The biggest topic of conversation, in & out of the industry, is the slow down of motorcycle sales. We all know that the housing boom from 2000 to 2005 has created a wealth effect with the mortgage equity withdrawals (MEW) being a cash cow providing home owners 100’s of billions of dollars going into consumer spending. On an annualized basis MEW soared from about $100 billion in 2000 to $780 billion at the peak in the 3rd quarter of 2005. From that point it has already dropped by about 55% to $350 billion. Harley Davidson and its clone companies (Big Dog Motorcycles, American Iron Horse, etc…) were some of the benefactors. Harley stock price (HOG) outperformed the S&P 500 by 130% from 2000-2006. This so-called “wealth effect” has been an extremely important factor to fuel consumer spending as real consumption growth has far outpaced real income growth in recent years. With MEW no longer providing households with a substantial amount of extra cash, and jobs not rising as fast, consumer spending growth has slowed down significantly. Add to this vanishing wealth effect the fact that Harley-Davidson was financing about 50% of its sales with 15% of these loans being subprime loans, and you begin to understand why motorcycle loans & sales are hitting a pothole. Wall Street analysts state that Harley-Davidson books show a pattern of deterioration of loans, growing credit losses and over 30-day delinquencies. These loans can be sold to another company, but because of risk, at a big discount. Dealers inventories are also balooning. Based on a survey conducted: Harley Davidson dealers are now carrying between 2.5x – 3.5x more inventory then they were in Q1 2004.The lesson? Excessively easy credit is always costly in the long run.. Economists are debating to which point the end of the housing boom will ripple through the rest of the economy. Will we have a soft or hard landing, or quite possibly a recession? . Yesterday a poll of 1,373 adults conducted for the Los Angeles Times and financial news wire Bloomberg found that 60 percent of those surveyed said recession was somewhat or very likely within the next year, Of course nobody knows for sure. For those who can, it’s a very good time to buy a house with one or two motorcycles in the garage.