Last updated on October 23rd, 2019 at 02:09 pm
Harley-Davidson was first caught up in President Donald Trump’s efforts to remake global trade when the European Union retaliated for steel and aluminum tariffs by increasing tariffs on motorcycles.
Already facing stiff competition with a premium-priced product, Harley opted to cover the increased costs itself to the tune of around $90 million this year.
The EU has since allowed Harley to ship motorcycles in from a facility in Thailand, eliminating most of the increased cost. Harley motorcycles made in Thailand will begin shipping by the end of the month and the company expects to begin selling them in Europe in the second quarter of 2020.
The Thailand facility also gives the company a way to get around about $7 million in tariffs on motorcycles sold into China, a key growth opportunity for Harley moving forward.
But even as the company can see the end of two major added tariff costs, the latest round of tariffs on Chinese goods will cost Harley an extra $5 million this year.
John Olin, chief financial officer of Harley-Davidson, acknowledged the latest round of tariffs and ongoing trade negotiations are “very fluid.”
“It seems to change quite often,” he said.
Still, Harley’s expectation for tariffs in 2020 now includes another $12 million in costs related to actions the Trump administration has taken on Chinese goods.
Olin said the company plans to mitigate those costs by finding new suppliers for the components outside of China.
All of the ebbs and flows of tariffs come amidst an already challenging environment as the motorcycle maker faces increased competition, ever changing ridership demographics and tastes and the potential of a weakening economy.
Harley’s third quarter financial results showed a 3.3% decline in revenue to $1.27 billion and a 24% drop in net income to $86.6 million.
In the U.S., retail sales volume declined 3.6% and the industry overall saw its slowest rate of decline in 14 quarters, Olin said. The opening of the Thailand facility boosted international markets, particularly in Asia.
Olin also noted the company benefited from lower selling, general and administrative costs as Harley seeks to find efficiencies to internally fund its efforts to grow ridership.
All of that was paid for by our employees doing their jobs and doing them more efficiently every day,” he said.
Asked for his take on the current economic environment, Harley president and chief executive officer Matt Levatich acknowledged tariffs and the presidential election cycle are causing “quite a bit of uncertainty.”
“Sitting here right now, I don’t think that uncertainty is higher than it was six months ago,” he said, adding that the industry pick up in the third quarter was encouraging.
Levatich said Harley is trying act with an “abundance of caution” in the current environment.
“We can’t predict the future any more than anyone else can, all we can do is be as nimble and responsive as possible,” he said.