BUZ LIVINGSTON: Warren Buffett saves Harley Davidson

Published: Thursday, May 1, 2014 at 11:35 AM.

( Houston , Texas ) You probably realize (or soon will) Thunderbeach and the Panama City Beach Motorcycle Rally kicks off this week.  Since I sleep with my windows open I can’t miss the distinctive Harley Davidson rumble. When I was a young buck, poor quality control and better Japanese bikes almost finished off HD.  Most people forgot Harley barely avoided bankruptcy in the early 1970s.  Even libertarians have valid arguments occasionally. High tariffs, anathema to free market adherents, made Japanese bikes expensive. Harley got lazy, quality suffered and an American legend almost bit the dust when tariffs ended.

In the depths of the 2008 financial crisis Warren Buffett’s Berkshire Hathaway loaned money to American companies hammered by the economic crisis. If you ride a “HOG” thank Mister Buffett.  Without Berkshire Hathaway’s loan the company likely would not have survived the economic crisis. From 2007 to 2009, Harley Davidson motorcycle sales dropped over 50 percent. For most people motorcycles are non-essential expenses. Some may differ I realize and respect but the numbers speak for themselves.

Mr. Buffett was not on a mission of mercy driving a hard bargain: 15 percent interest for five years. According to Harley Davidson’s chief financial officer John Olin, the company had little choice if they wanted to keep the company afloat. If you own New York Venture Fund or their no-load, identical twin Selected American Fund, thank their management, Davis Selected Advisors. The Davis team paired with Berkshire Hathaway on the loan and all shareholders profited handsomely.  

For perspective, Harley was one of only two US motorcycle manufacturers left standing following the Great Depression. Again this reiterates how deep and severe the economic turmoil was during 2008-2009. A company that persevered during 1930s almost didn’t make it eighty years later. As much as I loathe the Bush/Obama TARP bailout package, what would our economic system look like without it? I doubt another TARP-like bailout could get through Congress but we seem oblivious to the ramifications. Most bikers cruising up and down 30A don’t realize how close HD came to bankruptcy either. Going through bankruptcy would have limited corporate support for Thunderbeach and the Motorcycle Rally. More importantly, dealer financing would have been curtailed leading to dealerships closing. Before you sing free market hosannas, Davis Advisors invests heavily in financial companies, including but not limited to Wells Fargo and AIG.   Without TARP, Davis Advisors may not have been able to swing the Harley deal. A man far wiser than me once said those who cannot remember the past are condemned to repeat the same mistakes.

Things I Don’t Understand

In Pulp Fiction Harvey Keitel urges caution “if we come across the path of any John Q Laws.” The complaints about Western Lake speed limits baffle me. As a bicyclist, the Western Lake bike path is a bug looking for a windshield. Let’s connect the dots. Nationwide, few real estate markets sizzle like 30A. With a booming real estate market more traffic follows. If you can’t do the time don’t do the crime. If real estate’s your game, don’t complain. Set your cruise control and annoy a tourist.

Buz Livingston, CFP has a Blue Mountain Beach based fee-only, hourly financial planning and investment management firm.  For more information, visit www.livingstonfinancial.net or come by our new office at 2050 Scenic 30A, M1-Unit 230, Redfish Village .

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