Q2 2020 Harley-Davidson Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by welcome to the 2022nd quarter Earnings Conference call. At this time, all participants are any listen only mode [noise]. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Mr. Shannon Burns director of Investor Relations. Thank you. Please go ahead Sir.
Good morning, everyone.
So slide supporting this call and Investor got Harley Davidson Dotcom, but the earnings materials box in the center of hedge.
Comments will include forward looking statements that are subject to risks that could cause actual results to be materially different both risk include among other matters. We have noted that our latest earnings release filings with the FCC Harley Davidson disclaims any obligation to update information on this call.
Good morning, our CEO, you'll concise interim CFO sterile Thomas.
All Larry Han will also be joining for Q on it.
Okay, let's get started.
Thank you Shannon and Hello, everyone.
We continue to face challenges during these unprecedented times, but that's the reason why is implemented I'm very pleased with our accomplishments so fall.
Cobiz 19 continues to challenge I was personally and professionally.
Our dedicated work at every turn into a production lines and priorities keeping everyone safe.
We recognized that life and work will be fall from normal for as long as the virus poses a significant threat.
Recent events have also renewed our commitment to stand up putting passivity and the quality.
Through this new reality, our team has put together an extraordinary ways, making significant progress towards the goal is off to rely on our future success.
We are encouraged by the positive feedback from key stakeholders in the early impacts were already seeing in the marketplace.
Well I'd first like to provide an update on the ongoing action say response to cope with 19.
First and foremost the health well being and strength of our community continues to be at the port from.
We have diligently implemented I constantly fine tuning our protocol to keep work, it's safe to know factories.
We expect most nonproduction workers to continue working from home until the end of the year.
Second as I said last quarter, we are executing prudent cost saving measures and expect to deliver $250 million in cash savings excluding restructuring charges. This year.
Additionally, discretionary share repurchases continued to be suspended and we repaid Q3 cash dividend or two cents per se in line with old Q2 dividend.
Third we further strengthened our strong liquidity position with nearly $4.7 billion at the end of the quarter.
In Q2, we secured in addition to $3.3 billion of liquidity.
And finally throughout the second quarter, we provided significant helped to east the burden on dealer that riders by providing the support based of the you knew unique needs of each region, including financial support for motorcycle inventory extending certain cash payment due dates and adjusting requirements for warranty training.
Go ahead of our riders to also extended payment terms for those who liquid request to the systems.
At the end of the quarter about 93% of all global dealers way open for retail motorcycle says falling pent then put the damage interruptions.
Three months ago, I shared with you that significant changes where necessary.
Complexity needed to be dramatically reduced.
Goals set needed to be achievable realistic.
Our strategy I had to be refocused to better align with our capacity and capabilities and also our new reality focusing on what makes a difference and nothing else.
We also needed to reignite, the soul of Harley Davidson and strengthen our culture.
Based on the urgency of these realities, we defined areas for immediate attention and created the rewire playbook.
We set out to rewire, Harley Davidson from top to bottom.
Our implementation of significant changes has been swift and diligent which has led to progress on all our priorities.
First our new operating model and organizational structure is now a simpler more focused as will enable faster decision, making across the entire company.
Significant work has been done across all areas of our global business to eliminate duplication inefficiencies and complexity.
Who is taking a hard look at our priorities. The dollars, we are spending and how work at Harley Davidson, it's getting done.
To align our operating model and cost structure to the current realities of the business.
Setting us up for long term stability and success.
Every function region and country has rebuild its organization from the ground up to focus on what is essential and valuable.
We're simplifying into action interactions and processes scrutinizing spending categories large and small and eliminating activities that are not essential.
He has some examples.
We've created a new global commercial function accountable for sales and inventory management across all product lines regions and countries.
The marketing function has been this restructure to maximize our new messaging.
Building on our strong brands legacy, we would shift marketing plans to put the spotlight back on the brand heritage and great product.
On events that drive through conversion on investment that build desirability.
The first brand building approach will be shown in the social media campaign, directed but Jason will more celebrating the said journey, an unrelenting spirit of our Harley Davidson community. During these challenging times and strengthening the positivity and freedom, we all find in writing motorcycles.
Harley Davidson financial services, increasing operations support, especially stopping and collection capabilities and will improve consumer online processing support and better align hours of operation with the needs.
Manufacturing is being optimized to our future volume needs, while also providing better management of production peaks and valleys throughout the year.
Product development and engineering have been reconfigured to align more clearly with our product priorities going forward.
Motorcycle management the newly created function is focused on enhancing our core strength.
Balancing expansion into new spaces, and fine tuning the product portfolio lifecycle plan.
Clear performance criteria will be set focusing on the most desirable unprofitable product, while reducing overall product complexity.
Our new operating model includes a newly created administrative function to support our critical people and stakeholder priorities.
This will drive greater efficiency in our facilities and lead or future of work initiative.
We plan to edit sustainability officer to the team with further our commitment to the planet and to society.
We've merged communications with Pi and Investor Relations.
This will ensure we effectively engaging with our communities internally and externally providing a cohesive approach with our core messaging admission.
Finally, digital and high Tech speaking elevated out over finance organization.
We recognize digital the technology as a critical priority in the future probably Davidson as we continue to significantly improve our GE ice capabilities.
The significant changes to our operating model has not been without pain for choices, but these are actions that are necessary to deliver success.
The streamline structure requires approximately 7000 fewer positions across companies global operations with approximately 500 employees Unfortunately, leaving us.
To strengthen our new operating model, we are adding new hires to critical positions and are also filling key roles with our exceptional internal talent.
I appointed new leadership and direct reports in all functional areas, including product development and engineering commercial comps beyond Investor Relations legal motorcycle management HD, if as HR and the newly created administrative function.
The search for new CFO is in progress.
Second.
Our product portfolio in launches have been reset for maximum impact with the fully aligned go to market process.
We're streamlining our motorcycle modest by approximately 30%.
With plans to further refine our product portfolio.
This enables us to invest in the product that platforms that matter the most what better balancing our investment in new high potential segments.
In this context, we plan to expand our offering of iconic motorcycle those which most important the spirit of Harley Davidson.
We plan to expand our unprecedented market, leading touring strength with the delivery of our first adventure touring motorcycles the Pan American.
We see strong potentially an adventure touring and we'll launch plan America globally next year.
We will be going to market with an improved launch process.
Beginning with model year, 21, we would shift our product launch and dealer reveal timing in into early Q1, driving demand for products and sales for dealers at the start of the riding season.
As we transition this year, we have extended our 2020 model year production through fall and expect model year 2021 bikes will invite the dealer showrooms early in the new year.
We will invest into the new go to market capabilities and elevated product launches and investment into our brand using some of the rewire savings.
Third we.
We are focused on growth beyond motorcycles and are building parts and accessories and general merchandise business is the full potential.
The new PNM G.M. organizations are now led by expert leaders, who are tasked with ensuring each business is aligned to our priority markets and motorcycle strategy going forward.
They've already laid out initial plans to reset our channel strategy and future product lineup.
For parts and accessories, we will better leverage opportunities for customizing our motorcycles at the point of sale to drive customer engagement and increase sales for us and our dealers.
We also expect to reduce DNA SK used by at least 15%.
Our general merchandise business will bring the Harley Davidson brand to new consumers, while enhancing the overall experience for riders.
We will plan to make strategic investments in new and emerging innovative technology designed to create a power that is durable safe comfortable and stylish.
To enhance our focus and reduce complexity, we expect the due to deliver SKU reductions of at least 25%.
Our goal is to deliver a holistic approach in the marketplace.
One that brings together our incredible line of motorcycles with general merchandise and parts and accessories, enabling our consumers to truly customize the Harley Davidson experience.
Fourth.
We've reset our global business to be more focused.
Major changes into concentrating efforts on the highest priority markets, primarily North America, with the U.S. and Canada, Europe and parts of Asia Pacific.
And structuring in a way that shift resources and marketing into the regions for maximum impact in line with our future strategy.
Our new global business structure, better aligns our investments with their potential.
Going forward, we plan to concentrate our efforts on approximately 50 markets, representing the vast majority of our volume and growth potential.
We are evaluating plans to exit international markets, where volumes of profitability do not support continued investment.
We streamlined our regional offices and created the freedom within the clearly defined framework for countries to make decisions to drive their business.
These in market teams will be more agile and better equipped to understand consumer needs provide focused attention to dealers and respond more quickly to local market conditions.
We also plan to optimize our dealer network to provide an improved in integrated customer experience.
Lastly, we've revamped our approach to supply demand and inventory management to protect the value and desirability of our branded products.
As our factories reopened we simultaneously implemented a new approach that is aimed at making the right decisions for the long term health of our brand.
As we've worked through the Rewired was very evident to me that we had lost our focus on the strength of our brand in favor of promotional activities, which you wrote our value and the investment our right as making our products.
We're not willing to sacrifice the strength of our legacy in the quest for pure volume growth going forward.
We therefore have revamped our approach to supply and inventory management, focusing on products and initiatives that add value, while significantly reducing discounting price promotions.
This drives retail pricing to have preserve the value and desirability of Harley Davidson motorcycles for its customers and brand.
The outcomes of the re why already significant which is a testament to the extraordinary work across the organization this year.
We are encouraged by the value that is being driven by our new supply and inventory management.
On average new motorcycles were selling MSRP in the U.S.
In addition, we also saw a meaningful increase in use more to saga pricing at retail and at auction.
I'm already witnessing a transformation in how the organization functions with better engagement from our leaders in a change in how we evaluate decisions more credible expectations and more voices across the business incorporated in the process.
I'm seeing better awareness of cost management, and ROI, an increased focus on privatization and simply simply simplicity, along with more accountability and ownership of outcomes.
While many of the rewire priorities have been executed we still at a significant amount of work through the end of the year.
I believe the rewire will serve as a strong foundation for success for future in phase two of our company development, our new five year strategic plan.
We intend to build on the foundation of the Rewire and focus all our efforts and Harley Davidson as the most desirable motorcycle brand in the world.
417 years, Harley Davidson motorcycles have ignited desirability and that is our ability will form the foundation of our strategy and every aspect of the Harley Davidson experience into the future.
All of the decisions, we're making with focus on our customers enhancing the desirability of our brand promoting growth while protecting the value of our iconic products for riders.
Future growth will be targeted and focused to where we can win and balanced between the categories that drive us today, and those that will power or future.
