Harley-Davidson to move some production out of US

Business Tuesday 26/June/2018 13:40 PM
By: Times News Service
Harley-Davidson to move some production out of US

New York: Harley-Davidson said on Monday it would move US production of motorcycles for European Union customers overseas to avoid retaliatory tariffs that could cost the company up to $100 million per year.
Harley shares plunged as much as 7 per cent and analysts cut their profit forecasts on concerns about how quickly the company would be able to adapt to the 25 per cent import duties the European Union began charging on June 22.
US President Donald Trump has held up Harley as an example of a manufacturer that would benefit from his policies. But the proposed production shift appeared to mark an unintended consequence of US tariffs imposed on European steel and aluminum earlier this month.
"We think Harley's decision to protect EU demand is wise for the long-term health of the market," Baird Equity Research said in a note. "But we expect the near-term impact to weigh on estimates and sentiment until a clearer path to mitigation is outlined."
In a regulatory filing, the Milwaukee, Wisconsin-based company said the retaliatory duties would result in an incremental cost of about $2,200 per average motorcycle exported from the United States to the European Union, but did not provide more details on current motorcycle costs.
Harley's entry-level bike in France currently costs 7,490 euros ($8,766).
The company said it would not raise retail or wholesale prices for its dealers, and expects the tariffs to result in incremental costs of $30 million to $45 million for the rest of 2018 and $80 million to $100 million on a full-year basis.
Trump vowed to make the iconic motorcycle maker great again when he took office last year. But since then the company has been counting the costs of his trade policies.
In late April, Harley said Trump's metal tariffs would inflate its costs by $15 million to $20 million this year on top of already rising raw material prices that it expected at the start of the year.
White House trade and manufacturing adviser Peter Navarro said on Monday the administration wants Harley to make more motorcycles in the United States.
"Remember, they came to us, for example, pointing out that India had a 100 percent tariff on Harley Davidsons. That's certainly not fair," Navarro told CNBC.
"We want Harleys made here, more made here, and that's going to happen under the president's trade policies."
In response to Navarro's comments, a Harley spokesman said the company made its position clear in Monday's filing.
European business
Struggling to overcome a slump in US demand, Harley has been aiming to boost sales of its iconic motorcycles overseas to 50 per cent of total annual volume from about 43 per cent currently.
In January, the company announced the closure of a plant in Kansas City, Missouri as part of a consolidation plan after its motorcycle shipments fell to their lowest level in six years.
In 2017, Harley sold nearly 40,000 new motorcycles in Europe which accounted for more than 16 per cent of the company's sales last year. The revenues from EU countries were second only to the United States.
Harley said ramping up production at overseas international plants could take at least nine to 18 months. It has three assembly plants outside the United States — one each in Brazil, India and Thailand.
The company decided to build the Thailand plant in response to Trump's decision to pull out from the Trans-Pacific Partnership which would have lowered import tariffs on its bikes in some of the fastest-growing motorcycle markets in Asia.
The company said it will provide more details of the financial implications of retaliatory EU tariffs and its plans to offset their impact on July 24 when its second-quarter earnings are due.
Analysts at Baird Equity Research cut its 2018 profit estimates for Harley-Davidson to $3.70 per share from $3.90 and now expect 2019 profit of $3.85, down from $4.20.
CFRA Research lowered its 12-month price target for the stock to $47 from $49.
Harley-Davidson's shares fell as much as 7 per cent on Monday, before paring some losses in late trading. Its shares have lost about 9 per cent since early March when the trade skirmish between the United States and the EU started, and are down over 18 per cent since end-December 2017.
Mercedes-Benz maker Daimler last week cut its 2018 profit forecast citing growing trade tensions. Its German rival BMW said it was considering "possible strategic options" in view of the rising trade tensions between China and the United States.
Trump has also threatened to crackdown on auto imports. Analysts at Moody's reckon a 25 per cent tariff on imported vehicles and parts would be negative for most of companies including Ford Motor and General Motors.