Next year you can buy a new Harley-Davidson for $6,000

That's big news for the Harley-Davidson's lineup, because not long ago the least expensive new model in the lineup cost twice that much. Company executives have been hinting for a while that new, less expensive models are coming, and Zeitz dropped a few additional details in the conference call with financial analysts today after the company released its earnings report for the second quarter of the year.

Zeitz also confirmed that the LiveWire mini moto concepts unveiled at the Harley Homecoming event this summer will also go into production.

Zeitz appeared to refer to the new model as the Sprint, so presumably that will be its name. No other details beyond the name and price were revealed, though he said the model will be presented to dealers in October. Along with the Sprint, Harley-Davidson also will introduce an "iconic cruiser" next year, possibly to be named the Eagle. This is purely speculation on my part, but I believe the Eagle (if that's what it's finally called) is a response to calls from dealers to bring back a traditional-looking, affordable model like the XL883 Sportster.

In recent years, Harley-Davidson has sold in other markets its X 350, X 440 and X 500 models developed with partners in China and India. But those small motorcycles weren't for sale in the U.S. market, even though they were used as trainers in the Harley-Davidson Riding Academy training course. Here in North America, the least expensive new model has been the Nightster, which originally debuted with an MSRP of more than $13,000. But Harley-Davidson has cut the price twice since then and the current MSRP is $9,999. Still, sales of the Nightster and the Sportster S have been slow, accounting for less than 10% of Harley-Davidson's motorcycle unit sales so far this year.

The new models are an attempt to cash in on current trends toward smaller bikes. Harley-Davidson has to be looking at the sales success that Triumph has had with its single-cylinder Speed 400 and Scrambler 400 X — both of which, coincidentally, list for under $6,000 — and wondering if it could also capture some of that segment.

"It's the only area that really shows growth right now, which is really the result of the affordability issues," Zeitz said of the small-displacement category.

Zeitz insisted the Sprint will not be a loss leader. Previous low-cost models have not been profitable, but this one will be, he said. Does that mean it will be manufactured abroad? The CEO gave no more details except to say, "We believe that how we've engineered this product, it will be profitable."

Overall, Harley-Davidson's second-quarter motorcycle retail sales were down 15% globally and 17% in North America compared to the same quarter last year. The company has also scaled back production as it continues to work to reduce the level of inventory on dealer floors.

That's not why Harley-Davidson stock jumped 20%

The new models were the most interesting news to come out of today's earnings report for consumers, but that wasn't the biggest development from the perspective of the company, investors, or financial analysts. The company's stock jumped over 20% because Harley-Davidson announced a deal to sell a portion of its Harley-Davidson Financial Services division. Financial firms KKR and PIMCO will each buy 4.9% of HDFS and will each take on a third of new loans going forward for at least the next five years. The two new partners are also buying $5 billion in loan receivables. That frees up $1.25 billion that Harley-Davidson will use to reduce debt, buy back shares, and invest in new products. 

One of the old myths you often hear about Harley-Davidson is someone claiming that the company makes more money selling T-shirts than motorcycles, which is nowhere near the truth. But it's not a stretch to say Harley-Davidson makes more money by making loans than by selling motorcycles. In the second quarter, operating income from HDFS was $70 million compared to $61 million from the motorcycle division. Harley-Davidson executives are thrilled with the deal with KKR and PIMCO largely because it shows how valuable the financial services arm is.