harley davidson financial service
Harley-Davidson was highly profitable, had one of the worldâ€s most valuable brands, and by the end of 2008 had repurchased $4.7 billion of its common stock. Harley-Davidson Financial Services made low-risk loans to Harley retail customers and then sold those receivables to Harley-Davidson Motorcycle Trust. The Motorcycle Trust sold notes backed by the motorcycle receivables to institutional investors. Harley-Davidsonâ€
s highly loyal customers rarely defaulted, so the Motorcycle Trust sold notes equal to about 93-96% of the face value of the receivables collateralizing the notes.
The subprime securitization market collapsed in late 2007 and entire securitization market effectively closed in the second quarter of 2008. From then through June 30, 2009, the Motorcycle Trust was unable to sell notes backed by Harley-Davidson receivables. As a result, “Finance receivables held for sale†increased from $781 million on December 31, 2008, to $2.444 billion on December 31, 2009. To finance those receivables, Harley-Davidson increased its debt by over $2 billion.
Harley-Davidsonâ€s pension and retiree health care funds also suffered major losses. Possibly because of Harleyâ€
s weaker financial condition, its reserve accounts for items such as receivables and warranties seemed far less conservative at the end of 2008 than at the end of 2007.
Does Harley-Davidson have adequate allowance/reserve balances in : (a) warranty and safety recall liability; (b) accounts receivable; (c) finance receivables held for investment; (d) finance receivables held for sale, and (e) inventories? Are these balances more or less adequate than in the past? Explain in a paragraph.
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