Warren Buffet loaned Harley-Davidson $ 300 million
Billionaire investor Warren Buffett loaned iconic American motorcycle maker Harley-Davidson $ 300 million in early 2009. Harley’s largest investor, Davis Selected Advisers, also loaned HD a similar amount, the $ 600 million of Combination loans fixed at a hefty interest rate of 15%.
Lack of demand and cash flow during the financial crisis of the day led Harley-Davidson to take a three-pronged recovery approach: invest in the brand, cut costs, and find the money to cover their costs. The crisis meant credit was impossible to find, so high-interest loans were the only way to raise money without selling part of the business, HD CFO John Olin said. Harley needed cash to support its fundraising operations, as well as to keep production running.
For the other two components of its recovery plan, the company began to market to a younger population, with a more varied product, a plan which continues today with the introduction of electric motorcycles and bicycles. electric. To cut costs, Harley consolidated some operations and laid off about 12% of its workforce.
Buffett’s holding company, Berkshire Hathaway, has a policy of keeping sizable cash reserves for such situations and had invested billions of dollars in Goldman Sachs and General Electric just prior to the Harley loan, earning it billions in return. The company has shown Harley-Davidson no favoritism by refusing to allow HD to prepay its high-interest loan.
However, in the end, Buffett could have made considerably more than the $ 150 million he got under the deal if he had invested the money in HD stocks instead of the loan. Harley shares had risen 300% in 2014, prompting Buffett to say, “I knew enough to lend them money; I didn’t know enough to buy the shares ”.