We strive to make riding the perfect remedy during these troubled times the way to connect with our community and the world outside.
In fact defined piece and experience adventure as one of the few brands in the world the delivers freedom for the so.
We intend to share the first look at our new strategic plan named the Hotwire in Q4.
Now I'll turn it over to download to discuss the financial results over the quarter.
Thank you.
In summary of our Q2 results.
Like.
Operating income.
Certainly lower year over year.
Lower shipments.
And the global manufacturing quarter due to come to 19.
Financial services operating income.
Further adjustments tomorrow.
Yes.
Good morning.
Jamie.
Consequently, consolidated net income.
All right here.
Any lost comparisons.
Last year.
Based on restructuring actions taken during the quarter.
Charges $42 million.
And our expected results annual ongoing saving approximately 100 million jobs.
Slide nine.
Worldwide retail sales.
It's a motorcycle.
[laughter].
26 point.
Versus prior year.
Yes.
As we noted on our Q1 call.
Okay.
Nearly 60%.
Viewing.
Yes.
We saw reopening begin to occur towards the end of may into early July and by the end of quarter, 93%.
Dealers have resumed normal operations.
[noise] net retail sales in Q2.
26 point.
Versus prior year as most U.S. dealers experience some level oh related closure or retail sales just rush.
EMEA, so a year over year decline of 29.8%.
Down across all markets.
Asia Pacific was down 10.2%.
Declines in Japan and Australia.
And offset by growth in China, and South Korea.
Latin America saw declines in Mexico.
No.
Nice quarter down 51%.
During the quarter us market share of new buying registrations.
38.5%.
8.1 percentage points.
Yeah.
Approach to supply and inventory management.
Thanks segments outside of our strong whole segments.
Increased promotions from our competitors and a decline.
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Our year to date market share in Europe was 7.9%.
1.1 percentage points versus prior year.
While we experienced some slight improvement in our second quarter market share, we were adversely impacted by better Mark Ormet.
In segments outside of our strong hosting.
We also saw increased price competition.
Yes.
Right.
Given the Pandemics impact.
And is Yoking already mentioned.
Okay.
Slide and inventory management, not simply on volume, but I'm profitable and desirable lie.
Well continue to aggressively managed supplier motorcycle into the dealer network as we manage through the pandemic NVR as part of our strategy to strengthen the value of our motorcycles.
These actions are driving long term fundamental improvements across our business.
[laughter] revenue are noted on slide 10.
Also motorcycle shipments in Q2 were down 58.7%.
Definitely impacts if I could maintain related disruption.
Our your factory is closely to earn some of the quarter.
In our Thailand factory close route.
Lower shipments impacting revenues for the motorcycle segment.
$669.3 million.
53 point.
Order cycle family mix shift.
[noise] versus last year's second quarter.
Reduced average motorcycle revenue.
Foreign currency exchange also negatively impacted revenue.
Partially offset by lower sales incentives and higher pricing.
Gross margin and operating margin details.
11.
Gross margin in Q2 down as result of lower shipments.
Product mix.
Favorable foreign exchange foreign currency exchange and higher manufacturing expense.
Likely offset by favorable raw materials and pricing.
The mix impact was unfavorable by $16.3 million driven by a higher mix of cruiser and sportster persons touring bikes last year and also a mix of lower margins DNA.
Hi, Steve change adversely impacting margin by $15.4 million largely due to a stronger U.S. dollar.
Margin also reflected lower absorption and productivity related to the plant shutdowns, partially offset by lower tariffs.
Operating margin as a percent of revenue for Q2 was down compared to last year.
Lower gross margin and restructuring costs.
Partially offset by aggressive cost management driving free SDMA.
Second quarter financial services segment operating income was $4.9 million.
3.5% compared to Q2 last year.
Net interest income.
$3 million due to higher average outstanding debt as we increased liquidity in the face the ongoing pandemic.
Q2.
Retail and wholesale loan losses.
$64.8 million.
Favorable to Q2 prior year.
This includes a 71.2 million dollar increase in allowance for credit losses.
Partially offset by a $6.4 million decrease in actual credit losses.
Credit losses were down as a result in lower delinquencies and lower repossessions helped by our offering of payment extensions to certain customers.
Credit losses were also down on our inventory management efforts, we feel stronger motorcycle values that auction driven by increased demand for use by.
The allowance for credit losses was up in Q2 as the economy continued to deteriorate quarter due to the pen down.
Yeah adjustment accounts.
Correct recessionary economic condition.
Related to to continue any celebrates right.
Thanks.
The United States.
Our allowance reflects the estimated impact of losses over the entire life of loans in our portfolio.
Additional financial services segment details are noted on slide 13 and 14.
Due to retail originations were down 10.1% versus prior year, driven by lower new bike sales.
Actually offset by strong used bike sales by deals.
Harley Davidson financial services market share well be very strong 3.4 percentage point.
Nine point.
At the end of the quarter, you had 3.41 billion dollar cash cash equivalent.
In Asia.
Thanks.
Facilities.
Our total available liquidity a $4.3 billion.
Cash and cash equivalents remain elevated as we prudently hold cash implications the economic uncertainty.
In Q2, we raised $3.3 billion.
And six transaction.
By the strength of the Harley Davidson balance sheet.
As of Q2, our debt to equity ratio was 5.1.
Well within our debt covenants, which important equity.
And.
Our 30, plus delinquencies were favorable.
Yeah.
As we lap startup and efficiencies related.
A new loan management system last year.
We continue to seek customers request payment extensions.
Challenges.
The pace of these weapons much slower and it was in Q1 and the first half of Q2.
Customers, where we see 19 related expenses.
Incremental.
However, approximately three quarters of customers.
Extension.
Payment.
Q2 retail credit loss rate was 1.87%.
Five basis point increase over Q2.
Yeah.
The remaining rarely do you financial results are summarized on slide 15.
Our quarter end cash and cash equivalents balance was $3.86 million.
Year to date operating cash flow of $600.2 million.
$610.2 million.
My lower inventory levels and favorable cash flows from wholesale financing activity.
Actually offset by lower net income this year compared to last year.
Our year to date effective tax rate was 3.7 cents compared to 24.1% last year.
A year over year decrease in the rate was primarily due to these discrete income tax expenses recorded during the first half of 2020.
Reduce the company's income tax benefit.
Yes.
Well.
We believe the charts on slide 16 demonstrate that over time, we're a leader amongst our peers.
Oh, I see the motor company and our only NHC effect.
And we are demonstrated later in our ability to generate cash.
And the second quarter, we paid a quarterly dividend of two cents per share.
As you will know.
Indicated previously we did not repurchase any rough start on a discretionary basis in the corner.
As we continue to take action cash given the uncertainty going.
We do not intend to repurchase.
Back half Twentytwenty.
Before.
Q3 dividend of two cents per share.
Much uncertainty remains.
And the pen.
Okay.
And on our business and it remains difficult to recently forecasts are for national form.
Before we can teach and financial guidance for 2020.
To wrap up the financials <unk> 19, if impacting our short term results.
And we're confident.
Thank you.
Okay.
Strengthen our business.
Our stakeholders.
Now, let's take your question.
As a reminder, if he would like to ask a question you may do so by pressing Star then the number one on your telephone keypad, we do ask that you limit yourself to one question you don't have any further questions. Please press star one again to reenter the queue.
Your first question is from James Hardiman of Wedbush.
Hi, good morning.
Thanks for taking my question. So it's somewhat of an open ended question with regards to whatever you'll give us on the retail front I'm curious what the momentum was within the quarter, maybe if you could sort of talk through how the dealers that were actually opened in the quarter did from month to month.
And then any color on what June looked like in and ultimately now that we're almost at the end of July out pipeline looks like so obviously you have different policies, which of those things you want to touch on but any color you could give us would be really helpful.
Thanks, James This is this is Larry on.
If you take a look at sequentially you know end of April we only had about 40% of our dealers open for a motorcycle sales.
Dealerships then tended to open as we went to help me.
End of May we had about 80% of worldwide dealers open for motorcycle sales and then and then saw additional openings in June. So that there were you know maybe I need a junior had about 93%.
Worldwide dealers open for sale, so as you can imagine.
Sales increased sequentially by month as we went as we went throughout the quarter, obviously June being the strongest month for the quarter and then as far as July I would say you know once again, we've got most of our dealers open and I would say sales are trending as expected.
Even our new approach to supply and demand and and inventory management.
And I guess, if I may just a follow up to that last point shrunk trending as expected.
With the caveat is the expectation that now that inventories are significantly lower.
As a result of the new strategy that to some degree that has and will continue to limit retail as we move forward.
So I think as narrow said, we're not we're not giving updated guidance here, but but clearly I think there's a new approach to balancing supply and demand and inventory management, you know will have an impact on retail sales as we.
Work to do create desirability and some of the benefits from that we saw you know as we went through the quarter of you know benefits to retail pricing, both for new and used motorcycles and benefits for a use motorcycle prices at auction.
Excellent. Thanks for the color guys and good luck.
Your next question is from Sean Collins of Citigroup.
Great. Thank you hi, guys. Good good morning.
Good morning, Ireland.
Thank you I wanted to ask about the X gene a cost savings I know you laid out that Youve got 250 million cash savings can you break that out between the Capex savings and the annual SGN a savings that are expected. Please thank you.
Yeah. Thanks, Sean for your question.
We're not going to break that out any further than what we've done already which is basically we expected those savings will be made up of I guess your name and capital.
Expenditure reductions and so advances playing all we're gonna stay about the 250 million I won't tell you, though that we are on track to deliver the 250 million that we discussed in Q1. So we're confident that we'll be able to deliver that for the full year and that is for any restructure.
Three charge that we're going to maintain.
And to add to that what Antero said earlier is that they restructuring charge. We took in the second quarter, we expect to deliver 100 million in has seen a savings.
So that gives you some indication.
Okay. That's great helpful. They thank you very much I will get back into the queue. Thanks.
Your next question is from Jamie Katz with Morningstar.
Hi, Good morning, Thanks for taking my question I'm curious, if you're willing to give us any insight on the exit of international markets that you're looking at a if theres any way, we can maybe think about quantifying watch percentage of shipments that might be thanks.
So you wont give an exact number but I would say you know that is a relatively small percentage of shipments. If you take a look at it you know is as we said where we're focusing really on about 50, roughly primary markets to generate the vast majority of our AR.
