Trump responds as Harley-Davidson announces plans to move more motorcycle production overseas

Rick Barrett | Milwaukee Journal Sentinel

Harley-Davidson Inc. said Monday it plans to move production of motorcycles destined for the European Union to its international factories, in response to tariffs the EU has imposed on its bikes.

Hours after the announcement, President Donald Trump issued a tweet that chastised the world's largest manufacturer of heavyweight motorcycles.

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"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 tweeted.

Tuesday morning, Trump tweeted: "A Harley-Davidson should never be built in another country-never! Their employees and customers are already very angry at them. If they move, watch, it will be the beginning of the end - they surrendered, they quit! The Aura will be gone and they will be taxed like never before!"

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! #MAGA — Donald J. Trump (@realDonaldTrump) June 25, 2018

Harley said the impact of the 31 percent tariffs, up from 6 percent previously, could be $100 million per year on the company, or roughly $2,200 per motorcycle.

“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,” the company said in a Securities and Exchange Commission filing.

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About 16 percent of all new Harley-Davidson motorcycles are sold in Europe, a figure that’s been steady and is second in revenue only to the U.S. market. About 43 percent of the company's bikes are sold outside the U.S., and Harley has set a goal of raising that to about 50 percent.

"Europe has been a bright spot recently, with healthy retail sales growth of late," said motorcycle industry analyst Sharon Zackfia with William Blair Co.

The opportunities for Harley in Europe are significant, but so is the competition from European and Japanese motorcycle makers that aren’t subject to the steep tariffs the European Union slapped on new bikes from the U.S. on Friday.

“It is hard to run a business when the rules keep changing,” said industry analyst Craig Kennison with Milwaukee-based Robert W. Baird & Co.

Harley plans to open a motorcycle assembly plant in Thailand this year, as the tariff on motorcycles assembled in the U.S. is about 60 percent in Thailand, according to the company.

Harley already has assembly plants in India and Brazil.

The company's Street-model motorcycles are made in India for Italy, Spain and Portugal.

"Europe is a critical market for Harley-Davidson," the company said, adding that it sold nearly 40,000 motorcycles there in 2017.

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Ramping up production in the international plants would require "incremental investment" and would take at least nine to 18 months to complete, according to Harley.

It's still unknown what impact the changes could have on the company's factories in Wisconsin, where it builds motorcycle engines, and in Pennsylvania, where it assembles complete bikes.

"Our sense is that Harley-Davidson likes its American-based manufacturing footprint and would be reluctant to make wholesale changes," Kennison said.

"We expect bikes sold in America will be made in America. That is not negotiable, I suspect," he added.

But a labor union for Harley employees has complained about the company's plan to close its factory in Kansas City, Mo., while opening an assembly plant in Thailand.

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It's tough to accept in Kansas City, where the company has assembled some of its most popular motorcycles since 1997 and employs about 800 people.

The union is critical of Harley for investing in Thailand while also receiving tax cuts under Trump’s new corporate tax plan.

“Harley-Davidson’s announcement today is the latest slap in the face to the loyal, highly skilled workforce that made Harley an iconic American brand. Harley pounced on news released Friday regarding EU tariffs on Harley motorcycles and the company will be implementing plans to offshore more production," said Robert Martinez, president of the International Association of Machinists and Aerospace Workers, which represents the Kansas City plant's workforce.

“This latest move is in keeping with Harley’s past decisions to open plants outside of North America," Martinez said.

The Machinists Union also represents Harley-Davidson workers in York, Pa.

Harley says it’s moving the Kansas City work to York, creating about 400 additional jobs at that factory.

The Thailand plant will assemble bikes from components produced at the company’s U.S. facilities, according to Harley.

The company says it will provide more details of the plans to mitigate the impact of the EU tariffs during the company's second-quarter earnings conference call on July 24.

"Harley-Davidson will not raise prices to dealers or customers but will instead bear the significant impact of these retaliatory tariffs in the near-term," Harley spokesman Michael Pflughoeft said in an email to the Milwaukee Journal Sentinel.

"The only long-term solution is to implement a plan to shift production from the U.S. to our international operations to avoid the tariff burden. We are hopeful the U.S. and E.U. governments will continue to work together to reach an agreement on trade issues and rescind these tariffs," Pflughoeft said.

