Amid retaliatory EU tariffs, Harley to shift some production out of US
26 June 2018
Harley-Davidson plans to shift some manufacturing of its iconic motorcycles overseas to avoid steep retaliatory European tariffs imposed last week, the company said on Monday.
The announcement comes as the 117-year old company is also buffeted by higher steel costs following tariffs enacted by US President Donald Trump, who had embraced the company as an emblematic US industrial firm in the early days of his administration.
Outside the US, Harley Davidson already has manufacturing facilities in India, Brazil and Australia and is building a facility in Thailand. It has not specified where it will move fresh production.
Trump, who has been taking up the case of tariffs on Harley Davidson by India, which in part is responsible for the current trade tension between the two countries, said he was surprised by the decision.
"Surprised that Harley-Davidson, of all companies, would be the first to wave the White Flag," Trump said on Twitter.
"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!"
The company in a US Securities and Exchange Commission filing on Monday said that new retaliatory tariffs by the European Union will result in an incremental cost of approximately $2,200 on average on motorcycles exported from the US to the EU.
The European Union hit American motorcycles with duties of 31 per cent on Friday, up from six per cent.
"To address the substantial cost of this tariff burden long-term, Harley Davidson will be implementing a plan to shift production of motorcycles for EU destinations from the US to its international facilities to avoid the tariff burden," the company said.
Harley Davidson said that shifting targeted production from the US to international facilities could take at least nine to 18 months to be fully completed.
Shares of Harley-Davidson had fallen 6.4 per cent to $41.37 in early afternoon trading on Monday.
The EU targeted US vehicles as part of its rebuttal to Trump's tariffs on imported aluminium and steel, one aspect of his multi-front trade war.
Until the production shift takes place, Harley-Davidson will absorb the costs of EU tariffs, the company said in the regulatory notice. That will add an estimated $30 million to $45 million in costs for the remainder of 2018 and $90 million to $100 million annually.
"Increasing international production to alleviate the EU tariff burden is not 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.
"We are currently assessing the potential impact on our US facilities," said Harley-Davidson spokesman Michael Pflughoeft. "We are hopeful the US and EU governments will continue to work together to reach an agreement on trade issues and rescind these tariffs."
Harley-Davidson has been relying on Europe and other international markets to help offset declining sales in the US, where baby boomers who have long bought the vehicles are ageing and younger consumers are not taking to the motorcycles in a big way.
In the first quarter, retail sales of motorcycles fell 12 per cent in the United States but rose nearly seven per cent in the European/Middle East/Africa region.
In the wake of the sluggish US sales, Harley-Davidson announced in January it would close its Kansas City, Missouri assembly plant and consolidate jobs in York, Pennsylvania.
Adding to the difficulty facing the company were steel and aluminium tariffs on the EU, Canada and Mexico finalised by the Trump administration at the start of June.
Analysts have noted the irony of Harley-Davidson's plight given that its executives were among the first to visit the White House in February 2017 shortly after Trump took office.
Trump praised Harley-Davidson as an "American icon, one of the greats" and expressed confidence the company would expand US manufacturing under his administration.
But that status made the company a target for EU retaliation along with bourbon and blue jeans.
Powersports companies in general are vulnerable to the "dangerous game of chicken being played by the Trump administration and foreign trade officials", said a note earlier this month by Wedbush Securites analyst James Hardiman.