Retail sales and shipments, we're still evaluating which markets are we may choose to do exit, but but those are markets that generate a relatively modest amount of our.
Sales and and relatively modest amount of our profits.
Okay, and then I think in the press release it since I'm the adventure touring model with being pushed back do you have any comments on the street fighter model I think that was set to come out next year as well.
Yeah at this point or adventure touring will be the focus going into next year as I've said earlier, you know, we expect to streamline our product line up by about 30% in terms of more than reduction and piccolo reductions.
Yeah, I've ER product line related decisions, we will we will be revealing a in real time. So it's not really something we can and want to talk about at this point, but let's focus on the things that touring is an exciting new segment for us going into the new yeah.
Excellent. Thank you so much.
Your next question is from Derrick Johnson of BMO capital markets.
Hi, good morning.
I'm not sure you quantify this was $100 million an ongoing savings related to current actions is that a run rate or is that we expect this year and how much of that is incorporated into the 250 million that you mentioned earlier.
Yes that is the run rate, but as a as Dinos said, we are looking as part of the new five his strategic plan to also reinvest into brand building initiatives. So if you take dollar for dollar that is correct. It's a run rate, but with a caveat that a we might want to decide on.
This thing and investing more into brand building initiatives.
Okay and Yoking a a question for you you mentioned strengthening each de culture.
And your book manager in the monk you see that manager should ask themselves. This question, which elements of collective memory should be recognized what must be brought in and what must be discarded. So how would you answered your own question [laughter], well well well read.
Well look.
We have a very dedicated or.
And bleed workforce around the world, which is really fantastic. The culture has suffered a company has seen you know five consecutive restructurings every yeah, a in order to sort of chase the downward trend in sales.
That has a it pack affected morale and engagement by hour by hour team members around the world, which is totally understandable and that's the culture will need to revitalize I see a huge amount of commitment.
Obviously, the last couple of weeks, it's been tough because we had to let go of over 400 500 people.
That is a very difficult thing to do and has its effect on morale to but overall I do believe there's an incredible energy and passion for Harley Davidson to get back on the winning street and that's that that energy and passion I want to I'm, calling upon bio a employees around the world and I'm certain that I would get that and receiving already.
Positive changes despite the difficult environment, we are in.
Selectively as I also mentioned earlier, we are bringing in new talent, we have fantastic telling perhaps in some areas. We we are looking to hire and have already brought in new talent into the company. So we have complimented me a strong team.
With the with new new talent from the outside.
And I think that's about it a lot of the things that didn't happen I'm very much down to the way. The company was run a the way they start to the organization was structured the way the processes, where they find and that's why this is really comprehensive reset and rewire off a of how Harley Davidson operates as as as an.
In the newly defined operating model and newly defined process is going forward and that I think will unlock the power of the team that we haven't plays are going forward.
Okay. Thank you very much for that.
Your next question is from Greg Badishkanian of Wolfe Research.
Hey, guys. Good morning, it's actually Fred Whiteman on per Greg. If we just look at the market share figures, particularly in the U.S. mean that was down pretty significantly year over year in and this is definitely a transition year, but how do you expect share to trend over the next few quarters and is there any risk that some of that market share erodes permanent.
Thanks.
So so once again, we're not giving guidance or going out I think if you notice as.
Carol talked about right, we never really for things that impacted share here in the in the second quarter, one certainly growth in segments outside of where Ah ha currently given some primarily competes.
You know fleet sales if you think about.
Sales lot of those.
Tourist come from Europe, and and that drives a lot of the fleet market and certainly that type of travel.
In his comment has really bad dramatically reduce I'm, sorry, so that had a meaningful impact on on touring.
And then.
We had obviously there was a lot of promotion in the market in the quarter.
With our home approach to supply and demand and inventory management, we didnt do promotion in the U.S. in the quarter show up. So those are really you know the big drivers during the quarter up what I would say is that we think that the positives that came out of.
Our supply and demand inventory management, you know with with increased pricing at retail for new and used motorcycles with increased.
Pricing and on an auction for use motorcycles in closing that new use price gap in the in the long term is a positive for Harley Davidson and that that's going to drive a greater results going forward.
And if I may add to what the Larry said I think look at it this way share is more meaningful once supply demand balance.
And until then it's really the desirability of the brand that is more important and ER and as as Larry mentioned, we're not focused simply in volume or share for that matter, we will not to over supply the market and if you look at the Pos and what I've experienced.
If you look at supply and demand over or pushing to put more do you want to make sure that demand pools, our sales and not we're not pushing products into the market and start promoting our bikes before the season, even started so we're not going to pursue volume at the expense of the right fundamentals of our business and we will actually be.
Fine new metrics that will define desirability.
And lever had already alluded to some of them that have improved in the last couple of months.
Okay, and maybe just a follow up on on that last point I mean dealer inventories in the U.S. down 17000 bikes, whereas now versus where you would want it to be ideally in sort of your internal plan.
So I would say we were we were down more you know obviously as Daryl said, we had we had plants closed a we were certainly down more at the end of the second quarter.
All right inventories were down about 32% the U.S. was down more than that so inventory throughout the second quarter was certainly a fair amount lighter than we would like going forward Oh I'll give you specific number but certainly that that amount we're down at the end of second quarter Paramount lighter than we would expect and we think is.
Is the right measurement for the business and that has come back you know as as plants up an open and shipping motorcycles on a regular basis.
Great. Thank you.
Your next question is from Craig Kennison of Baird.
Yeah. Thanks for taking my question and kudos to Gary can a great question as well my topic is a affordability and kinda demographics.
You know with a premium brand like Harley Davidson the focus on scarcity value makes sense, but building that next generation of writers means that affordability is going to be a factor what can you do to make that first by more accessible for the next generation of riders in is that important.
Well I think you know affordability has not been appropriately a in the Pos but when you.
Prices go Don on good MSRP goes down that obviously devalued the value of our bikes and that's what needed and needs to be corrected.
So when you are making a significant investment into holiday Davidson product you want to make sure that your value is preserved.
And that doesn't deteriorated from the moment you buy your you put the with the Harley Davidson product. So I think affordability is relative a you know some have.
Said, we want to be exclusive no. We don't want to be exclusive in fact, we want to be inclusive as a brand, but we want to protect the value of our products for our customers a and <unk> and that is all built around the desirability, which we amended things to different metrics and as part of the next five years strategic plan.
I think demographics, we also need to look at <unk>, who has been buying holiday what's in the pots and who do we expect to buy holiday what's in the future and.
Quite honestly I think that we've had a more around the over simplified view.
Harley Davidson is for those who share our mission as we call at the time this pursuit of adventure freedom for the sold and that is regardless of age you know and it's important to remember that the customer targeting is so much more dynamic than actually looking at the age and I've heard now with it so often that you know our consumers aging.
I will do well you know I'm aging as they say snappy like writing right now in fact I would say.
Consumers the aging into writing as they have more free time and resources, especially post this pandemic and so Harley Davidson, it's really more about attitude in emotions than aging demographics and the if you look at the data.
That actually does show that the people at the age of 30, plus overtime age into writing a and that it's critical that is not to say that we will be attracting a lot of teenagers to or grant. That's just you know not the focus of our company, but that being said if you look at the engagement you know or the incidence.
Great. That's that's increased one and a half times or for young adult since 2010 and actually for 50, plus it has increased over two times. Its 20 attend so that's that's a positive and if you look at an AD sales of used a new bikes together, we've actually done really well in the second quarter and that shows that.
There's a huge amount of demand for product.
In 2019 alone over 500 dollar wise right does that purchase new and used bikes, we tend to focus only on or new bikes I think that we need to change so I'd say affordability by protecting the value of our product, but not certainly but cheap in it and hence focusing on desirability would be the pizza.
Entry models.
We will look into but I will be talking more about the that in over five years strategic plan.
Your next question comes from Brandon Rolle of Northcoast research.
Good morning, Oh My question on the new rider dynamic you're seeing in the industry or could you comment on you know writers Academy registrations are what you're saying you know seems like other car sport. So industries are seeing new riders. So could you comment on that.
Yeah, I mean, yeah Cobot 19, certainly has sparked a you know interest, especially in the U.S., but it was internationally it for outdoor activities and that is visible in positive phase trends in particular bicycles and boats in hobbies and.
And our the outdoor products Motorcycling holiday business, specifically, we believe has and will continue to benefit from this trend as as we said now.
Taking new and used sales together you know, we've actually seen a slight increase in the second quarter and <unk>.
He has increased as well.
In particular regarding the riding Academy and leaves we've added two new programs to a with experience to ride and learn to ride and ER, we actually expect all of our classes to be fully for the rest of the year. So we've seen a significant increase in our riding academy classes at our U.S. dealerships and in the long.
We're on in the long term, we believe that an increased interest in outdoor power sport activities, including motorcycles should then also have a positive effect on the holidays and going forward.
Your next question is from Adam Jonas of Morgan Stanley.
Thanks, very much or the question just asked was what I was going to ask but I wanted to pivot to just you know yeah kind of how are you seeing morale in the company right now you're being you're being refreshingly open with you know some of that.
Some of the degradation on the company and how it's hit the culture, but as you've been able to reach a much much deeper.
Ended the into the management of the dealers.
To the line workers any any anecdotes thought smoothed you want to share as the company kind of that comes out of this dark period, and and kind of maybe can transition from anxiety that some hope.
That is a great and very important question. Let me say this you know from my perspective management has been.
Or how should I say removed too much removed from the business and from culture and that is something that needs to change dramatically and the.
So you know if I need to managing director of a relatively important country and that person has not spoken to 15 years for 15 years to senior management, There's a problem right. So your first of all we had to make sure that decision, making happens where it needs to happen and that's space.
What I tried to say in my in my speech early on.
We need to delegate responsibility out to those who know how to make the right decisions within that clearly defined framework. So that doesn't mean that we just delegate it means that those who know best that run the countries that run the regions should be having a clear framework within which they can make decisions and don't have to wait for.
Leadership to ultimately micro manage in markets, that's not going to happen going forward I think that we'll have a significant effect. The morale obviously as I said earlier you know it's been a tough couple of weeks having to let go. So many of your colleagues is very tough and it's certainly not.
Helping morale, but I do believe based and the feedback I've received that the is a general understanding that this is not the cost cutting exercise. This is really about setting the company. How quick long term success, it's making sure that we have the right operating more to the right people in the right place, where the right close processes. So that would it would make the right decisions and become foster.
