Harley’s secret $2.3 billion taxpayer bailout

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Harley-Secret-Bailout

According to a new disclosure by the Federal Reserve, Harley-Davidson was given a previously secret $2.3 billion bailout during the fall of 2008 and winter of 2009. We’ve previously reported that Harley borrowed nearly $1 billion in emergency operating capital from Warren Buffett at 15 percent interest during the same period and has since upped that amount to nearly $2 billion from other lenders. The disclosure of this emergency aid by the Fed gives a new indication as to just how close Harley was to the brink during the darkest days of the financial crisis and a new indication of how much American taxpayers spent to keep it open.

Photo: Harley-Davidson Archives, Copyright Harley-Davidson

The bailout provided to Harley is just a drop in the bucket of $9 trillion total emergency aid just disclosed by the fed, other recipients include everyone from the usual Wall Street suspects to McDonald’s, foreign banks and even the South Korean government.

“The American people are finally learning the incredible and jaw-dropping details of the Fed’s multitrillion-dollar bailout of Wall Street and corporate America,” stated Senator Bernard Sanders (I, Vt). “As a result of this disclosure, other members of Congress and I will be taking a very extensive look at all aspects of how the Federal Reserve functions.”

The aid took the form of the Fed purchasing large amounts of commercial paper at non-market rates in order to fund the daily activities of these corporations and organizations. Between October, 2008 and February, 2009, the Fed bought paper from Harley-Davidson 33 times for a total of $2.3 billion.

“It is hard to say what would have happened without the facility, and how its absence might have affected GE, but overall the program was extremely effective in helping stabilize the market,” a GE spokesperson told The Washington Post. GE took $16 billion in aid under this program.

“We took an enormous amount of risk with the people’s money,” the president of the Dallas Federal Reserve told The Post. “We didn’t lose a dime, and in fact we made money on every one of them.”

Senator Sanders suggests the corporations that received this aid got off easy for irresponsible financial practices and that loaning them the money hasn’t altered their practices or even created jobs. “We bailed these guys out, but the requirements placed upon them had very little positive impact on the needs of ordinary Americans,” said the Senator.

Harley-Davidson’s net income fell from a record $1,043,153 in 2006 to a $55,116 loss in 2009. During the same time period, total motorcycle shipments fell from 349,196 to 223,023. That drop in sales isn’t enough to explain why Harley needed $2.3 billion from the federal government, instead, it seems as if the company’s exposure to bad debt by Harley-Davidson Financial Services is really what led to the company’s apparent near-death.

Harley has not yet responded to our request for comment.

Sources: The Washington Post, The Federal Reserve via The Kneeslider

  • ike6116

    My buddy and I were talking the other day… if somebody gets a tax credit for buying a Prius shouldn’t I get a tax credit for buying a new motorcycle? Most bikes slay the prius in fuel efficiency. LETS GET SOLUTIONS ORIENTED FUCK FACES! (sorry)

    • Ducky

      Not all bikes. Some sports bike offer mid-30′s fuel economy, and are nowhere as clean emissions-wise as the Prius.

  • http://www.tripleclamp.net Sasha Pave

    It’s a shame that HD was mismanaged to this extent. The growth they enjoyed in the 90′s should have been met with responsible retraction when sales began to plummet.

    But why scale-down responsibly when you can drive the company towards the brink, then simply put out your hand for a bailout?

    I respect that HD is an American icon that deserves its continued place in motorcycling, but let’s hope this time they learned their lesson.

  • robotribe

    I was at the Reagan Presidential Library a few months ago to check out the motorcycle exhibit they had, and they weren’t shy to tell this story you’re featuring here. Then again, they didn’t word it as a “bail out” (of course!).

    Personally, I don’t have a problem with it; every nation inevitably protects their own industries at some point; Japan always has, and still continues to do so, the EU nations aren’t innocent of it either. What I do find funny is the idea that some HD owners today are waving the Tea Bagger flag protesting such practices. This I know to be true since I work a few vocal HD owners who fit this profile.

    Thanks for the comedy, hypocrites!

  • http://www.thisblueheaven.com Mark D

    Bail them out, and let them close down Buell? Goddamn, they get you coming and going, don’t they?

  • Ben

    Perspective:
    Harley Two Billion Dollar bailout= $6.70 Per person in the US.
    Total Nine Trillion bailout bailout=$30,000 per person in the US.

