NEW YORK: President Donald Trump’s trade war with the European Union is undermining Harley-Davidson Inc., a manufacturer he embraced soon after taking office, by costing the company as much as $100 million a year and spurring a shift in motorcycle production out of the US.
The EU’s tariffs retaliating against Trump’s steel and aluminium levies will cost Harley about $2,200 per bike shipped to Europe, according to a Monday filing. Passing that on to dealers or customers would cause an “immediate and lasting detrimental impact” on the company’s business in its second-largest market, so it’ll bear the brunt of the expense.
While Trump has repeatedly claimed that the US can win trade wars, victims are starting to pile up at home and abroad. Daimler AG warned last week that escalating tension between the US and China will impair earnings its Alabama SUV plant and lower profit this year. Harley tied its higher costs to a sequence started by Trump, who praised the company as a model American manufacturer during a February 2017 meeting at the White House.
“A company that is as connected to America, and Americana, as Harley is probably going to be laying off US workers in favour of foreign workers and going to be losing money as a result of this,” James Hardiman, an equity research analyst with Wedbush Securities, said by phone from New York. “There’s a lot of ironies here, to put it mildly.”
Harley didn’t specify which international plants will boost output for EU markets. The company operates manufacturing facilities in Brazil, India and Australia, and is beginning production in Thailand this year.
“We are currently assessing the potential impact on our US facilities,” Michael Pflughoeft, a company spokesman, said in an email. “We are hopeful the US and EU governments will continue to work together to reach an agreement on trade issues and rescind these tariffs.”
Harley estimated facing $30 million to $45 million in costs linked to the tariffs for the remainder of 2018. Analysts project the company will earn about $591 million this year on $5 billion of revenue.
Harley estimated that ramping up output in international plants for the EU may take at least nine to 18 months. While the company said it’s committed to making motorcycles in the US, it suggested it has no other choice but to move production from its home market. The company sold almost 40,000 bikes in Europe last year, and the continent’s share of total deliveries was the highest since 2011.
“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 in the filing.
Harley shares fell as much as 4.2% and were down 4% to $42.45 as of 10:35 am in New York. The stock is down 17% this year.
The EU’s tariffs are only the latest blowback Harley has faced from Trump’s trade policies. The company has warned the president’s tariffs on steel and aluminium will drive up raw materials costs. Chief Executive Officer Matt Levatich also was a supporter of the Trans-Pacific Partnership, which could have lowered barriers in some of the largest markets for motorcycles in the world. Trump withdrew from the long-planned trade pact in January 2017.
The week after he pulled the US out of the TPP, Trump hosted Levatich and other Harley executives and union leaders for a White House listening session and held the motorcycle maker up as an “American success story.”
“So thank you, Harley-Davidson, for building things in America,” Trump said at the time.
A US motorcycle sales slump has deepened since then, spurring Harley’s decision in January to close a plant in Kansas City, Missouri, eliminating about 260 jobs.
The European Commission in Brussels gave final approval last month for a 25% duty on 2.8 billion euros ($3.2 billion) of EU imports covering a range of US products including Harley motorcycles, Levi Strauss & Co. jeans and bourbon whiskey. Paul Ryan, the Republican speaker of the House of Representatives, hails from Harley’s home state of Wisconsin, while Senate Majority Leader Mitch McConnell represents Kentucky, a major maker of bourbon.