Complex and more focused and that's essentially what the focus was the side effect. The positive side effect. This is of course that our costs will go down and that we adjusting out but our our cost structure to the new reality, but more importantly to me we shouldn't just focus on the cost side, but actually after five years old cheese leasing costs down.
Actually setting ourselves up for it for a long term success by being a much more high performance company that is really the focus of the rely on we've made tremendous progress.
I've been to the factories now except Tomahawk had visited our powertrain operation of I visited York and ER as well I think more engagement by senior management to understand what's actually going on in the factories is required and weve gotten and received a lot of positive in the input that we take into.
<unk> reference to peaks and valleys in our production throughout the year, it's something we need to work at its just inconceivable that you lay off people to then re higher than three months later that is never good for quality. If in the interim you have to bring in casual work goes to fill the gap not having the same experience not putting the same focus on.
On quality, so that's something we need to work on a that's that's a that's an area that we are focusing right now and I think dealers as well I mean I've been in touch with with the many dealers in fact I'm, reaching out to many dealers in the next couple of weeks the virtually rather than physically with all the restrictions on travel that we are still.
<unk>.
But I think overall I've only received positive feedback.
From a dealer so far that we're making the right. The decision. So I do believe anxiety, we'll pause quickly and we are but we are going forward with a lot of hope, but you know it's not hope it's actually plea Atlanta is clear strategy. It's clear you why a playbook that we are executing and and that we're communicating on in a much more significant way.
We are committed to get I'm communicating personally every week. After this call we had a a global seminar for all employees because it's important that every step we take is being communicated throughout the organization to full transparency the of the good the bad decisions and the you know all the things we can improve.
I hope that answers your question.
Your next question comes from Sharon's Akcea of William Blair.
Hi, good morning, Thanks for taking my question.
On the 75 million dollar a year over year decline and that's DNA could you help us understand what if anything in there was unusual related to the kinda virus disruption.
Versus something that might be more ongoing that structurally lower and then I'm on the H. DFS originations I think they're actually higher than the total company is Robin is did you do something different as it related to use financing within the corner.
Hi, Thanks Sharon.
So on the first part of the question on the SGN. They side are there is nothing that is necessarily unique from a cobot point of view up except for the fact that people aren't in the office and therefore, they're not spending to the same extend that they wouldn't be otherwise and obviously, we put a high.
Hiring freeze in place and that helped drive down the S. DNA that that you're seeing so $76 million is really part of the promise that we make respect it's $250 million.
And it's just coming through.
Oh lines.
We're not traveling we're not spending money.
Hiring freeze if nothing.
Unique or are you to cope with that I could point too so.
With respect to H. DFS, yes, their performance was better and it was driven by use. However, there were no promotions I think it all goes back to the supply in inventory strategies that weve been taken that we've talked about already that are basically creating a a demand for use by.
Better being sold to our dealers H. DFS is well positioned to finance those bikes and as you can see their performance was stronger than they are motorcycle segment. So again, it's all part of the whole supply and inventory management process and we're seeing it play out at each GFS strawbridge.
Nations abuse, there was no promotion nothing special about financing use except for those with the opportunities where.
Your next question comes from Tim Conder of Wells Fargo Securities.
Thank you you're Gonna say may one for you and one for Larry whoever wants to take this or on the new use spread can you kind of just give us a reference point, where that was at the end of Q2 versus a year over year basis, and maybe a long term average so it's maybe for Larry and then neocon.
Looking at the part of the Rewire are you looking in any way it at changing.
Especially in North America the replenishment.
You know profiling regional areas of dealers and maybe changing what their stocking bases and how that's replenished as part of the rewire or the hardware maybe program.
Okay. So any on the the new use spread you know obviously, there's a lot more use motorcycles in the market than a new but it it's probably about one third to serve a split.
Roughly a third new maybe to surge two thirds used.
[noise] or I guess, Larry from the from the the pricing differentials is is that narrows, obviously back too if you have better value for the consumer it holds the value better doesn't depreciate right out of the dealer floor as much that precipitates. This long term value interest in the brand like what you guys were talking about yep.
Yeah. We saw a you know what was probably if you can be two things on that we saw used pricing increase about 6% throughout the quarter up certainly higher than we've seen in any previous quarter for good. While you know if you. If you look at the auctions, we probably saw when you went through the quarter not for the entire portable <unk>.
As you went through the quarter as auctions kinda opened up back in May and June we saw that a comparable bikes were going for roughly about 10% more than they were previously something that gives you a couple a benchmarks and the way used pricing solidified in the second quarter.
And then just sort of where that is the which is a long term or were you want it.
You know, obviously anything that closes that gap is good.
Certainly I think that you know those are levels that we haven't seen in quite a while Tim. So I think that we think that's a lot of momentum in the right direction. Obviously, if it closes more that would be would be great. I don't think we'd have a benchmark on NAV, we clearly think that having that and cannot be less is a good thing as far as you all can shed as far as.
It was motorcycles retaining their value and you know customer feeling like they buy a motorcycle that depreciation curve isn't going to be a steep as it wasn't the past.
Yeah, and Jim to your other question a you know as I said, you know balancing supply demand and healthy inventory levels is key and that applies to the U.S. It replies to all other markets around the world.
Yes, we have quite that then dealer network in the United States. In particular that is has even more importance and ER and hence there's a lot of focus on on our new SDN NIE management focus as as we call. It now.
So inventory management will sit with the commercial function and the responsibility will sit with the commercial physician and hence that is something that has actually changed or inventory management was in the past or responsibility and accountability were not with the people that ultimately called on the inventory that's a problem that we needed.
To fix in terms of.
Replenishment, yes, you know of course that automatically has an effect on how we replenished, but I think there with some other factors that we should bear in mind and that is.
We also want to make sure that you know in inventories are like throughout the network and that means that if some dealers have too much of one.
Module or oh product or that they also start trading them on each other so unlike I'm looking at trade among dealers I think is something.
That will also help to improve our inventory overall throughout the network and what we also don't want to do is have overcome our dealers compete with each other on price as I said, you know price promotions and discounting have to be reduced stick and will be sick newt significantly reduced and that doesn't only apply to us, but we hope.
Certainly that by doing the right things with the rely on our five three strategic plan that our dealers will follow suit and still competing with themselves from time to time, if they think it's needed and rather focus on our competition then looking at our fellow dealers as competitors I think that's something that we also need to address and they actually need to address going forward.
Your next question is from David Macgregor of Longbow Research.
Hi, Good morning, it's a cold months on for David Thanks for taking my question.
Are you they still planning to move forward with a small displacement bike in Asia and if so can you give us an update on the progress there.
As I said, you know we would like to.
Reveal our products much closer to actually launch and whether and when we're going to launch specific product is not something that I would like to elaborate on right now we will provide further detail.
In the fourth quarter at this point, there's really nothing new to say about that.
Your next question is from Joseph <unk> RBC capital markets.
Hi, Thanks, good morning, everyone.
Two questions one.
I was wondering if you could give us an update or a sense of how much.
Plantar I guess line consolidation can occur as you get your capacity to align with your new go for a review of the company's opportunity maybe how that compares to 2019 levels and then secondly looks like U.S. inventories down maybe 40% or so year over year, but there were some reports said I think you want it.
Lower maybe 65% so do you still plan to under shift in the back half.
Are you, referring to manufacturing capacity or you're referring to our mortgage sorry.
Manufacturing capacity, yeah, well, we have adjusted our manufacturing 'cause capacity to the two hour or expected volumes going forward with all the uncertainties, obviously that the round the the pandemic, but we've taken necessary measures.
ER to align our manufacturing capacity. So I think we are pretty much set the assuming that we see into the foreseeable future quantities that the will realize but we have taken a.
I would say realistic conservative approach.
And Joe So the second part of your question as far as shipping in the second half a year you know as as Daryl said, we're not providing guidance, but I think there are some things you should consider you know as far as your forecasts are concerned you know.
A combination of factors, they're going to impact shipments ultimately revenue in the back half a year most significantly.
Second call Retiming of our new model year delivery to early Q1 from historically you know that span late August right. So that is going to have a certainly an impact on unbilled shipments and retail sales as far as the timing of that is concerned I.
Let's say you know as we've mentioned several times on the call our new approach to supply and inventory management.
And in line with demand to drive value when desirability no thats going that's going to continue through the rest of the year and then in the next year.
And then we did mention we are looking at you know exiting certain markets you know smaller volume seems like that and we'll probably have some some continued dealership closures throughout the rest of the year or so in the back half so that will probably have an impact as well and then finally just.
Theres the uncertainty of covered 19.
Potential additional additional disruptions that it's hard to predict at the moment, but that's certainly have an impact. So hopefully that gives you some direction I guess as two things that could inflect influence.
Shipments during the out in the back half a year.
Your final question comes from Felicia Hendrix of Barclays.
Hi, I'm good morning, and.
Confer and the final question, it's kind of picture so even down event brought in sweeping program on the stepping back if you had to prioritize the top three issues that Harley had what would they be and what do you think the customer wants that Harley not delivering.
Well I'm afraid three is not enough [laughter] I have to ask you to go back to everything I said I think everything that is part of the playbook is really important and I wouldn't want to highlight.
You know anything other than maybe say that without proper operating model and without the right people in place.
The right. The organization structure, you know you can succeed so I guess.
That's a that's complete and move forward now focusing on other areas of the re Wyoming, which we've already addressed in the order they have taken significant actually about motor come until the end of the yet.
We give customers what they wanted to I would say, we do we have extraordinary product and we have more product in the pipeline, but its complexity of our product offering has just been quite substantial a and and you know sometimes it is even hard to know what product is worth and the and.
Complexity, I think might even be for some customers a bit confusing at times.
Especially for those who come into the brand and would like would like to buy a new bike that it's not a huge problem, but it's certainly something that makes our lives from a product development and ER and investment point of view more more difficult and that's also one of the reasons why we don't want to it just launch into every category.
At once but want to be very focused on the ones that are true to Holly that our cost them a customers are looking for and that I'm not too much of a brand stretch you know you can't be everything for everybody, we are or an extraordinary and decide but brand, but that doesn't mean that we ever want to become everything for everybody. So that.
Desirability needs to be retained it needs to be reflected in the products, we offer and the categories. We launched our says into a if they're not part of the offering today.
All right that wraps our questions for today. Thank you everyone for joining us and hope you have an outstanding day.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect [noise].
