Always great to see an underdog brand win the MotoGP World Championship. Joan Mir wrapped up the title after a 20-yr drought for Suzuki in Valencia, Spain today adding the trophy to his Moto3 title.
How fitting the win occurred on Suzuki’s 100th anniversary.
As they say in motor racing, to finish first you must first finish.
While 8x motorcycle world champ Marc Marquez convalesces after extensive surgery to his right humerus, he was rooting for his rookie 2x world champ younger brother, Alex, who finished in 2nd at Aragon yesterday, his best result in the MotoGP class.
We think these brothers are quite close.
There are lies, more lies and then there are statistics. When the COVID-19 autopsy is finally published we will know that had credible biopsies been conducted, such ineptitude would never have led to the disastrous outcomes and misinformation we have faced today. The media have been willing accomplices, taking a morbid fascination with daily reporting to help arrest falling ad revenues and relevance.
It is worth pondering the slew of dud predictions made to date by so many activist medical academic bodies across the globe. These forecasts have been the very opinions by which so many poor policies have been forged by local, state and national governments. Even worse, these healthcare hacks have faced absolutely no accountability for those wildly inaccurate advisories.
Australian senior medical experts told the government the country risked 5,000,000 infections and a best case scenario of 50,000 deaths. The actual figures are 26,465 and 781 respectively. Consequences? Zero.
It is hard not to think of the actions of these whackademics as akin to the climate science cult which has portended doom for the longest time. How timely that the Dr Tedros, of the completely discredited World Health Organization, said, “In particular, the Covid-19 pandemic has given new impetus to the need to accelerate efforts to respond to climate change.” To think if we had eradicated fossil fuels that the pandemic wouldn’t have been worse than a spot of hay fever?
Speaking of fossil fuels, it is a perfect segue into the carbon criminals who attended Sturgis, South Dakota (SD) last month.
A recent report published by the Institute of Labor Economics (ILE) – which to the best of our knowledge is not in the healthcare sector – suggests that the 10-day Sturgis motorcycle rally during August 2020 was a super-spreader event leading to 260,000 infections, or 19% of the nation’s total during that period.
Medical experts warned that SD would have 10,000 COVID-19 patients in hospitals because the state refused to lock down but it never exceeded 100 at the peak. SD has some of the lowest rates in absolute and relative terms. Governor Kristi Noem made a point to allow residents to exercise common sense and keep operating. What a surprise it is now the best performing state in the US. No wonder the media hates its narrative busting success.
The mainstream media wasted no time to heap scorn on 480,000 irresponsible two-wheeled outlaws who have now apparently burdened the taxpayer with another $12.2bn in unnecessary health costs. Even if that number was accurate, we shudder to think of the $ trillions in economic damages caused by largely Democrat-controlled states and cities which have forced their minions into lockdown. Never mind that the political elites – who exert control over them – have brazenly violated many of the rules they issue dire warnings over. We wrote about that here.
Then these doomsayers wonder why events like Sturgis happen? Could it be that people are growing tired of the hypocrisy and see right through the “rules for thee, but not for me” double standards.
Naturally journalists went into overdrive saying that SD had the highest spike in the rate of coronavirus cases in the nation after Sturgis. That was partly true. Note that is the “growth rate”, not the “absolute” number.
What many statisticians fail to account for is the law of incredibly low numbers to begin with in SD.
Note the relatively unchanged trajectory of deaths from COVID-19 (below), which the CDC admits is directly responsible for only 6% of the total. 94% are caused by co-morbidities.
The divergent trends of coronavirus cases and deaths is an increasingly global phenomenon. Lockdown or no lockdown, better approaches to hygiene and more precautions taken by age groups more susceptible to the virus are no doubt a factor.
Yet governments are still ignoring hard evidence and blindly following inept medical advice in order to hold onto these new found powers so they can preach how virtuous they are to save a handful of lives but destroy 1,000s upon 1,000s of livelihoods. It is shameless and we hope voters punish them at the ballot box.
In closing, these two charts on SD more accurately reflect the media and medical activists. Infections marking the level of amplified hysteria and death rates depicting the lack of trust we should place in these institutions.