    • http://hellforleathermagazine.com Grant Ray

      OH, what we gave Harley is clearly a drop compared to AIG and the Bank of Scotland.

    • noone1569

      I want my god damn $6.70 back. I could buy a foot long and a drink for that. Better value than a harley.

  • Ray

    The Reagan and Vaughn Beals photo was from 1986 or 7, when Harley requested the fed government lift its 700cc+ protective tariff on Japanese manufacturers of heavyweight motorcycles, whom H-D claimed were dumping motorcycles on the US market below manufacturing cost. What does this photo have to do with the article, and shouldn’t it be captioned to clarify?

    H-D as corporate welfare mother? Are you against subsidies for motorcycle manufacturers vs. GM, Chrysler, etc, who are much bigger suckers historically at the federal teat? Would you rather there wasn’t a US motorcycle industry, and are they so odious that the most popular motorcycle brand in the US shouldn’t exist at all?

    • http://hellforleathermagazine.com Wes Siler

      Well, Reagan’s long dead so I’m sure people won’t take it as a sign of a secret deal with him.

      We’re not at all opposed to subsidies or emergency federal aid for motorcycle makers or other companies. We do, however, question the wisdom of handing over money with no strings attached to businesses with a record of irresponsible, predatory business practices.

      Were you aware that HDFS was making sub-prime loans?

      http://www.businessweek.com/magazine/content/08_43/b4105054873100.htm

      Why isn’t Harley innovating and creating a future for the American motorcycle industry rather than simply selling tired old bikes to tired old men that can’t afford them?

      Why isn’t Harley using some of the money it earns to participate in the Green debate and emphasize the inherent advantages of motorcycles as transportation?

      We’d love to see a healthy American motorcycle industry and we’d love to see the government help create one, but we’re not going to treat Harley with kid gloves just because they’re our only major manufacturer.

      • DAVID

        cut us tired old men some slack! ok, i have a triumph not a harley and i could afford it, but still…

  • slowtire

    C’mon……
    These loans were made to numerous companies including Cat, Toyota, McD’s and others mainly beause during this period banks were refusing to extend credit because of the problems they were having! Did we want all of these companies to fail? It happened in the car, truck, RV and boat industries as well.

    • http://worldof2.com/ jpenney

      Last I looked this isn’t a car, truck, boat, RV, or industrial equipment site.

      Harley needs a swift kick. They had a great, cutting edge division that they nuked to focus on the same old crap that drove them to need a multi-billion bailout. That’s LAME.

      They have the potential to really push motorcycling in the U.S. forward but they screw that at every turn to focus on fashion boutiques and the same 4 motorcycles they’ve been selling for decades.

      Compare HD to Triumph. Triumph is able to maintain their “heritage” while keeping prices in check, quality up, and (very important) hitting different market segments. They even do a great job on selling the clothing and “image”.

      • slowtire

        “Last I looked this isn’t a car, truck, boat, RV, or industrial equipment site.”

        Hey, no kidding. It was simply a statement of fact. The shortage of available financing hit all of these industries.

  • bluemoco

    I think it’s important to realize that in most cases these bailouts weren’t GIFTS to the any of the companies. They were short-term loans that were (according to the Fed’s spreadsheet) paid back by Harley in 90 days. The head of the Dallas Federal Reserve bank even said of these loans: “we didn’t lose a dime, and in fact we made money on every one of them.”

    The Fed made these LOANS because the banks weren’t liquid enough to do that. The Federal Reserve bank functions as a lender-of-last-resort when banks (like Citi, etc.) simply can’t do it. This is not ‘corporate welfare’ – this is the U.S.’ largest lender making a huge volume of short-term loans.

    Instead of berating the Fed, we should be thanking Ben B. & Co. for not allowing the world’s financial markets to collapse. If the Federal Reserve had stayed on the sidelines, we’d have been well and truly f***ed. Period.

    This whole Fed deal reminds me of Kevin Kline’s character ‘Otto’ in “A Fish Called Wanda”: “Well, would you like to know what you’d be without us, the good ol’ U.S. of A. to protect you? I’ll tell you. The smallest fucking province in the Russian Empire, that’s what! So don’t call me stupid, lady. Just thank me.”

    • http://www.thisblueheaven.com Mark D

      Agreed. I’m not normally a rah-rah free market guy, but the only people in the world who could run HD worse than the current management is the Fed. Attaching strings to the loans just wasn’t feasible time-wise, or a wise thing to do in general.

