Fresh off of the news from two days ago, where the Harley-Davidson Board of Directors settled the power-grab by investment group Impala Asset Management, we now see the first fruits of that agreement taking shape.
Taking decisive measures, fueled by the fallout from the coronavirus epidemic, the Harley-Davidson Board of Directors held an emergency voting session on Tuesday night, which saw the group lay out a massive restructuring plan the Bar & Shield brand.
Today’s headline is all about Moody’s upgrading Piaggio’s credit rating to “Ba3” – up from its previous “B1” rating.
I understand that financial credit rating systems aren’t exactly your typical fare on a motorcycle news site, so stay with me here for a minute.
The basic gist is that moving from a B1 rating to a Ba3 rating takes Piaggio beyond the threshold of being “highly speculative” investment opportunity to “non-investment grade” business in the eyes of investors.
The future of MV Agusta has hinged on a crucial court decision for the past five months now – one that would allow the Italian motorcycle brand to restructure its debt, thus reducing its financial liabilities and freeing up a greater portion of its cash flow for continued production.
News comes today from Varese, Italy that a local court has approved MV Agusta’s new business plan, and allowed the motorcycle manufacturer to restructure its debts with creditors and suppliers.
This is positive news for MV Agusta, and it sets in motion a number of possibilities for the Italian brand, namely closing its investment deal with Black Ocean, an Anglo-Russian private equity firm.
In my last A&R Pro article, I argued that the recently debuted and updated Honda Rebel was the most important new motorcycle that we have seen thus far for the 2017 model year.
That is a bold statement, as many pointed out, especially when you consider the bevy of intriguing new models that were unveiled at the various industry trade shows this year, and also considering the lack-luster product the outgoing Honda Rebel 250 proved to be for many.
In that story, the bulk of my argument was that motorcycling needs an affordable gateway for young and new riders to come into the industry, and with cruisers accounting for over half of the new motorcycles sold in the United States, having cruiser-styled entry models is a shrewd move by Honda.
There is more to that argument though, which I want to touch upon today. It concerns the growing divide of motorcycle buyers, and how their access to capital greatly affects the motorcycles they can, and do, purchase.
American motorcycles sales fall almost entirely under what is called consumer discretionary income, and when it comes to how we spend our hard-earned money, there are two ways we do so: with cash and with credit.
That is the fairly obvious part of this argument, but this is an important concept for us as enthusiasts and consumers to understand, as it allows us to make better sense of the strategies behind the new models we see from manufacturers. It also allows us to peer into the future of the motorcycle industry.
MV Agusta as a motorcycle company has always seemed to have feet of clay, especially when its financial future is concerned. Today is no different, as MV Agusta has announced its intentions to restructure its debt, in order to keep the company afloat.
Afloat is an interesting phrase, as the storied Italian brand has changed hands four times in the past 12 years, with two of those purchase prices being a token euro, as MV Agusta’s liabilities far outstripped the company’s assets and holdings.
Fast-forward in time and it would be easy to say that not much has changed, as MV Agusta now has €40 million in liabilities on its balance sheet, all non-essential staff have been furloughed, the production lines in Varese recently have been motionless.
While this seems like more of the same from MV Agusta, the situation is far more complex, and for once in its lifetime, it isn’t MV Agusta’s lack of sales that are to blame. In fact, it’s the opposite, as it is MV Agusta’s success in growing its motorcycles that is the cause of its current financial situation.
That might seem like a counterintuitive notion, but if you understand the relationships between chickens, eggs, and which came first, then you will understand the situation at hand here with MV Agusta.
And while this impasse isn’t a new one in the business world, it doesn’t change the fact that the future of MV Agusta is in a precarious state.
All is not well regarding the new MV Agusta F3, several sources have now told Asphalt & Rubber. Teasing the F3 motorcycle for almost two years now, the three-cylinder supersport has been on the radar of two-wheeled enthusiasts since well before its 2010 debut at the EICMA show. While the latest creation from Varese is undisputedly a stunner, and promises some more than peppy performance and features, eyebrows within the industry were raised with its very pre-mature debut in Milan, and its accompanying lack of any real concrete technical specifications.
With products traditionally launched at the November EICMA show going on sale immediately the next model year, MV Agusta made a shocking announcement in 2010 that the F3 would be a 2012 model. Obviously launched with the intention of generating immediate buzz about the newly re-acquired MV Agusta brand, and its goal of becoming a larger volume producer (and actually a profitable company for a change), the F3 and its progeny like the MV Agusta Brutale B3 are supposed to usher in a new era for the Italian brand.
Apparently teased early to help prove demand for MV’s new product offering, this new ethos unfortunately has apparently done little to sway creditors and investors on the viabiliy of the brand, especially since the names associated with driving MV Agusta into the ground are still associted with the decidedly not-so-new regime. Though the Castiglionis were able to negotiate a stellar deal with Harley-Davidson regarding the purchase of MV Agusta (they bought the company for one euro, and got an operating cash flow of 20 million in the bank), according to our sources that are close to MV, the Italian company has had a hard time raising additional working capital, and has also found negotiations with parts suppliers to be difficult, with the outside firms demanding to be paid up-front for their wares.
The New York Times ran a great article this week about the challenges facing Harley-Davidson, both from the current economic depression, and more generally as the quintessential Harley rider gets older in age.
In summation, Harley-Davidson dealers around the US and overseas are seeing sales drop dramatically as people scale back their expensive purchases, and as the access to credit becomes increasingly difficult.
There’s no real surprise there, and any hardcore fan will be quick to tell you that Harley will be back on top once this financial turmoil is over. However, looking farther down the road at Harley-Davidson’s long-term business position, there is additional trouble brewing as well.
Baby boomers account for the majority of Harley sales, and they are getting older. The NY times ends there with its commentary, but we think there’s more to the story on Harley-Davidson and the American bike market in general.
Honda Motorcycle’s COO, Tatsuhiro Oyama is forecasting that there will be worldwide industry drop in bike sales as the credit fiasco finally rears its ugly head in motorcycling. Like the car industry, the motorcycle industry helps move product by offering financing options and extending credit to the purchasers of their bikes. Typically these credit liabilities are flipped to third-party creditors, who handle the debt from there (all unbeknownst to us the consumer), but with the state of economy and the meltdown of the credit industry, many of these creditors are either no long amongst the living, or not taking on any more debt.
Oyama was credited as saying, “There’s been a bit of a lag, but credit is being squeezed. I think if we have flat sales next (business) year we’d be lucky,” adding that forecasts for this year might need adjusting too.
This news leaves companies like GMAC, and in this case Honda, in a lurch. Unable to swiftly exchange the credit liability, they have to be more cautious on who they extend money too. This means more credit refusals, and higher interest rates, which in turn means more people who can’t afford a motorcycle purchase.
At the end of the day, it is Honda and the other manufacturers (except perhaps Ducati) who are left holding the bag with excess product sitting on the showroom floor come December.
There is some good news. Oyama went on to say that the motorcycle business as a whole was holding up better than the car side. So no government bail outs…yet.
Source: visordown