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Ladies and gentlemen, thank you for standing by welcome to the 2022nd quarter Earnings Conference call. At this time, all participants are any listen only mode.
Presentation, there will be a question and answer session.
Asked a question during the session you will need to press star one on your telephone.
Please be advised that todays conference is being recorded.
If you require any further assistance. Please press star zero I would now like to hand, the conference or what are your speaker today, Mr. Shannon Burns director of Investor Relations.
Please go ahead Sir.
Good morning, everyone.
That's helpful.
And investor.
Box in the center of the patch.
Our comments will include forward looking statements that are sometimes the rest.
Results to be materially.
Well Scott.
As we have noted that our latest firing on all these filings.
Let me now disclaims any obligation to update information on this call.
Good morning, RCR insights interim CFO.
Let's see all Larry on will also be Johnny.
Okay, let's get started.
Thank you Shannon and Hello, everyone.
We continue to face challenges during these I'll pass it on the times, but that's the we wise implemented I'm very pleased with all accomplishment so Paul.
With my team continues to challenge I personally and professionally.
Our dedicated work at every turn toward production lines in our priority is keeping everyone safe.
We recognized that life and what will be far from normal placed as long as the by the pose a significant threat.
Recent events have also renewed our commitment to stand up for inclusivity liquidity.
There was this new reality our team has put together an extraordinary ways, making significant progress towards the goal just believe lie and all future success.
We are encouraged by the positive feedback from key stakeholders and the early impact we're already seeing in the marketplace.
Well I'd first like to provide an update on ongoing actually say response to cope with my team.
First and foremost the health well being and strength of all community continues to be at the forefront.
We have diligently implemented I constantly fine tuning our protocol to keep work uptakes in our factories.
We expect most no production workers to continue working from home until the end of the yet.
Second as I said last quarter, we are executing prudent cost saving measures and expected to live up to one of the $50 million in cash savings excluding restructuring charges. This year.
Additionally, discretionary share repurchase continued to be suspended I read a paid Q3 cash dividend of two cents per se in line with all Q2 dividend.
But we further strengthened our strong liquidity position with nearly $4.7 billion at the end of the quarter.
In Q2, we secured an additional $3.3 billion up liquidity.
And finally throughout the second quarter, we provided significant helped to eat the burden on dealer that riders by providing support based of the unique unique needs over each region.
Including financial support for motorcycle inventory, extending certain cash payment due dates and adjusting requirements for warranty training.
So half hour riders, Georgia extended payment term for those who they could request to the system.
At the end of the quarter about 93% of all over the that's way open for retail motorcycle says falling pendennis them interruptions.
Three months ago, I shared with you that significant changes when necessary.
Complexity needed to be dramatically reduced.
Gold that needed to be achieve a bit of realistic.
Our strategy had to be refocused to better align with our capacity and capabilities and also on new reality, focusing on what makes it different nothing else.
We also need it to reignite, the solar poly, David and strengthen our culture.
Based on the urgency of these realities, we defined areas like media attention and created the rewire playbook.
We set out to rewire, Harley Davidson from top to bottom.
Well implementation of significant changes has been swift and diligent which has led to progress on all our priority.
But our new operating model and organizational structure is now simpler more focused as will enable faster decision, making across the entire company.
Difficult work has been done across all areas of all global business to eliminate duplication inefficiencies and complexity.
We've taken a hard look at our priorities.
The dollars, we are spending and how work at Harley Davidson's getting done.
To align our operating model and cost structure to the current realities of the business.
Setting us up for long term stability and success.
Every function regional and country has a rebuild at the organization from the ground up to focus on what is essential and valuable.
Within the findings into action interactions and processes scrutinizing spend categories large and small and eliminating activities that are not essential.
Yes, some examples.
We've created a new global commercial function I called it, but let's say as an inventory management across all product lines regions and country.
The marketing function has been this lease structure to maximize our new messaging.
Building on our strong brand legacy we would ship marketing plans to put the spotlight back on the brand heritage and great product.
Only benefit drive through conversion on investment that build is our ability.
The first brand building approach would be shown in the social media campaign direct that but Jason the more celebrating the sad journey, an unrelenting spirit of our Harley Davidson community during these challenging times.
Secondly, the positivity and freedom, we all find in lighting motorcycle.
Hi, David and financial services, increasing operations support, especially stopping and collection capabilities will improve consumer online processing support and better align hours of operation would be that need.
Manufacturing, it's being optimized all future volume, while also providing better management of production peaks and valleys throughout the year.
Product development and engineering happy we couldn't tickets to align more clearly with our product priorities going forward.
Motorcycle management the newly created function is focused on enhancing our core strength.
Balancing expansion into new spaces, and fine tuning the product portfolio lifecycle plan.
Clearly performance criteria will be set focusing on the most desirable unprofitable product, while reducing overall product complexity.
Our new operating model includes a newly created administrative functions to support our critical people and stakeholder priorities.
This will drive greater efficiency and health facilities and lead or future work initiative.
We plan to edit sustainability office that to the team with further our commitment to the blended into society.
We've merged communications with P. on Investor Relations.
This will ensure we effectively engaging with our communities internally and externally providing a cohesive approach with our core messaging admission.
Finally, digital and high teens speed elevated out of the finance organization.
We recognize speeches that technology as a critical priority in the future product Davidson as we continue to significantly improve or G.I. capabilities.
I.
And changes to operating model have not being without paying for choices, but these are action.
Necessary to deliver success.
The streamlined structure requires approximately seven on fewer positions across companies global operation with approximately 500 and lease Unfortunately, the leaving us.
To strengthen our new operating model, we are adding new hires to critical positions and our ultra filling key roles with l. exceptionally internal talent.
I appointed new leadership and direct reports in all functional areas, including product development and engineering commercial <unk> Investor Relations legal motorcycle management HD of as H., all the newly created administrative function.
The search for new CFO within progress.
Second.
Oh product portfolio and launches have been reset for maximum impact with a fully aligned go to market process.
We're streamlining our motorcycle modest by approximately 30%.
With plans to further refine our product portfolio.
This enables us to invest in the product that platform that met at the most what better balancing our investment in new high potential segments.
In this context, we plan to expand our offering of iconic motorcycle those which most embody the spirit of Harley Davidson.
We plan to expand a lot of pets and that market, leading touring strength with the delivery of our first I think that touring motorcycles depend America.
We see so potentially in the venture touring and we'll launch Pan American globally next year.
We will be going to market with an improved launch process.
Beginning with more than 21, we would shift our product launches dealer revealed timing and into early Q1 driving demand for products and say, it's what the that at the start of the riding season.
As we transition this year, we have extended our 2020 more to your production to fall and expect more to get 2021 fights with the right. The dealer showrooms early in the new yeah.
We will invest into the new go to market capabilities and elevated product launches and investment into a brand using some of the rewire savings.
Good.
We are focused on growth beyond motorcycles are not building parts and accessories and general merchandise business its full potential.
The new PNM G.M. organizations to allow led by expertly, that's what tops with ensuring each business is aligned to our priority markets a motorcycle strategy going forward.
They've already laid out initial plans to reset our channel strategy and future product lineup.
For parts and accessories, we were better leverage opportunities for customizing all motorcycles at the point of sale to drive customer engagement and increase sales for Austin I would be that.
We also expect to reduce DNA SK use by at least 50%.
Our general merchandise business was during the holiday Davidson brand to new consumers, while enhancing the overall experience ball riders.
We would plan to make strategic investments in new and emerging innovative technology designed to create a power that is durable safe comfortable and stylish.
Good how to sell focus and reduce complexity. We expect that then to de lever SKU reduction of at least 25%.
Our goal is to deliver a holistic approach in the marketplace.
That brings together between credit line of motorcyclists, with general merchandise and parts and accessories, enabling our consumers to truly customize the Harley Davidson experience.
Fourth.
We've reset our global business to be more focused.
Major changes into concentrating assets on the highest priority markets, primarily North America, with the U.S. and Canada, Europe and parts of Asia Pacific.
And structuring in a way that shift resources and marketing into the reach of for maximum impact in line with our future strategy.
Our new global business structure, better aligns our investments with a potential.
Going forward, we plan to concentrate our efforts on approximately 50 markets, representing the vast majority of our volume and growth potential.
We are evaluating plans to exit international markets, where volumes of profitability do not support continued investment.
We streamlined our retail offices and created the feed and within the clearly defined saying what four countries to make decisions to drive that business.
These in market teams would be more agile and better equipped to understand consumer needs.
Provide focused attention to deal with and respond more quickly through local market conditions.
We also plan to optimize our dealer network to provide an improved an integrated customer experience.
Lastly, we've revamped our approach to supply demand and inventory management to protect the value and desirability of all brand and product.
As our factories reopened we simultaneously implemented a new approach that is aimed at making the right decisions for the long term health of our brand.
As we've worked through the Lee wide with very evident to me that we had lost our focus on the strength of our brand in favor of promotional activities would you wrote our value and the investment our right as making our product.
We're not willing to sacrifice the strength of our legacy and the quest for pure volume growth going forward.
We therefore revamped our approach to supply and inventory management, focusing on product and initiatives that add value.
While significantly reducing discounting price promotions.
This drives retail pricing to have parts of the value of the desirability of Harley Davidson motorcycles, what's customers and Brian.
The outcomes of the re while already significant which is a testament to the extraordinary work across the organization this year.
We are encouraged by the value that is being driven by our new supply and inventory management.
On average new motorcycles with selling MSRP in the U.S.
In addition, we also saw it moving for the increase in use more to saga pricing at retail and that option.
I'm already witnessing a transformation and how the organization function with better engagement from our leaders and the change in how we evaluate decisions more credible expectations and more voices across the business incorporated into the process.
I'm seeing better awareness of cost management and the ROI, an increased focus on privatization and simply simply simplicity, along with more accountability and ownership of outcome.
But many of the rewire qualities had been executed we still have a significant amount of work through the end of the.
I believe the rewire will serve as a strong foundation to put successful future in phase two of all company development or new five years strategic plan.
We intend to build on the foundation of that rely and focus all our efforts and Harley Davidson as the most desirable motorcycle brand and the world.
417 years, Harley Davidson motorcycles have ignite the desirability and that is our ability was formed the foundation of our strategy and every aspect of the Harley Davidson experience into the future.
All of the decisions, we're making with focus on all customers enhancing the desirability of our brand promoting go while protecting the value of all iconic product fall riders.
