Harley shifting production overseas to address EU tariffs

Retaliatory actions could add $100 million in annual costs

Harley-Davidson headquarters
Harley-Davidson Inc.'s headquarters in Milwaukee.

Last updated on July 2nd, 2019 at 09:08 pm

Milwaukee-based Harley-Davidson Inc. will shift production of motorcycles for Europe to its international facilities to avoid up to $100 million annually in costs from tariffs applied by the European Union.

The EU levied the tariffs, which became effective on Friday, in response to increased U.S. tariffs on European steel and aluminum. Harley executives previously said price increases from the steel and aluminum tariffs could add up to $20 million in raw material costs this year.

The company also warned of a potential “significant impact” from retaliatory tariffs after President Donald Trump announced the steel and aluminum tariffs.

Harley estimates the European tariff increase from 6 percent to 31 percent on motorcycles would add $2,200 to the cost of an average motorcycle exported from the U.S. to the EU. The company is opting against increasing its suggested retail prices or increasing wholesale prices to dealers to cover the costs.

“Harley-Davidson believes the tremendous cost increase, if passed onto its dealers and retail customers, would have an immediate and lasting detrimental impact to its business in the region, reducing customer access to Harley-Davidson products and negatively impacting the sustainability of its dealers’ businesses,” a Harley-Davidson regulatory filing said.

Europe is an important market for Harley. While many of the company’s efforts to grow its brand focus on Asia, the European market remained the second largest after the U.S. with about 40,000 in retail sales last year.

The company estimates the tariffs will result in $30 million to $45 million in additional costs this year and $90 million to $100 million on an annualized basis. At the high end, the additional cost from the European tariffs would represent a 2 percentage point reduction in Harley’s operating profit margin from last year.

To deal with the increased costs, Harley announced it will shift production of motorcycles for EU destinations from its U.S. facilities to international operations. The company said the shift will require additional investment and could take nine to 18 months to complete.

“Harley-Davidson maintains a strong commitment to U.S.-based manufacturing which is valued by riders globally,” the company’s filing said. “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.”

Harley has used international production to get around tariffs in other situations. The company maintains facilities in Brazil, India and Thailand where it completes assembly of motorcycles for sales in those and other markets.

Company executives say those facilities are necessary for Harley to offer competitive pricing in markets where it sees an opportunity for growth, but the unions representing Harley workers in the U.S. say those operations ultimately take jobs out of the country.

A Harley spokesman declined to say which facilities would see increased production, saying only that the securities filing stated the company’s position clearly.

Trump tweeted Monday afternoon that he was “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!” Trump wrote.

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Arthur covers banking and finance and the economy at BizTimes while also leading special projects as an associate editor. He also spent five years covering manufacturing at BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.

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