As motorcyclists, we are biased. Local Sydney brewery, Young Henrys, has made ‘Motorcycle Oil‘ which tastes somewhere between a Guinness and Kilkenny. Definitely worth a try.
Maybe a 5W40 in viscosity
After 25 years at the pinnacle of motorcycle racing, Valentino Rossi is often referred to as a racing god.
In a post race interview he said he would pray. No kidding.
All riders survived with minimal injury.
MotoGP rookie Brad Binder was not only the first South African to win in the class but also handed Austrian manufacturer KTM its first ever win at the highest level. Flawless win in the Czech Republic.
Binder won the Moto3 World Championship in 2016.
8x World Champ Marc Marquez has suffered a nasty high side which has fractured his humerus and caused partial paralysis of his radial nerve.
In the first race back after a 4 month absence due to COVID19, Marquez had been leading the race before running off track after a miraculous save and falling to stone cold last.
What followed was the most amazing feat. He caught up the entire field and retook 3rd place before this horrible accident.
To put into context, his main rivals must have been so demoralized to see him effectively parked in a gravel trap to then overtake them 10 laps later. Think of Usain Bolt stopping midway through the 100m final to tie his shoelace and then resume the race and catch the rest up.
The only way the rest of the field can defeat him in a championship is through injury. We hope he fully recovers from his surgery on Tuesday.
When companies won’t give guidance, we must find ways to see where we were relative to history to get a picture of the future. Harley-Davidson (HOG) makes a good case study. Coronavirus may be one factor but the company has already produced results that have undercut the worst levels experienced during the GFC. We have long criticised HOG for fuzzy maths under the disastrous leadership of the recently ousted CEO Matt Levatich.
While there are strictly no direct apples for apples comparisons on the timing of coronavirus and the GFC (the latter requiring no lockdown), we note the weakness in Q1 2020 unit sales in the chart above.
This is what the trend of Q2 looks like.
If we assumed a similar slowdown for April and May then theoretically the company would comfortably breach the Q2 2009 unit sales level of 58,179 which is only 18.6% below the Q2 2019 level. Q1 2020 global sales fell by 17.7%, even though the company made a very misleading statement which we’ll get to in a moment.
One thing that struck us was the steadily rising value of quarterly inventory as a percentage of quarterly non-finance revenues since Q1 2014. While the former value is a balance sheet item and the latter P&L, Q1 is generally a period where new models are rolled out ahead of the busiest Q2 & Q3 seasons to ensure the distribution network can move metal.
Shipments reflect this. The inventory metric drops off into Q2 although exhibits a similar type of trend to Q1. Given Q2 2009 was the beginning of the tough times post-GFC, will we see the high watermark breached or will the slowdown in production offset it? How badly are revenues affected such even flat inventories lead to a deterioration of this measure?
In Q4 2019, inventories to motorcycle revenues surged to 69.1%.
We note that Q1 2020 shipments equated to an inventory of 12,534 units (+29.0%YoY).
Here is where it gets interesting. By HOG’s own admission in the quarterly investor presentation pack (p.7), it noted that Q1 2020 US retail sales were on target to be one of ‘the strongest quarters in the last 6 years through to mid-March‘, until COVID. 6 years ago US Q1 unit sales hit 35,730 units. US sales in Q1 2020 ended up at 23,732.
In Q1 2014, over 90 days HOG shifted on average 397 bikes per day. (35,730/90 = 397)
In Q1 2020, over the 74 days to mid-March, HOG was moving on average 321 bikes per day. (23,732/74 = 320.7027).
If we assumed that HOG was to hit that magic target over the 16 days stolen by COVID19, it would have had to punch out 750 bikes a day. (11,998/16 = 749.875).
We would love to see the order book for these magical beasts that were waiting for a home…it would seem the sales and marketing department cherry-picked one strong day and multiplied it over the quarter to create such a questionable statement.
Here is a chart of motorcycle related revenue for Q1 since 2008. No wonder the shares have underperformed since 2014, even with a small fortune squandered on share buybacks.
The Q2 revenue book doesn’t look too flash either if April is wiped out. At present 50% of dealers are shut since late March. Is the market prepared for a sub Q2 2009 print? The share price has rebounded strongly after the Q1 results even though there is no guidance to speak of.