  • slowtire

    The Bank Of Japan was one of the biggest foriegn recipients of these loans. I wonder how many of the big 4 do business with them.

  • slowtire

    “Why isn’t Harley innovating and creating a future for the American motorcycle industry rather than simply selling tired old bikes to tired old men that can’t afford them?”

    You know Wes, I know you hate HD, but comments like this are really shitty. I expected more when I plopped down my $24.

    • http://hellforleathermagazine.com Wes Siler

      How is it shitty? I want HD to be a strong, productive company. Discussing why it currently isn’t is the first step in that process.

      I don’t hate HD at all, I just don’t see a company we, as a nation, should be proud of.

      • slowtire

        You want them to innovate and create a future fortheAamerican motorcycle industry. Is that your vision of a future? Maybe it’s not theirs! Anyway, I’m one of those old men, not tired, but getting older. A lot of us can afford them, and others as well. I bet most bike manufacturers are damn glad we can.

        • ike6116

          You aren’t the future of the motorcycle industry. They have you. If they keep selling toys that are fashionable only to older people then they are doomed. It’s the equivalent to manufacturing payphones as if it were still the 70′s, “this will work, it’s worked for years!”

          Older riders are going to die and when they do the demand for the bikes they like (the only bikes harley sells) vanishes.

          And it’s not even older rider’s deaths they have to worry about but other bike manufacturers like Honda selling a better version of their product for less money.

          Harley Davidson is the Motorcycle Industry equivalent of the Cincinnati Bengals a lot of talk, a lot of image, not a lot of performance.

          • slowtire

            “If they keep selling toys that are fashionable only to older people then they are doomed.”

            Does this mean we’re going to be running out of older people soon?

            • Richard

              Yes, it does.

      • http://www.facebook.com/beastincarnate BeastIncarnate

        The remark isn’t just a shot at HD, it’s a shot at riders. At least, that’s how it comes off. My interpretation could be shitty. I’m not sure what to blame, but I definitely smell something shitty.

        • slowtire

          Well, since I’m a tired old man, maybe I should check my diaper.
          In all honesty, I certainly can understand Wes’ frustration. I would like to see a more diverse and healthy US motorcycle industry in the future too, but i don’t think it’s neccessarily going to come from HD.

        • http://hellforleathermagazine.com Wes Siler

          Well, from the guy that made the remark: it’s not meant to be shitty.

          HD’s customers are aging out of riding, they currently have no ability to find a similarly large audience in a different demographic. Thus, I can see a dark future in my crystal ball unless they, wait for it…..INNOVATE!!

          How about we spend less time scouring every word for a potential insult and instead focus on discussing matters of substance.

          • http://www.facebook.com/beastincarnate BeastIncarnate

            You’re right, Wes. Just in a shitty way.

            HD’s strategy and management is clearly more shitty. The future outlook for HD, sans drastic change, is really shitty. And looking for insults is exceptionally shitty. The word shitty, however, makes my day.

            It’d be shocking to see Harley add an entry to the expanding 250cc list, woudln’t it? Especially one more along the lines of the CCW Misfit than a baby Sportster.

            • ike6116

              Buell Blast v2.0?

            • http://www.thisblueheaven.com Mark D

              “You’re right, Wes. Just in a shitty way.” – That’s kind of his M.O.

              Word on the street is HD is looking to stuff the old Buell Blast 500cc thumper in a learner-friendly bike. Could be cool.

            • slowtire

              “And looking for insults is exceptionally shitty. The word shitty, however, makes my day.”

              Wasn’t looking for the insult, I just took it as one! Glad I made your day.

              • http://www.facebook.com/beastincarnate BeastIncarnate

                You did! Thank you.

  • slowtire

    “I can see a dark future in my crystal ball unless they, wait for it…..INNOVATE!!”

    You are 100% right. I’m just not sure they will. And that’s their choice, which they will live or die with. I think a bigger problem is for potential start up companies. It’s so f’n hard to get something going in this country (US) because of the costs involved, over regulation, labor issues and of course, politics.
    We don’t lack people with great ideas. I think it has gotten so cost prohibitive, guys are simply forced to give up. Look at Buell. Here is a guy that has the ideas and the know-how. Where are the venture capitalists? Where are the guys with the interest and the money? Was HD his best shot? Originally, yes. It didn’t work for HD, for whatever reasons. Maybe it’s just too big of a crapshoot. When you have 7 or 8 foreign companies pouring good bikes into the country, how do you break into that?