Last week, the European Union began rolling out tariffs on American imports including bourbon, peanut butter and orange juice. The EU tariffs on $3.4 billion worth of U.S. products are retaliation for duties Trump has imposed on European steel and aluminum.

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Trump has used Harley-Davidson as an example of a U.S. business that is being harmed by trade barriers. Yet Harley has warned consistently against tariffs, saying they would negatively impact 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 Monday.

Gov. Scott Walker told reporters he thought the best way to protect companies such as Harley-Davidson was to improve foreign investment in the U.S. and reduce tariffs. That puts Walker at odds with the president, who has ramped up tariff talk in recent weeks.

"The ultimate goal if we can get there would be no tariffs or if anything few tariffs on anything," Walker told reporters at a stop at the University of Wisconsin-Madison.

"Because it’s not just the tariffs the present administration has brought up, it’s tariffs for years. … That’s what I’m going to push for. If we can get to a level playing field, then we don’t have this tit for tat on any number of products out there.”

Despite an extensive list of hundreds of American products that were under consideration for European Union tariffs, EU officials specifically highlighted motorcycles, jeans and bourbon.

"Not coincidentally, these products are largely made in districts and states represented by none other than Speaker of the House Paul Ryan, Minority Leader Nancy Pelosi and Senate Majority leader Mitch McConnell," said analyst James Hardiman with Wedbush Securities.

"The Mexican government has also announced plans to retaliate with comparable penalties on U.S. products," Hardiman said, including pork, fruit and cheese.

Harley in Europe

Even before the latest tariffs, imposed on select American products in response to Trump subjecting foreign steel and aluminum to steep import duties, Harleys were more expensive abroad.

Harley's entry-level bike in France currently costs 7,490 euros ($8,766), according to the news agency Reuters.

“You have to be fairly well off to afford one,” said Ian Malone, editor of Biker and Bike magazine in the United Kingdom.

The tariffs "are really putting a significant barrier on people who want to step onto a Harley. ... I think this is going to be very difficult for them," he added.

There are more German, Italian and Japanese motorcycles than Harleys in Europe, but the brand resonates with folks who associate it with American culture and self-expressionism.

"A trade war doesn’t help. But you won’t find many committed Harley riders that would switch to another brand just because of price," Kennison said.

Graham Field, a motorcycle journalist from London, has an old Harley with big ape-hanger handlebars.

“It’s the bike I used to dream about when I was 10 years old, with posters of Easy Rider on my wall,” Field said.

“Now it’s a reality in my shed.”

European motorcycle manufacturers BMW, Ducati and Triumph make or assemble many of their bikes in Asia and South America, and they get components from Asia.

Harleys made in Brazil, India or Thailand could be accepted just fine in Europe, according to some motorcycle enthusiasts abroad.

Europeans are "more tolerant of the idea of a global village where the best and most economical components come from around the world. They aren't nearly as insular and protectionist as Americans," said Mark Hinchliffe, editor of Motorbikewriter.com.

July 5-8, Harley-Davidson will flex its European muscle in a 115th anniversary celebration in Prague, the capital of the Czech Republic.

The biker rally is expected to attract 100,000 people from about 70 countries, many of them riding through the city’s streets against a backdrop of medieval architecture and 600-year-old castles.

The event is part of Harley’s effort to build ridership in Europe, where people tend to favor powerful, nimble motorcycles well-suited for the curvy roads and congested city streets.

It’s much different than riding in the U.S., where a big touring bike, like a Harley Electra Glide, is well suited for long open straightaways.

“There’s a stylistic difference in bikes born out of the environment,” said Robert Pandya, an American motorcyclist, from Texas, who has done a lot of riding abroad.

This isn't the first time Harley-Davidson has faced barriers to international sales.

Years ago, Japanese motorcyclists were required to pass a special exam if they wanted to ride large touring bikes such as Harleys. One of the tests was to ride across a balance beam. Only about 2 percent of riders passed the test.



In 2005, Japan repealed a law that prohibited motorcyclists from carrying a passenger on major highways. That helped boost Harley-Davidson sales.

Patrick Marley of the Journal Sentinel staff contributed to this report.