July sales figures began to roll in:
"Despite continued weakness in the economy and the ongoing concern over the debt ceiling, consumers continued to purchase vehicles packed with options in July," said Jesse Toprak, VP of Industry Trends and Insights.... "Tightened inventories, lower dealer discounting and manufacturer incentives, along with a more expensive product mix resulted in the highest transaction prices we have recorded in the industry."Cars with Extras Are Selling Again
This is obviously good news for the auto industry, which can book nice profits on all those expensive extras. It's also good news for Harley. And in the end, if the earnings that ensue are reinvested, then it may even become a growth driver.
Viewed this way, as more affluent consumers spend money more freely, a certain amount of wealth is redeployed to productive uses, which should, in turn, generate growth.
I wouldn't call this trickle-down economics, but rather the market trying to fix itself. Because eventually the "extravagant" spending will have to backed up by more mundane stuff, if we're to avoid another deep recessionary dip. Simply put, high-end retail needs to carry the mass-market for a while.
In Harley's case, it's an example of the invisible hand -- on the throttle.
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