But it gets worse. So poor has the Q3 season become for HOG that its unit sales have missed the Q3 2009 post-GFC low for seven out of the last 10 years. Are we to believe if the world is out of lockdown by Q3 that there will be a miraculous surge in new bike sales when unemployment is likely to remain at troubling levels potentially above that of GFC?
HOG is a great example of a divine franchise. It wasted far too much money on share buybacks (now suspended) and sits with a credit rating just two notches above junk.
The annualised Q1 2020 loss experience for the finance business sit at 10-year highs even before it has been thumped by the coming turndown. People buy HOGs as a hobby, not transport. A purely discretionary purchase. We imagine that restoring household balance sheets will take precedence to stumping up serious coin for a Harley cruiser.
Sadly Levatich and his 2027 vision have not been consigned to the dustbin of history which is the only logical filing cabinet for it. Completely unrealistic, devoid of reality and totally in denial of the shifting sands in the global motorbike market.
The new “Rewire Plan” (p.5) while sketchy on detail (as it would with an interim CEO) is a reheat of Levatich’s plan. Sad.
In our view, the entire motorcycle industry needs a strong HOG. New management is a good start but it won’t help if they intend to convince investors that they were on course to shoot Q1 to its best level in 6 years with questionable math. How quickly can inventory be pared? What models will revive its fortunes?
HOG needs to get in touch with its core customer base the way Willie Davidson did after the dark days of AMF ownership. It needs to build products which hark back to its former glory rather answer questions in segments that no one is asking it to fill.
Indian, its rival of 100 years ago is killing it with the FTR1200. Indian’s parent company, Polaris Industries, posted a small single-digit increase for motorcycles in Q1 2020. Enough excuses HOG. You are running out of time and your retained earnings are 1/5th what they were 5 years ago!
Why is the market giving it the benefit of the doubt when the worst is still ahead?
Harley needs a crisis manager. Will the incoming CEO possess those skills?
We had been expecting for years that Harley Davidson (HOG) CEO Matt Levatich wasn’t the right person to lead the company out of years of misery. Finally, the board took that view too. In 2017 we wrote,
“Harley-Davidson is suffering from divine franchise syndrome. It has failed to modernize its line up… its competitors do not seem to be suffering as BMW, KTM and Triumph hitting new shipment records.”
We also wrote in 2018 that
“Harley is losing share in America, it’s largest market…Australia and Japan remain soft. Harley used to sell 16,000 units in Japan. In 2018 it will be lucky to ship 9,500.”
Unit sales in Japan fell below 9,000 units in 2019. An utter disaster.
Global sales went backwards for all 5 years of his tenure. 30+ day delinquency rates and annualised loss experiences are at 9-year highs. Instead of investing harder in solving the rout, the company embarked on an aggressive share buyback program to pad the softening earnings, which was expanded again this year, two weeks ahead of his departure.
We pondered last year,
“How has CEO Matt Levatich managed to hold on over the past 4 years? Since taking the helm, volumes have fallen from 268,000 [to 228,000]. Revenues have shrunk from $6bn to $5.7bn and EBIT of $1.2bn to $733mn.”
In FY 2019 HOG global sales slumped to 218,000 units, revenues fell to $4.57bn and EBIT of $290m.
We never thought the maths added up. The strategy, which seemed formulated by a communications firm rather than one led by passionate bikers, was the problem. Its historic rival, Indian Motorcycles (Polaris Industries), has led with innovative products – such as the FTR1200 – that harked back to its flat track history. Indian parent Polaris Industries cites tough overall market conditions but is confident that “product” will be a major factor.
The announcement of CEO Levatich’s departure should cause the shares to jump. The aftermarket is already showing +5%. Going back in history, when failed CEO Jurgen Schrempp stepped down from Daimler-Chrysler, the shares added 10bn euro to its market cap the very next day.
If Chairman Jochen Zeitz’s comments are anything to go by, Harley should bounce hard.
“The Board and Matt mutually agreed that now is the time for new leadership at Harley-Davidson. Matt was instrumental in defining the More Roads to Harley-Davidson accelerated plan for growth, and we will look to new leadership to recharge our business.”
The motorcycle industry needs a strong Harley. Let the healing begin.