Future growth, we'd be talkative and focused to where we can win and balance between the categories that drive us today and those that with paal future.
We strive to make lighting the perfect remedy during this top of times the weight to connect with our community and the world outside.
<unk> defined piece and experience adventure as one of the few brands in the world that delivers freedom for that so.
We intend to share the first look at our new strategic plan named the Hotwire in Q4.
Now I'll turn it over to download to discuss the financial results over the quarter.
<unk>.
Thank you.
In summary of our Q2.
Operating income.
Lower year over year.
Primarily by lower shipments.
Thank you.
In fact.
Corner.
19.
Financial services operating income.
Further adjustments to our.
Loan losses.
Good morning.
Okay.
Just.
Consequently, consolidated net income.
All right here.
Yes.
Parents winter last year.
Based on restructuring actions taken.
Warner chart.
In dollars and ours.
Annual ongoing saving approximately $100 million.
Slide nine.
In our worldwide retail sales.
Harley Davidson motorcycles.
26 points.
Right.
And.
Okay.
As we noted on our Q1 call.
Okay.
Nearly 60% or.
It was close.
We saw reopening began to occur towards the end of May.
Early July and by the end of quarter, 93%.
And resumed normal operations.
You asked retail sales in Q2 were down 26.7% versus prior year as most U.S. dealers experienced some level oh relating closure or retail sales disruption.
EMEA, so a year over year decline of 29.8% down across all markets.
Asia Pacific was down 10.2%.
Right.
In Australia.
Washington, offset by growth in China, South Korea.
Latin America saw declines in Mexico, and Brazil, and finished the quarter down.
Right.
During the quarter U.S. market share of new bike registrations.
Point Fivep per se.
8.8 percentage points.
Right.
Supply and inventory management.
Segments outside of our strong all segments.
Increased promotions from our competitors and a decline in sales.
Our year to date market share in Europe was 7.9%.
1.1 percentage points versus prior year.
While we experienced some slight improvement in our second quarter market share, we were adversely impacted by better Mark Ormet.
Outside of our strong hosting.
We also saw increased price competition.
Across all products.
Given the Pandemics impact.
Okay and already mentioned.
We are taken most supply and inventory management.
I'll, just simply on volume, but I'm profitable and desirable bye.
Well continue to aggressively managed supplier motorcycle into the dealer network as we manage through the pandemic MDR as part of our strategy to strengthen the value of our motorcycles.
These actions are driving long term fundamental improvements across our business.
Sure revenue are noted on slide 10.
Also motorcycle shipments in Q2.
58.7%.
Significantly impacted by August 19 related disruption.
Our your factory as closely to earn some of the quarter.
And our Thailand factory close route.
Lower shipments impact your revenue for the motorcycle segment, which was $669.3 million.
Three point.
Order cycle family mix shift.
Versus last year's second quarter, which reduced average motorcycle revenue.
Foreign currency exchange also negatively impacted revenue.
Partially offset by lower sales incentives and higher pricing.
Gross margin in operating margin details presented on slide 11.
Gross margin in Q2 is down as a result of lower shipments.
Product mix.
Favorable foreign exchange foreign currency exchange and higher manufacturing expense.
Finally, offset by favorable raw materials and pricing.
The mix impact was unfavorable by $16.3 million driven by a higher mix of cruiser and sportster persons touring bikes last year and also a mix of lower margins DNA.
Currency exchange adversely impacted margin by $15.4 million largely due to a stronger in U.S. dollar.
Margin also reflected lower absorption and productivity related to the plant shutdowns, partially offset by lower tariffs.
Operating margin as a percent revenue for Q2 was down compared to last year, driven by lower gross margin and restructuring costs.
Partially offset by aggressive cost management driving free SGN anyway.
Second quarter financial services segment operating income was $4.9 million down 93.5% comparing Q2 last year.
Net interest income.
$3 million due to higher average outstanding debt.
Liquidity and the things that the ongoing pandemic.
Thank you to provision for both retail and wholesale loan losses.
$54.8 million.
Q2 prior year.
This 71.2 million dollar increase and allowance for credit losses.
Partially offset by a $6.4 million increase and actual credit losses.
Credit losses were down as a result in lower delinquency and lower repossessions helped by our offering of payment extensions to certain customers.
Credit losses were also down on our inventory management efforts, we feel stronger motorcycle values that auction driven by increased demand for use by <unk>.
The allowance for credit losses was up in Q2 at the economy continued to deteriorate quarter due to the pen.
Yeah adjustment accounts.
All right.
Thank you very economic condition.
Related to continue and accelerating right.
Thanks.
The United States.
Our allowance.
<unk> impact of losses over the entire life on loans.
Yes.
Additional financial services segment details are noted on slide 13 and 14.
Due to retail originations were down 10.1%.
Prior year, driven by lower new bike sales.
Actually offset by strong used bike sales by dealers.
Probably gave us some financial services market share.
I'll be very strong 3.4 percentage point.
Nine point.
At the end of quarter.
For $1 billion casting cash equivalent.
$870 million.
Thanks Randy.
Facilities.
Total available liquidity $1.3 billion.
Cash and cash equivalents remain elevated.
Cash in the face of the economic uncertainty.
In Q2, we raised $3.3 billion.
Thanks transaction.
Good morning by the strength of the Harley Davidson balance sheet.
As of Q2, our debt to equity ratio was 5.1.
Well within our debt covenants.
Yes.
No higher than.
Our 30, plus delinquencies were favorable dot 100.
As we lap startup and efficiencies related.
Yes.
Management system last year.
We continue to see customers request payment extensions.
Challenges right.
The pace of these weapons much slower and it was in Q1 and the first half of Q2.
Customers who have received.
Related expenses.
Incremental.
However.
Three quarters customers.
Extension.
The payment.
Q2 retail credit loss rate was 1.7%.
Five basis point increase over Q2.
[music].
The remaining money do you financial results are summarized on slide 15.
Our quarter end cash and cash equivalents balance was $3.86 million.
Year to date operating cash flow of $600.2 million.
$610.2 million.
In the by lower inventory levels and favorable cash flows from wholesale financing activity.
Mostly offset by lower net income this year compared to last year.
Our year to date effective tax rate was 3.7% comparison, 24.1% last year.
A year over year decrease in the rate was primarily due to discrete income tax expenses recorded during the first half of 2020.
Reduce the company's income tax benefit.
Texas.
Pre tax loss.
The chart on slide 16 demonstrate that over time.
Leader amongst our peers.
Oh I see motor company.
Our only adding CFS.
And we are demonstrated later in our ability to generate cash.
In the second quarter, we paid a quarterly dividend of two cents per share.
As you will note.
Munich previously, we did not repurchase any rough stock on a discretionary basis in the quarter.
As we continue to take action.
Given the uncertainty and the ongoing.
We do not intend to repurchase stock in the back half Twentytwenty.
Good morning.
In Q3 dividend of two cents per share.
Much uncertainty remains weak.
And the pen.
On the global economy.
And on our business and it remains difficult.
Forecast our financial performance.
Before we continue and financial guidance for 2020.
To wrap up the financials.
19, it's impacting our short term results.
Insane.
Confident the actions we're taking.
Wire.
And our business and drive long term value or Steve.
Now, let's take your question.
As a reminder, if you'd like to ask a question you may do so by pressing star than the number one on your telephone keypad, we do ask that you limit yourself to one question.
Have any further questions. Please press star one again to reenter the queue.
Your first question is from James Hardiman of Wedbush.
Hi, good morning sake. Thanks for taking my question. So it's somewhat of an open ended question with regard to whatever you will give us on the retail front.
I'm curious what the momentum was within the quarter.
Maybe if you could sort of talk through how the dealers that were actually opened in the quarter did.
From month to month, and then any color on what June look like and ultimately now that we're almost at the end of July.
Looks like so obviously you have different policy, which of those things you want to touch on but any color you can give us we'd be really helpful.
Thanks, James This is this is Larry Hunt.
So if you take a look at sequentially.
End of April we only had about 40% of our dealers opened for a motorcycle sales.
Dealerships then tended to open as we went to out made by the end of May we had about 80% of worldwide dealers open for motorcycle sales and then and then saw additional openings in June.
So that they're worried nobody on the ended June you had about 93%.
Worldwide dealers open for sale, so as you can imagine.
Sales increased sequentially by month as we went as we went throughout the quarter, obviously June being the strongest month of the quarter and then as far as July I would say you know once again, we've got most of our dealers open and I would say sales are trending as expected.
Given our new approach to supply demand and inventory management.
And I guess, if I may just a follow up to that last point shrunk trending as expected.
With a caveat the expectation that now that inventories are significantly lower.
As a result of the new strategy that to some degree that has and will continue to limit retail as we move forward.
So I think as narrow said, we're not we're not giving updating guidance here, but clearly I think there's a new approach to balancing supply and demand and inventory management.
We'll have an impact on retail sales as we.
Work tune to create desirability and some of the benefits of that we saw you know as we went through the quarter of.
Benefits to retail pricing, both for new and used motorcycles and benefits for use motorcycle prices that auction.
Excellent. Thanks for the color guys and good luck.
Your next question is from Sean Collins with Citigroup.
Great. Thank you hi, guys good morning.
Good morning oriented.
Thank you I wanted to ask about the X gene a cost savings there I know you laid out there you got 250 million cash savings can you break that out between the Capex savings and the annual SGN a savings that are expected sees thank you.
Yeah. Thanks, Sean for your question.
We're not going to break that out any further than what we've done already which is basically we expect that those savings will be made up of SGN day and capital.
Expenditure reductions and so.
At this point all we're going to say about 250 million I will tell you, though that we are on track to deliver the 250 million that we discussed in Q1. So we're confident that we'll be able to deliver that for the full year and that is both for any restructuring charges that we're going to be tape.
And to add to that and what that road said earlier is that they restructuring charge. We took in the second quarter, we expect to deliver 100 million in has seen a savings.
So that gives you some indication.
Okay. That's great helpful. Thank you very much I will get back into the queue. Thanks.
Your next question is from Jamie Katz with Morningstar.
Hi, Good morning, Thanks for taking my question I'm curious, if you're willing to give us any insight on the exit of international markets that you're looking at Theres any way, we can maybe think about quantifying what.
Percentage of shipments that might be Frank.
