Harley-Davidson – Iconic motorcycle maker has shifted production overseas for years




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The war of words between President Trump and Harley-Davidson over its decision to shift some production to Europe conceals a simple truth: The famed American company has been expanding overseas for years.

Harley-Davison HOG, -0.60%  made its first foray outside the U.S. near the end of the Clinton administration in 1999 when it opened a plant in Brazil. The company later acquired a parts maker in Australia during the Bush years. It opened a plant in India in 2011 when Barack Obama was president. And shortly after Trump took office in 2017, Harley-Davidson said it would build a plant in Thailand.

Europe is the next frontier. The Milwaukee-based motorcycle maker on Monday said it would build bikes in Europe for the first time ever, blaming retaliatory tariffs by the European Union. The EU raised its tariff on motorcycles to 31% from 6% in response to White House duties on foreign steel.

The company said the tariffs would raise the cost of bikes shipped to Europe by as much as $2,200 each and reduce profits by up to $100 million annually.

The announcement generated a barrage of complaints against Trump’s controversial trade strategy, including criticism from Republican House Speaker Paul Ryan and the devoutly free-trade editorial page of the Wall Street Journal, a sister publication of MarketWatch.

A clearly irritated president Trump lashed back in a series of tweets accusing Harley Davidson of waving “the white flag” and using the tariffs “as an excuse.”

The president is known to make a lot accusations, but he might have a point. The union representing Harley’s American workers contends Harley-Davidson was just itching to make the switch.

“I think they had this planned for some time. I think they are using this as an excuse,” Joe Capra of the International Association of Machinists & Aerospace Workers told NPR. Capra is a union representative at a plant in Kansas City that will be closed next year at the cost of 800 jobs.

What the company also failed to mention is that while one Trump policy could cost them money, another saves them plenty of coin. The company could save up to $100 million a year at the lower corporate tax rate under the new Trump tax rules.

In effect, the Trump tax cuts should have given Harley-Davidson extra cushion to ride out the current trade fight.

Instead, the company chose to raise its dividend earlier this year and buy back shares, a decision that could cost far more than any short-term losses from the U.S. trade dispute with Europe.

It was probably inevitable that Harley-Davidson would plant a flag in Europe, however. Sales are slowing in the U.S. because of demographic shifts and they are growing in Europe, the company’s second-largest market. The tariffs may have simply sped up the decision by Harley to shift more production to the continent so it can be closer to its customers.

The earlier shift to Asia was undertaken for the same reason, but there’s a big difference. Countries such as China, India and Thailand have huge and unfair tariffs that force companies wanting to do business to relocate there — exactly what Trump is complaining about.

Thailand charges a minimum 60% tariff and India 100%, effectively doubling the price of a Harley shipped from the U.S. Harley-Davidson has built plants in those countries to avoid the steep tariffs and make bikes more cheaply for customers who earn far less money than the typical American.

The company eventually aims to generate half its revenue outside the United States.

Seen in that light, the Trump tariffs gave the company an opening.

Harley-Davidson has long been viewed as classically American, gaining iconic status in the years following the hit 1969 movie Easy Rider. Its bikes came to be associated with freedom, a can-do spirit and American know-how. Yet the company’s famous reputation also made it harder to take steps that would damage its “made in the USA” image and cherished brand name.

Even Harley-Davidson had to bow to the inevitable, though. Trump and trade fights or not.


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Author: RV-Vijay