The final thing Harley-Davidson (NYSE:HOG) needs are policies that will boost a cost of a already-expensive motorcycles, yet President Trump’s preference to levy tariffs on unfamiliar aluminum and steel is carrying usually that effect.
As promised, a European Union is slapping retaliatory tariffs on Harley motorcycles, as good as other products including bourbon, peanut butter, and orange juice. The usually winners in such trade disputes are industries that use protectionism to extent competition. The weight always seems to tumble on subordinate industries and businesses. This time, Harley is one of a victims.
Europe is key
The motorcycle aristocrat is in a spin. Sales in a U.S. (its largest market) are diving, so it is perplexing to lift general sales to a same turn as domestic sales. And yet sales abroad rose usually 0.2% in a initial quarter, that was decidedly improved than a 12% decrease in a U.S.
Europe is Harley’s second-largest marketplace behind a U.S., with roughly 40,000 motorcycles sole there final year: about a same volume as in 2016. Tariffs that make a bikes some-more costly won’t make them an easier sell. So to compensate, Harley-Davidson is relocating some prolongation for a European marketplace out of a U.S.
In a Securities and Exchange Commission filing final week, a bike builder pronounced that with tariffs on a motorcycles jumping from 6% to 31%, a cost of any motorcycle it exported to a EU would arise by about $2,200, a cost boost that, if indeed imposed, would vanquish sales. So Harley pronounced it won’t be lifting a prices, yet instead will bear a cost of a tariffs, that will cost it $30 million to $45 million this year, or an annualized $90 million to $100 million.
As a result, Harley-Davidson will start changeable prolongation for a EU marketplace to a general facilities. The association now has plants in Brazil, India, and Australia, and it will shortly open a new assembly plant in Thailand. Harley says a change could take during slightest 9 to 18 months to complete. It didn’t fact what impact, if any, this would have on American jobs.
Be clever what we wish for
The irony is that Harley pushed for tariffs opposite alien motorcycles in a 1980s when it was perplexing to save itself from years of mismanagement. Now, it’s being hoisted by a possess petard.
Shares of Harley-Davidson, that were already depressed, fell neatly on a news of a latest production change and are down 18% for a year compared to a 2% advantage for a SP 500. There are still some-more hurdles forward for a motorcycle maker.
Because of a bad optics of a iconic manufacturer relocating prolongation overseas, Trump threatened a association with toilsome taxes, tweeting:
A Harley-Davidson should never be built in another country! … If they move, watch, it will be a commencement of a finish – they surrendered, they quit! The Aura will be left and they will be taxed like never before!
Harley-Davidson is in a formidable position. Sales are falling, and it has had to cut jobs and connect production. And it now faces dramatically aloft costs due to factors over a control.
The bike builder does have a advantage of being means to avoid a EU tariffs — eventually — since it is a tellurian association and can change prolongation elsewhere. However, since Trump has lifted a cost of aluminum and steel, it is still held in a bind: If it raises prices during home to recompense for a aloft tender materials costs, it competence knowledge even fewer sales; if it absorbs a costs as it’s doing for a tariffs in Europe, it will strike profits.
Harley-Davidson’s problems are usually notable since it is a high-profile company. The impact on smaller businesses could be as vast or even greater. There are few winners in trade wars and such battles leave a lot of material repairs on all sides.