MENOMONEE FALLS, Wis.— On the new battleground of the global trade wars, Harley-Davidson Inc. is threatened on two fronts.
New U.S. tariffs on steel and aluminum could increase the company’s bill for raw materials by as much as $20 million this year. And as other countries launch retaliatory tariffs, the cost of shipping bikes to Harley’s key overseas markets is expected to increase dramatically.
The company said in a security filing on Monday that tariffs of 31% that the EU enacted last week on its motorcycles would raise the cost of each bike it ships there from the U.S. by about $2,200. Harley said its immediate response will be to start moving production of cycles sold in Europe.
The strategy is expensive—costing as much as $100 million annually—but apparently necessary. America’s collection of motorcycle buyers is thinning out, making buyers abroad more important than ever to the 115-year-old manufacturing icon.
In the U.S., well-heeled Boomers, keen to embrace Harley-Davidson as a status symbol and a ticket to freedom, are aging. The younger set has shown stubbornly low interest in the two-wheeled machines sometimes known as Geezer Gliders.
At this rate, the number of foreign buyers of Harleys will eventually eclipse those in the U.S. Last year, more than 39% of Harley’s sales were outside the U.S. It’s a big reversal for accompany that as recently as 2004 sent four of five motorcycles it sold to American garages.
International markets offer big opportunity, says Harley’s chief operating officer, Michelle Kumbier. But they also offer lower profits, in part because buyers in Europe and Asia tend to opt for smaller bikes and fewer options. This is not a welcome development at a time when operating margins are projected to potentially slip below 10%.
Harley has taken the step before of building factories overseas to steer around tariffs in high-growth markets. Tariffs are already as high as 100% in countries like India and Thailand. So Harley bikes, an iconic American product, are now churned out of plants in India and Brazil. A new facility in Thailand is about to spring to life.
In the U.S., Harley is building for the overseas market as well. A recent tour of the company’s Menomonee Falls, Wisc., powertrain plant showcased a buzzing factory where Milwaukee-Eight Big Twin engines were assembled to be shipped to bike factories in the U.S., or crated for shipment to foreign factories. This operation’s future is dependent on the company’s ability to woo buyers on the other side of the world.
Other factories are falling victim to the declining demand for motorcycles in the U.S. Dave Rogers, a 50-year-old with two children in college, will be losing his job at Harley-Davidson’s Kansas City, Mo., factory, which will soon close its doors.
He joined the company in April 2017 “thinking this is the last job I’m going to have to get.” He expects to find work once Harley cuts him loose, but it is hard to replace the high-paying manufacturing jobs that old unionized producers offer.
Ms. Kumbier said trade wars are squeezing Harley, particularly because the price of steel and aluminum (of which motorcycles are primarily comprised) has spiked due to speculation on the impact of potential tariffs.
The anticipated increase in raw material prices could add as much as $86 to the cost of every Hog shipped in 2018, although executives are looking for ways to mitigate the impact.
Meanwhile, to boost ridership in the U.S., executives are putting a big focus on training more cyclists, hoping to raise a new crop of riders with motorcycle-ed programs offered at Harley dealerships. And the company plans to launch a battery-powered bike that is easier to ride.
That’s right, an electric Hog. No one said recovery wouldn’t be humbling.
Harley-Davidson has needed to adapt to tough market conditions before. A decade ago, to boost efficiency and margins, the company slimmed down departments, eliminated redundant facilities, added more automation to its plants and set up new systems to add flexible workers. In the 1980s, faced with competition from Japan, the company adopted lean-production techniques and management styles popularized by Toyota.
But the company has also needed a helping hand. In 1983, President Ronald Reagan slapped a tenfold increase in tariffs on imported motorcycles to combat Honda, Kawasaki and other foreign rivals, and compel those companies to build more bikes stateside. The duties lasted about five years, propping up America’s motorcycle sector.
President Donald Trump referenced those protections during his meeting with company executives in early 2017, saying Mr. Reagan “put on large tariffs, and you wouldn’t be talking about Harley-Davidson probably right now if he didn’t do that.” Still, the steel-and-aluminum tariffs that Mr. Trump enacted to further aid American manufacturers could end up crippling one of the main players he intended to help.
Those that live by trade barriers could eventually die by them. Ms. Kumbier says its important to remember the current tit-for-tat is still playing out. “We’re hoping more reasonable minds prevail.”
Write to John D. Stoll at john.stoll@wsj.com
