Harley-Davidson moves some work from US due to tariffs

Harley-Davidson plans to shift some manufacturing of its iconic motorcycles overseas to avoid retaliatory European tariffs imposed last week, the company said on Monday.

Rows of Harley-Davidson motorcycle sit for sale outside of the Harley-Davidson of New York City showroom store on June 25, 2018, in the Queens borough of New York City. 

Harley-Davidson plans to shift some manufacturing of its iconic motorcycles overseas to avoid retaliatory European tariffs imposed last week, the company said on Monday.

The announcement comes as the company founded in the early 1900s 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.

Trump expressed disappointment.

"Surprised that Harley-Davidson, of all companies, would be the first to wave the White Flag," the president tweeted.

"I fought hard for them and ultimately they will not pay tariffs selling into the EU, which has hurt us badly on trade, down US$151 billion. Taxes just a Harley excuse — be patient!"

Harley-Davidson suggested it had no choice after the European Union hit American motorcycles with duties of 31 percent on Friday, up from 6 percent, boosting the cost to EU consumers by about US$2,200.

The EU targeted the US vehicles as part of its rebuttal to Trump's tariffs on imported aluminum and steel, one aspect of his multi-front trade war.

Moving production overseas is expected to require nine to 18 months, so in the near term, Harley-Davidson will absorb the costs of EU tariffs, the company said in a regulatory notice. That will add an estimated US$90 million to US$100 million annually.

Fadings sales

"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.

Some analysts expect to see more instances of company shifts in supply chain or manufacturing venues due to trade tariffs when the second-quarter earnings season kicks off in early next month.

Republican Senator Ben Sasse placed the blame squarely on Trump's shoulders.

"The problem isn't that Harley is unpatriotic — it's that tariffs are stupid. They're tax increases on Americans, they don't work and apparently we're going to see more of this," he said.

Harley-Davidson currently has overseas manufacturing plants in Australia, Brazil and India. It is building a plant in Thailand.

The company did not specify where the additional manufacturing would go.

"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."

On Wall Street, Harley-Davidson shares dropped sharply 5.97 percent.

Harley-Davidson has been relying on Europe and other international markets to help offset declining sales in the US, where the baby boomers who have long bought the vehicles are aging and younger consumers are not taking to the motorcycles in a big way.

In the first quarter, retail sales of motorcycles fell 12 percent in the United States but rose nearly 7 percent 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 aluminum tariffs on the EU, Canada and Mexico finalized by the Trump administration in early June.

Chief financial officer John Olin told analysts in April he expected the tariffs to add US$15 million to US$20 million "on top of already rising raw materials," representing "quite a headwind for the company over the next several quarters."

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