So well give an exact number but I would say you know that is a relatively small percentage of shipments up if you take a look at it you know as we said, we're focusing really on about 50, roughly primary markets that generate the vast majority of our AR.
Retail sales and shipments.
We're still evaluating which markets we may choose to do exit.
But those are markets that generate a relatively modest amount of our.
Sales and and a relatively modest amount of our profits.
Okay, and then I think in the press release.
The adventure exploring model with being pushed back do you have any comments on the street fighter model I think that was set to come out next year as well.
Yeah at this point, it's ER adventure touring will be the focus going into next year.
I said earlier, we expect to streamline our product line up by about 30% in terms of more than reduction and color reductions.
The product line related decisions, we will we will be revealing a in real time. So it's not really something we can and want to talk about at this point, but let's focus on the things that touring is an exciting new segment for us going into the new year.
Excellent. Thank you so much.
Your next question is from Derrick Johnson of BMO capital markets.
Hi, good morning.
I'm not sure you quantify this was $100 million ongoing savings related to current actions is that a run rate or is that we expect this year and how much of that is incorporated into the 250 million that you mentioned earlier.
Yes that is the run rate, but as a as David said, we are looking as part of the new five is strategic plan to also reinvest into brand building initiatives. So if you take dollar for dollar that is correct. It's a run rate, but with a caveat that a we might want to decide on re.
Investing and investing more into brand building initiatives.
Okay and Yoking a question for you you mentioned strengthening HD culture.
And your book manager and among.
You see that manager should ask themselves. This question, which elements of collective memories should be recognized what must be brought in and what must be discarded. So how would you answered your own question [laughter], well well well read.
Well look.
We have a very dedicated or.
And bleed workforce around the world, which is really fantastic. The culture has suffered a company has seen five consecutive restructurings every yeah in order to sort of chase the downward trend in sales that has it APAC effective morale and engaged.
And by hour by hour team members around the world, which is totally understandable and that's the culture will need to revitalize I see a huge amount of commitment.
The last couple of weeks, it's been tough because we had to let go of over 400 500 people.
That is a very difficult thing to do and has its effect on morale tool, but overall I do believe there's an incredible energy and passion for Harley Davidson to get back on the winning street and that's that that energy and passion I want to I'm quoting appalling bio a employees around the world and I'm certain that I would get that and we're seeing already.
Positive changes despite the difficult environment, we are in.
Collectively as I also mentioned earlier, we are bringing in new talent that we have fantastic talent bugs in not some areas. We we are looking to hire and have already brought in new talent into the company. So we are complemented by a strong team.
With the with new new talent from the outside.
And I think thats devoted a lot of the things that didn't happen I very much down to the way the company was run the way the structure the organizational restructure the way the processes, where they find and that's why this is a really comprehensive.
We said and re Y O <unk>, how is that Harley Davidson operates as as an opening in the newly defined operating model and newly defined process. This going forward and that I think will unlock the follow the team that we have in place.
Going forward.
Okay. Thank you very much for that.
Your next question is from Greg Badishkanian Wolfe research.
Hey, guys. Good morning, it's actually Fred Whiteman on progress if we just look at the market share figures, particularly in the U.S. mean that was down pretty significantly year over year and this is definitely a transition year, but how do you expect share to trend over the next few quarters and is there any risk that some of that market share erodes permanent.
Thanks.
So so once again, we're not giving guidance going out I think if you know as.
Daryl talked about right, we were really for things that impact it share here in the in the second quarter, one certainly crocus segments outside of where he currently do you have some primarily competes.
You know fleet sales if you think about these sales lot of those.
Tourist come from Europe, and and that drives a lot of the fleet market and certainly that type of travel. You know is his comment has really bad dramatically reduce I'm, sorry, so that had a meaningful impact on touring.
And then.
We had obviously there was it was a lot of promotion in the market in the quarter with our whole approach to supply and demand and inventory management, we didnt do promotion in the U.S. in the quarter.
Charles Schwab, so those are really.
Big drivers.
During the quarter.
What I would say is that we think that the positives that came out of our supply and demand inventory management, you know with increased pricing at retail for new and used motorcycles with increased.
Pricing at all and auction for use motorcycles in closing that new use price gap in the in the long term is a positive for Harley Davidson and that that's point to drive greater results going forward.
And if I may add to what the Larry said I think look at it this way share she's more meaning filler one supply demand balance.
And until then it's really the desirability over the brand that is more important and the and as as Larry mentioned, we had not focus simply in volume or share for that matter, we will not to over supply the market and if you look at the patent what I've experienced.
If you look at supply and demand over for pushing to put more do we want to make sure that demand pool, our sales and not we're not pushing product into the market and stopped promoting our bikes before the season, even started so we're not going to pursue volume at the expense of the right fundamentals of our business and we will actually be.
Fine new metrics that was defined desirability.
I'm glad to hit already alluded to some of them that have improved in the last couple of months.
Okay, and maybe just a follow up on that last point I mean dealer inventories in the U.S. down 17000 bikes, whereas now versus where you would want it to be ideally in sort of your internal plan.
So I would say we were we were down more you know obviously as Daryl said, we had we had plants closed we were certainly down more at the end of the second quarter.
Why inventories were down about 32% the U.S. was down more than that so inventory throughout the second quarter was certainly a fair amount lighter than we would like going forward Oh can be a specific number but certainly that that amount we're down into second quarter Paramount lighter than we would expect and we think is.
The right measurement for the business and that has come back you know as plants up an open and shipping motorcycles on a regular basis.
Great. Thank you.
Your next question is from Craig Kennison of Baird.
Yes, Thanks for taking my question and kudos to Garik and a great question as well I topic is a affordability and kind of demographics.
With a premium brand like Harley Davidson the focus on scarcity value makes sense, but building that next generation of riders means that affordability is going to be a factor what can you do to make that first by more accessible for the next generation of riders in is that important.
Well I think you know affordability has not been a problem in the pause, but when you.
Prices go Don you MSRP goes down that obviously the values the value of our bikes and that's what needed and needs to be corrected.
So when you are making a significant investment into holiday Davidson product you want to make sure that your value is preserved.
And that doesn't deteriorate from the moment you bought you'll you'll Harley Davidson product. So I think affordability is relative to some have.
Said, we want to be exclusive no. We don't want to be exclusive in fact, we want to be inclusive as it brand, but we want to protect the value of our product for our customers a and <unk> and that is all built around the desirability, which we amended things different metrics and as part of the next five years strategic plan.
I think demographics, we also need to look at <unk>, who has been buying Harley Davidson in the pots and who do we expect to buy Harley Davidson the future and.
Quite honestly I think that we've had a more around the over simplified view.
Harley Davidson, it's for those who share our mission.
We called it the time this pursuit of adventure freedom for the sold and that is regardless of age and it's important to remember.
The customer targeting is so much more dynamic than actually looking at the age and I've heard now the so often that you know our consumers aging out well you know I'm aging as they say snappy like writing right now in fact I would say.
Consumers the aging into writing as they have more free time and resources, especially post this pandemic and so Harley Davidson, it's really more boat attitude and emotions and aging demographics and the if you look at the data.
That actually does show that the people at the age of 30 plots overtime age into writing and that it's critical that is not to say that we will be collecting a lot of teenagers to or grant that's just.
No the focus of our company, but that being said if you look at the engagement you know or the incidence rate. That's that's increased one and a half times or for young adult since 2010, and actually fell 50 plots. It has increased over two times since 20 attend so that's that's a positive and if you will.
Okay, then had sales of used a new bikes together, we've actually done really well in the second quarter and that shows that there's huge amount of demand for product.
In 2019 alone over 500 dollar wise right us at the purchase new and used bikes, we tend to focus only on or new bikes I think that we need to change so I.
I'd say affordability by protecting the value of our product, but not certainly, but cheapen it and hence focusing on desirability would be the future.
Three more to Oh, we will look into but I will be talking more about that in over five years strategic plan.
Your next question comes from Brandon Rolle of Northcoast research.
Good morning.
Oh boy or the new writer dynamics, you're seeing in the industry or could you comment on writers Academy registrations are what you're saying you know seems like other power sports a industries are seeing new riders. So could you comment on that.
Yeah, I mean, yeah, Colgate 19, certainly has sparked interest, especially in the U.S., but it was internationally and for outdoor activities and that is visible in positive sales trends in particular bicycles and bullets in hobbies and.
And now the outdoor products Motorcycling Harley Davidson, specifically, we believe has and will continue to benefit from this trends as as we said now.
Taking new and used sales together you know, we've actually seen a slight increase in the second quarter and.
That has increased as well.
In particular regarding the riding Academy and leaves we've added two new programs to a with experience to ride and learn to ride and we actually expect to all of our classes to be flu for the rest of the so we've seen a significant increase in our riding academy classes at our U.S. dealerships.
In the long run in the long term I'm, we believe that an increased interest in outdoor power sport activities, including motorcycles should then also had a positive effect on the holiday what's it going forward.
Your next question is from Adam Jonas of Morgan Stanley.
Thanks very much.
The question just asked was what I was going to ask but I wanted to pivot to just.
How are you seeing morale in the company right now you're being you're being refreshingly open with you know some of that.
Some of the degradation in the company and now it's hit the culture.
But as you've been able to reach much much deeper into the into the management of the dealers.
Just a line workers any any anecdotes of thoughts mood you want to share as the company Kinda back comes out of this dark period and.
And kind of maybe can transition from anxiety that somehow.
That is a great and very important question. Let me say this you know from my perspective management has been.
How should I say removed too much removed from the business and from culture and that is something that needs to change dramatically and the.
You know if I need to managing director of a relatively important country and that person has not spoken to 15 years for 15 years to senior management. There's a problem right. So first of all we had to make sure that decision, making happens where it needs to happen and that's.
What I tried to say in my in my speech or they all and.
We need to delegate responsibility out to those who know how to make the right decisions within the clearly defined framework. So that doesn't mean that we just delegate it means that those who know best that run the condensate that run the regions should be having a clear framework within which they can make decisions and don't have to wait for.
Leadership to ultimately micro manage in markets, that's not going to happen going forward I think that will help us significantly affect a morale obviously as I said earlier you know it's been a tough a couple of weeks having to let go. So many of your colleagues is very tough and it's certainly not.
Helping more route but I do believe based of the feedback I perceive that the is the general understanding that this is not the cost cutting exercise. This is really about setting the company how quick long term success, it's making sure that we have the right operating more to the right people in the right plays with the right float processes. So that would it would make the right decisions and become foster.
