Harley Davidson 2014 Annual Report Download - page 10

Financial Services
HDFS is engaged in the business of financing and servicing wholesale inventory receivables and retail consumer loans,
primarily for the purchase of Harley-Davidson motorcycles. HDFS is an agent for certain unaffiliated insurance companies
providing motorcycle insurance and protection products to motorcycle owners. HDFS conducts business principally in the
United States and Canada, and primarily through certain subsidiaries such as Harley-Davidson Credit Corp., Eaglemark
Savings Bank (ESB), Harley-Davidson Insurance Services, Inc., and Harley-Davidson Financial Services Canada, Inc. The
Company’s independent distributors, dealers and their retail customers in the EMEA, Asia-Pacific and Latin America regions
are not financed by HDFS, but have access to financing through other third-party financial institutions, some of which have
licensing or branding agreements with the Company or HDFS.
Wholesale Financial Services – HDFS provides wholesale financial services to Harley-Davidson dealers and distributors,
including floorplan and open account financing of motorcycles and motorcycle parts and accessories. HDFS offers wholesale
financial services to Harley-Davidson dealers in the United States and Canada, and during 2014, 100% of such dealers utilized
those services at some point during the year. HDFS also offers financial services to the Harley-Davidson distributor in Canada.
The wholesale finance operations of HDFS are located in Plano, Texas.
Retail Financial Services – HDFS provides retail financing to consumers, consisting primarily of installment lending for
the purchase of new and used Harley-Davidson motorcycles. HDFS’ retail financial services are available through most Harley-
Davidson dealers in the United States and Canada. HDFS’ retail finance operations are principally located in Carson City,
Nevada and Plano, Texas.
Insurance Services – HDFS operates as an agent for certain unaffiliated insurance companies offering point-of-sale
protection products through most Harley-Davidson dealers in both the U.S. and Canada, including motorcycle insurance,
extended service contracts, credit protection and motorcycle maintenance protection. HDFS also direct-markets motorcycle
insurance and extended service contracts to owners of Harley-Davidson motorcycles. In addition, HDFS markets a
comprehensive package of business insurance coverages and services to owners of Harley-Davidson dealerships. The HDFS
insurance operations are located in Carson City, Nevada and Chicago, Illinois.
Licensing - HDFS has licensing arrangements with third-party financial institutions that issue credit cards bearing the
Harley-Davidson brand. Internationally, HDFS licenses the Harley-Davidson brand to local third-party financial institutions
that offer products to the Company’s retail customers such as financing and insurance.
Funding – The Company believes a diversified and cost effective funding strategy is important to meet HDFS’ goal of
providing credit while delivering appropriate returns and profitability. Financial Services operations have been funded with
unsecured debt, unsecured commercial paper, asset-backed commercial paper conduit facilities, committed unsecured bank
facilities, term asset-backed securitizations and intercompany borrowings.
Competition – The Company regards its ability to offer a package of wholesale and retail financial services in the U.S.
and Canada as a significant competitive advantage. Competitors in the financial services industry compete for business based
largely on price and, to a lesser extent, service. HDFS competes on convenience, service, brand association, dealer relations,
industry experience, terms and price.
In the United States, HDFS financed 56.8% of the new Harley-Davidson motorcycles retailed by independent dealers
during 2014, compared to 54.5% in 2013. In Canada, HDFS financed 34.0% of the new Harley-Davidson motorcycles retailed
by independent dealers during 2014, compared to 31.8% in 2013. Competitors for retail motorcycle finance business are
primarily banks, credit unions and other financial institutions. In the motorcycle insurance business, competition primarily
comes from national insurance companies and from insurance agencies serving local or regional markets. For insurance-related
products such as extended service contracts, HDFS faces competition from certain regional and national industry participants as
well as dealer in-house programs. Competition for the wholesale motorcycle finance business primarily consists of banks and
other financial institutions providing wholesale financing to Harley-Davidson dealers in their local markets.
Trademarks – HDFS uses various trademarks and trade names for its financial services and products which are licensed
from H-D U.S.A., LLC, including HARLEY-DAVIDSON, H-D and the Bar€& Shield logo.
Seasonality – In the U.S. and Canada, motorcycles are primarily used during warmer months. Accordingly, HDFS
experiences seasonal variations in retail financing activities based on the timing of regional riding seasons. In general, from
mid-March through August, retail financing volume is greatest. HDFS wholesale financing volume is affected by inventory
levels at Harley-Davidson dealers and distributors. As discussed under "Motorcycle and Related Products - Seasonality", the
Company implemented flexible production capabilities in 2013 and 2014 which has reduced the seasonality of dealer inventory
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