President Donald Trump repeatedly criticized Harley-Davidson in 2018 for its decision to move production of motorcycles destined for Europe to overseas facilities to avoid new tariffs. On Tuesday, the president called the tariffs unfair to the U.S. and pledged to retaliate.
The tariffs the European Union put in place on Harley’s motorcycles were already in retaliation for ones Trump put on European steel and aluminum. The EU initially increased the tariff from 6% to 31% last year. New incremental tariffs ultimately cost Harley nearly $23.7 million last year.
Harley responded to the tariffs by announcing it would move production of EU motorcycles to overseas facilities. The decision drew the ire of Trump, who accused the company of being “the first to wave the White Flag,” and using the tariffs as an excuse to close it Kansas City plant. He told Harley “don’t get cute” during remarks at the Foxconn groundbreaking, pledged to work with the company’s competitors and encouraged a boycott of its products.
On Tuesday, he tweeted a reference to Fox Business host Maria Bartiomo’s discussion of the company.
“Harley Davidson has struggled with Tariffs with the EU, currently paying 31%. They’ve had to move production overseas to try and offset some of that Tariff that they’ve been hit with which will rise to 66% in June of 2021.” @MariaBartiromo So unfair to U.S. We will Reciprocate!
— Donald J. Trump (@realDonaldTrump) April 23, 2019
The EU tariff on Harley’s motorcycles actually increases to 56% in June 2021.
For its part, Harley has already announced plans to produce its European motorcycles at a plant in Thailand. The company is waiting for approval from EU officials to import the motorcycles at the base 6% tariff.
“It’s unfortunate, but we’re pushing forward with our strategy to make sure we preserve the integrity and the growth potential within the European market,” Harley CEO Matt Levatich told analysts on Tuesday. “It’s a significant part of our business today. It’s even more important to us as we bring on the new middleweight products.”
More than 41,000 Harley-Davidson motorcycles were sold at retail in Europe last year and the company expects that number to grow as it expands into new product segments that are more popular in the region.
To mitigate the tariffs, the company has said it will complete final assembly of motorcycles at the plant in Thailand before shipping them to Europe. Levatich acknowledged Tuesday the company may have to open a final assembly facility in Europe if regulators do not approve the company’s plans.
“Europe has always been an option as we looked at how to mitigate the EU retaliatory tariffs,” he said. “It wasn’t our preferred option, Thailand was, so we have a number of other alternatives that we have at our disposal.”
Levatich did not say where in Europe the company would potentially open a facility. An economic development agency in Berlin attempted to lure the company last year.
China has also increased tariffs on Harley’s U.S. made motorcycles from 25% to 50% in retaliation to actions by the Trump administration.
Tariffs are just one of the challenges Harley is dealing with as it works to turn around declining demand for its motorcycles. The company is also confronting the aging of its core customers and an increasingly competitive market.
During the first quarter, worldwide retail sales of Harleys decreased 3.8% behind a 4.2% drop in the United States and limited availability of Street motorcycles because of a recall.
Motorcycle revenue was down 12.3% to slightly less than $1.2 billion in the quarter. Gross profits decreased from $473.8 million to $347.4 million, a shift in margin from 34.7% to 29.1%. Most of the decrease in profitability came from lower volumes and product mix. Harley said the decline included $21 million of incremental tariffs.
Net income for the entire company decreased 26.8% to $128 million and earnings per diluted share decreased from $1.03 to 80 cents.
The company did increase its dividend by a half-cent to 37.5 cents per share and spent $52.6 million to repurchase 1.5 million shares of its common stock during the quarter.