On flakes and more focused and that's essentially what the focus was the side effects. The positive side effect. This is of course that our course would go down and that we adjusting our cost structure to the new reality, but more importantly to me we shouldn't just focus on the cost side, but actually after five years old cheese leasing costs down.
Actually setting ourselves up for it for a long term success by being a much more high performance company that is really the focus of the rewire, we've made tremendous progress.
I've been to the factories now.
Except Tomahawk I visited our powertrain operation of I've visited your.
The as well I think more engagement by senior management to understand what's actually going on in the factories is required and weve gotten and received a lot of positive in the input that we take into account <unk> reference to peaks and valleys in our production throughout the year, it's something we need to work at its just inconceivable.
That you lay off people to then we higher than three months later that is never good for quality if into interest you have to bring in casual work has to fill the gap with not having the same experience and not putting the thing focus on quality. So that's something we need to work on that's that's the that's an area that we are focusing right now and.
I think deals as well I mean I've been in touch with with the many dealers in fact I'm, reaching out to many dealers in the next couple of weeks the virtually rather than physically with all the restrictions on travel that we're still seeing.
But I think overall I've only received positive feedback.
Furthermore, the that so far that we're making the right. The decision. So I do believe anxiety, we'll pause quickly and we are we are going forward with a lot of hope, but you know it's not hope it's actually a plan it could be a strategy. It's clear you why a playbook that we are executing and and that we're communicating on in a much more significant way.
We had liquidity I am communicating personally every week. After this call we had a global seminar for all employees because it's important that at least that we take is being communicated throughout the organization to full transparency of the good the bad decisions and the you know all the things we can improve.
Hope that answers your question.
Your next question comes from Sharon's Akcea of William Blair.
Hi, good morning, Thanks for taking my question.
On the 75 million dollar a year over year decline and that's DNA can you help us understand what if anything in there was unusual related to the kind of virus disruption.
First is something that might be more ongoing structurally lower and then I'm on the HTS. That's originations I think they're actually higher than the total company as Robin is did you do something different as it related to use financing within the corner.
Thanks Sharon.
So on the first part of the question on the SGN age side. There is nothing that is necessarily unique from a cobot point of view up except for the fact that people aren't in the office and therefore, they're not spending to the same extent that they wouldn't be otherwise.
And obviously, we are hiring freeze in place and that helped drive down the SGN day that.
Thanks, you are seeing so the $76 million is really part of the promise that we made with respect it's $250 million.
And it's just coming through.
Lines.
We're not traveling we're not spending money.
Hiring freeze if nothing.
Unique or are you to cope with that I could point too so.
With respect to each DFS, yes, their performance was better and it was driven by use. However, there were no promotions I think it all goes back to the supply in inventory strategies that weve been taken that we've talked about already that are basically, creating a and demand for use by.
Better being sold through our dealers H. DFS is well positioned to finance those bikes and as you can see their performance was stronger than they are motorcycle segment. So again, it's all part of the whole supply and inventory management process and we're seeing it play out at age GFS strong originate.
Since abuse, there was no promotions nothing special about financing use except for those with the opportunities where.
Your next question comes from Tim Condor Wells Fargo Securities.
Thank you.
Okay, and if I may one for you and one for Larry if everyone to take this.
On the new use spread can you kind of just give us a reference point, where that was at the end of Q2 versus a year over year basis, and maybe a long term average.
That's maybe for Larry and then neocon.
Looking at the part of the Rewire are you looking in any way it at changing.
Especially in North America as a replenishment.
You know profiling regional areas of dealers and maybe changing what their stocking bases and how that's replenished as part of the rewire or to Hardwire maybe program.
Okay. So on the on the a new users spread.
Honestly, there's a lot more use motorcycles in the market than that new but it's probably about a one third to start up split.
Roughly a third new maybe to surge two thirds use.
Or I guess, Larry from the from the pricing differential has is that narrows, obviously back too if you have better value for the consumer it holds the value better doesn't depreciate right out of the dealer floor as much that precipitates. This long term value interest from the brand like what you guys talking about sort of yep.
Yeah. We saw it was probably if you can be two things on that we saw used pricing increase about 6% throughout the quarter.
Certainly higher than we've seen in any previous quarter for good while.
You look at the auctions, we probably saw you know as you went through the quarter enough for the entire Carnival. You went as you went through the quarter as auctions kind of opened up back in May and June we saw that comparable bikes were going for roughly about 10% more than they were previously so hopefully that gives you a couple a benchmark.
Thanks, and the way used pricing solidified in the second core.
And then just sort of where that is the which is a long term or where you want it.
You know, obviously anything that closing that gap is good.
Certainly I think that you know those are levels that we haven't seen and quite a while Tim. So I think that we think thats a lot of momentum in the right direction. Obviously, if it causes more of that would be when would be great. I don't think we have a benchmark on that we clearly think that having that that cannot be flash is a good thing as far as you all can satisfy iris.
Use motorcycles, retaining their value and customer feeling like they buy it motorcycle that depreciation curve isn't going to be a steep as it wasn't the past.
Yeah, Jim to your other question you know as I said balancing supply demand and how's the inventory levels is key and that applied to the U.S. replies to all other markets around the world.
Because we have quite that then dealer network in the United States in particular that it's has even more importance and the and headed says a lot of focus on on our new SDN NIE management's what with us as as we call. It now.
So inventory management will sit with a commercial function and the responsibility will fit with the commercial function and hence that is something that has actually changed or.
Inventory management was in the past or responsibility and accountability wed not with the people that ultimately called on the inventory that the problem that we needed to fix in terms of.
Replenishment, yes, you know of course that automatically has an effect on how we replenished, but I think that what's with some other factors that we should bear in mind and that is.
We also want to make sure that you know in inventories I ride through out the network and that means that if some dealers have too much of one.
Model or Oh product that they also start trading them on each other so unlike I was hoping trade among dealers I think is something.
That would also help to improve over inventory overall throughout the network and what we also don't want to do is have all of our ddas compete with each other on price as I said, you know pricing promotions and discounting has to be reduced because we'll be sick newt significantly reduced and that doesn't only apply to us, but we hope.
Certainly that by doing the right space with the rely on our five three strategic plan that our dealers was pulled a suit and still competing with themselves from time to time, if they think it's needed a rather focus on our competition than the looking at our fellow dealers as competitors I think that's something that we also need to address and they actually need to address going forward.
Your next question is from David Macgregor of Longbow Research.
Hi, Good morning, it's a cold what's on for David Thanks for taking my question.
Are you they still planning to move forward with a small displacement bike in Asia and if so can you give us an update on the progress there.
As I said, we would like to.
Reveal our products much closer to actually launch and and whether and when we're going to launch specific products is not something that I would like to elaborate on right now we will provide further detail.
In the fourth quarter at this point, there's really nothing new to say about that.
Your next question is from Joseph <unk> RBC capital markets.
Hi, Thanks, good morning, everyone.
Two questions. One I'm just wondering if you could give us an update or a sense of how much.
Plans or I guess line consolidation can occur as you get your capacity to align with your new go for a review of the company's opportunity maybe how that compares to 2019 levels and then secondly looks like U.S. inventories down maybe 40% or show year over year, but there were some reports said I think you want it.
Lower maybe 65% so do you still plans under shift in the back half.
Are you referring to a manufacturing capacity are you referring to our mortgage sorry.
No not carrying capacity.
Well, we have adjusted our manufacturing capacity to the two hour or expected volumes going forward with all the uncertainties, obviously that the wrong the pandemic, but we've taken necessary measures.
ER to align our manufacturing capacity. So I think we are pretty much said, assuming that we see into the foreseeable future qualities that will realize but we have taken that.
I would say realistic conservative approach.
And just for the second part of your question as far as shipping in the second half a year.
As Daryl said, we're not providing guidance, but I think there are some things you should consider.
Our as your forecasts are concerned.
Combination of factors that are going to impact shipments ultimately revenue in the back half a year more significantly.
Second call re timing of our new model year delivery to early Q1 from historically you know that span late August right. So that is going to have.
Certainly and impact on volte shipments and retail sales as far as the timing of that is concerned.
I'd say you know as we've mentioned several times on the call our new approach to supply and inventory management.
And in line with demand to drive value when desirability no thats going that's going to continue through the rest of the year and then in the next year.
And then we did mention we are looking at you know exiting certain markets smaller volume seems like that and we'll probably have some some continued dealership closure swaps the rest of the year. So in the back half so that will probably have an impact as well and then finally just.
Theres the uncertainty uncovered 19.
Potential additional additional disruptions that thats hard to predict at the moment, but that could certainly have an impact. So hopefully that gives you some.
Direction, I guess as two things that could inflect influential.
Shipments starting the out in the back half a year.
Okay.
Your final question comes from Felicia Hendrix of Barclays.
Hi, good morning, and.
For the final question, it's kind of picture and so even down event brought in sweeping program on the stepping back if you had to prioritize the top three issues that hardly had what would they be and what do you think the customer wants that hartley not delivering.
Well I'm afraid three is not enough [laughter] part of it has to ask you to go back to everything I said I think everything that is part of the playbook is really important and I wouldn't want to highlight a you know anything other than maybe say that without proper operating model and without the right people in.
In place.
The right. The organization structure, you know you can succeed so.
Brad that's complete.
Forward now focusing on how the areas of the Lee, Wyoming, which we've already addressed in the order they have taken significant actually but more to come until the end of the yet.
We give customers what they wanted to I would say Oh, we do we have extraordinary product and we have more product in the pipeline, but complexity of our product offering has just been quite.
Substantial and and you know, sometimes it's even a hard to know what product as Walt and the and that complexity I think might even be put some cut them as a bit confusing at times.
Especially for those who come into the brand and would like we'd like to buy a new bike that it's not a huge problem, but it's certainly something that makes our lives for web product development.
ER and investment going to view more more difficult and that's also one of the reasons why we don't want to it just launch into every category at once but want to be very focused on the ones that are true to hardly that our cost them a customers are looking for and that I'm not too much of a brand stretch you know you can be.
Everything for everybody, we are an extraordinary and desire, but brand, but that doesn't mean that we ever want to become everything for everybody. So that desirability needs to be retained as needs to be reflected in the products, we offer and the categories, we launch or says into a if they're not part of the offering today.
All right that wraps up our questions for today. Thank you everyone for joining us and hope you have an outstanding day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.