    • http://www.facebook.com/beastincarnate BeastIncarnate

      “It didn’t work for HD, for whatever reasons. Maybe it’s just too big of a crapshoot. When you have 7 or 8 foreign companies pouring good bikes into the country, how do you break into that?”

      Buell was different and many people wanted them to succeed, though there were too many compromises and setbacks to gain much traction. Here are some things HD could have done:

      - Embrace Buell customers.

      - Embrace Buell service.

      - Employ staff knowledgeable about Buell.

      - Don’t hijack projects to be used for a totally different purpose where they’re less likely to succeed. (See: Evolution engine)

      - Don’t arbitrarily kill Buell.

      Just a few ideas. HD would be wise to resurrect the beast, but I can’t help but think they’d have to make tremendous concessions to get Erik anywhere near them. Maybe they could just sell off the patents or release them as a gesture of goodwill. (Ha.)

      • slowtire

        “Just a few ideas. HD would be wise to resurrect the beast, but I can’t help but think they’d have to make tremendous concessions to get Erik anywhere near them.”

        Don’t think that will ever happen. But I’m not just talking about Buell either. There are a lot of good ideas and people out there. I know this has been said before, but where is Polaris? Not just in regard to Buell, but anybody. They have the drive and the resources to make something happen in regard to bringing a bona fide American sportbike to market. It seems to me to be the perfect fit. But how do you break in among all of the competition? I get the feeling it would be nearly impossible because of the huge cash outlay that it would take. I don’t see any public company doing that at the moment. You’d be creating something that never really existed before. They would have to come out the gate with something that couldn’t be dismissed, and that’ll take tens of millions, if not hundreds. Expecting HD to make something like that happen, I think you are going to be disappointed. Honestly, at this point I’m not sure they could pull it off if they wanted to.

  • http://www.davidfolch.com david folch

    So in one sentence, when american people pay premium for a HD (no I didn’t say a piece of crap) they -in fact- paid it twice…
    smart…

  • Richard

    It frightens me that this country continues to reward failure.

  • scott

    HD should be keeping an eye on the Ducati Diavel cos current young uns are going to be much more likely to buy something like that over any of the tractors they insist on producing.

    As my Dad says – why pay tomorrow’s prices for yesterday’s technology?

  • Ian

    Looking at the original story, Harley did pay back the money. But will they learn their lesson and diversify and innovate?

    I hope Buell pulls an Apple and drinks HD’s milkshake.

    • http://hellforleathermagazine.com Wes Siler

      That’s also in my article above. Every company that was a recipient of this program paid back the money with interest.

      • Ian

        Are you referring to the line:
        “We didn’t lose a dime, and in fact we made money on every one of them.”

        I can understand giving the story an anti-Harley slant, but it’s not really giving good balance to all the facts. You’ve got a good blog here and I’m happy to pay my subscription because it speaks to me. But I’d hate to tell people that Harley got a bailout and someone who has the facts makes me look like an uneducated asshole hater.

        I may be an asshole and a hater, but I’d like to have my facts straight.

        • http://hellforleathermagazine.com Wes Siler

          I think we were very balanced, we presented views from both sides and drew no opinions of our own.

          The spin is that this was totally routine, nothing to see here, hey look over here, Julian Assange! But look at it this way:

          Unlike the much criticized GM bailout, these were secret, came with no strings attached and didn’t result in the companies altering the way they do business. Like the GM bailout, the government is actually making money off it.

          I really didn’t want to take an anti-Harley slant, just figured I’d have fun throwing Tea Party politics back in their faces.

  • Ducky

    Unfortunately, it’s not really a bailout more than a short term loan. It is nice to make fun of HD once in a while (I have about 7 different Harley jokes running in my head right now), but not at the expense of facts and perspective (i.e. many other companies, from McDonald’s to Toyota, had to take loans too, at interest, that they have to pay back).

    This is the US government actually doing good things with their tax dollars!

  • Core

    After reading all of these comments, and the article…

    You know this rabbit hole goes so deep I think it reaches hell and then some figuratively speaking.

    I really wish that I knew the depth and scope of all of these deals that our government makes with other countries and banks. Because I am just curious how big this pile of crap is going to be when it all hits the fan, and it will. Well were kind of experiencing some of it now. (“Housing Crisis”)