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Harley to Close Missouri Plant as Motorcycle Manufacturer Struggles

Jan. 31, 2018
Harley is consolidating its U.S. manufacturing presence as its bike sales fall on every continent.

A deepening slump in U.S. motorcycle demand is spurring more job cuts and a plant closure for Harley-Davidson Inc., a company President Donald Trump has cast as a model American manufacturer.

The Milwaukee-based motorcycle maker will close its factory in Kansas City, Mo., and consolidate production in York, Pa., according to a statement Tuesday. The restructuring will eliminate about 260 U.S. jobs, Chief Executive Officer Matt Levatich said on a conference call. Trump praised the company last year as a “great example” of a business creating jobs and building factories in the country.

Harley is consolidating its U.S. manufacturing presence as its bike sales fall on every continent. And the pain is poised to continue: The company projected global sales will drop as much as 4.9% more in 2018 after a 6.7% decline last year.

U.S. motorcycle ridership has stalled in spite of Levatich’s efforts to introduce models for first-time buyers and teach more Americans how to safely get around on bikes. Harley shares fell as much as 9.9% in New York, the biggest intraday drop since July.

'Significant' Secular Decline

The issue for investors isn’t the fourth-quarter miss, which was complicated by a number of one-time items, David Beckel, an analyst with Sanford C. Bernstein & Co., said in a note to clients.

“The story is, or continues to be, that Harley is in the throes of a significant secular decline,” he wrote.

Sales in the crucial U.S. market fell 11% in the fourth quarter and 8.5% for the year. Harley executives said they’re drawing more consumers to their brand, but couldn’t say during the call with analysts how many are buying used instead of new bikes.

Unions Blindsided

The decision to close the factory in 2019 “blindsided” United Steelworkers union members, whose contract covering workers at the Kansas City plant is set to expire July 31, district director Emil Ramirez said in an emailed statement. The company hadn’t previously indicated any major operational changes, he said.

The International Association of Machinists and Aerospace Workers, which also represents workers at the plant, called on the company to manufacture its new electric motorcycle in Kansas City to retain the jobs.

“Hundreds of working families are now wondering what their future holds because of this self-proclaimed American icon’s insistence on shipping our jobs to Asia and South America,” Robert Martinez, head of the Machinists Union, said in an emailed statement. “I’m sick of seeing our jobs disappear or turn into part-time work. We hope investors and policy-makers join our call to finally bring our jobs home.”

As bike demand weakens, one of Harley’s rival brands is calling it quits. Polaris Industries Inc., which started winding down its Victory motorcycle operations early last year, projected adjusted profit of as much as $6.20 a share for 2018, well below analysts’ $6.99 a share average estimate. The Medina, Minn.-based company’s stock plunged as much as 17%, the biggest drop since November 2008.

Closure Costs

The Kansas City plant closing will cost Harley as much as $200 million through 2019, then result in annual cash savings of $65 million to $75 million after 2020. Levatich declined to say how much production capacity will be reduced.

At the same time, the company is building a factory in Thailand that will assemble bikes using components shipped from the U.S. Union officials accused the company in September of trying to “systematically dismantle” its hourly workforce.

Harley reported profit of 5 cents a share in the last three months of the year, well below the 46 cent average analyst estimate. The company reported a $53.1 million charge related to the U.S. tax bill and a $29.4 million charge for a product recall.

“Harley can’t get younger people into the hobby and the bikes are too big to be transportation in Europe or Asia,” Kevin Tynan, a Bloomberg Intelligence analyst, said in an email. “That future is really dark.”

By Jamie Butters

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Licensed content from Bloomberg, copyright 2016.

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