Harley-Davidson to move some production from US due to tariffs

Harley-Davidson plans to shift some manufacturing of its iconic motorcycles from the US to avoid retaliatory European tariffs.

Harley-Davidson motorcycles in New York. Pic: Getty Images

Harley-Davidson plans to shift production overseas to avoid European Union tariffs on its iconic motorcycles, the latest manufacturer to reconfigure operations amid a widening global trade fight.

Harley prizes its made-in-the-USA reputation as central to its appeal to customers all over the world. But the Milwaukee company has made plans in recent years to open factories in countries including Brazil and Thailand to hold down prices.

That manufacturing footprint outside the US is set to expand. Harley said in a security filing that tariffs of 31 per cent the EU enacted last week on its motorcycles would raise the cost of each Hog it ships there from the US by about $US2,200.

Rather than raise prices, Harley said it would shift production of the motorcycles it sells in the EU outside of the US over the next 18 months.

“Increasing international production to alleviate the EU tariff burden isn’t the company’s preference, but represents the only sustainable option to make its motorcycles accessible to customers in the EU and maintain a viable business in Europe,” the company said in the filing.

US President Donald Trump said he was “surprised” by Harley-Davidson’s decision.

“I fought hard for them and ultimately they will not pay tariffs selling into the EU, which has hurt us badly on trade, down $151 Billion. Taxes just a Harley excuse - be patient!”

Surprised that Harley-Davidson, of all companies, would be the first to wave the White Flag. I fought hard for them and ultimately they will not pay tariffs selling into the E.U., which has hurt us badly on trade, down $151 Billion. Taxes just a Harley excuse - be patient! #MAGA

— Donald J. Trump (@realDonaldTrump) June 25, 2018

Harley-Davidson currently has overseas manufacturing plants in Brazil, India and Australia and is building a plant in Thailand. However it announced in January it would close its New Castalloy factory in Adelaide next year.

The company did not specify where the additional manufacturing would go.

Harley’s shares fell more than 3 per cent overnight. The company didn’t immediately respond to requests for comment.

The tariffs from the EU, Harley’s second-biggest market behind the US, are a response to tariffs the Trump administration implemented this spring on steel and aluminium from producers in Europe and elsewhere.

EU officials retaliated by placing tariffs on a slew of US products including those with strong American branding such as Harleys, Levi’s jeans, orange juice and Kentucky bourbon. A spokesman for the European Commission, the EU’s executive arm, declined to comment on Harley’s plans.

Overnight, its makers said the price of Jack Daniel’s Tennessee Whiskey will increase by about 10 per cent in the European Union because of the impact of the bloc’s new 25 per cent tariff.

The tariffs are a tough blow for Harley, which has struggled to lift sales. Harley’s chief executive Matthew Levatich has made a priority of boosting overseas sales as ridership in the US stalls and the company’s diehard fans age.

Harley’s international sales rose for the first time in over a year in the company’s first quarter, by 0.2 per cent annually. Harley wants to boost its international business to half its annual sales volume over the next decade, from about 40 per cent currently.

Sales in Harley’s main US market, meanwhile, fell by 12 per cent in the first quarter, continuing a downward trend of sales in recent years. Harley has tried to boost its US customer base by promoting motorcycle-riding classes and trying to recruit more women and minority riders.

Mr Levatich has said that it can’t price its motorcycles competitively without opening local plants to avoid tariffs and take advantage of cheaper manufacturing costs in some markets.

Harley was already planning to shrink its U.S. manufacturing base. Earlier this year the company said it would close a factory in Kansas City and consolidate production at plants in Milwaukee and York, Pennsylvania. The first lay-offs at the Kansas City plant are scheduled for August.

Harley-Davidson motorcycles outside a New York showroom. Pic: Getty Images

Joe Capra, a representative for the United Steelworkers Union in Kansas City, said Harley’s response to the EU tariffs and the company’s plant in Thailand confirmed the company plans to siphon production away from the US.

Other companies are also navigating hurdles that the tariffs have thrown up for their international supply chains and sales.

Luxury German car manufacturer Daimler warned that tariffs China placed on vehicles manufactured in the US would hurt revenue and profit from its Alabama factory that makes SUVs.

Cummins, which imports components from its factories in China for further assembly at its U.S. plans, is weighing whether to raise prices to reflect the 25 per cent tariff the US is implementing on those products on July 6.

Harley-Davidson said it expects costs related to the tariffs to reach up to $US45 million for the rest of 2018 and about $US90 million to $US100 million annually thereafter.

“This will make their manufacturing less efficient.,” said Sharon Zackfia, an analyst for William Blair & Co. “It’s just another headache for Harley.”

Dow Jones Newswires