Harley-Davidson is not having a great year. In January, the legendary bike company, struggling to reverse a four-year slide in sales, had to close its Kansas City factory. Now Donald Trump – who seems as if he’d like to be a Harley man – has added to its woes.
This week’s announcement of steel tariffs on US imports could add $30m to the company’s costs, according to Wedbush Securities, an investment firm. Worse still, European leaders are threatening retaliation, and several symbols of Americana – including Kentucky whiskey, Levi’s and Harley-Davidson motorcycles – are on their list.
The EU can “also do stupid”, noted Jean-Claude Juncker, the president of the European commission, on German television.
When you are trying to make a political point, Harley-Davidson is a great target. Based in Wisconsin, the home state of Paul Ryan, the House speaker, Harley-Davidson may be the least able to withstand a punitive trade war. Little wonder, then, that Ryan has come out strongly against the tariffs.
“We are extremely worried about the consequences of a trade war and are urging the White House to not advance with this plan,” said AshLee Strong, Ryan’s spokeswoman. “The new tax reform law has boosted the economy and we certainly don’t want to jeopardize those gains.”
US demand for Harley’s bikes is falling, and the company is unlikely to add the 2 million extra riders it has hoped for. In October, Harley reported a 40% drop in its quarterly profit as the appeal of a gas-guzzling hog continued to elude younger consumers, and old stalwart riders age out of leather jackets and highway cruising. Shares in the company have dropped about 13% this year.
“The real problem is they are not tapping into new demand as quickly as existing users are leaving the market,” says Jamie Katz, an analyst with Morningstar. “That’s become a headwind for them.”
About 16% of Harley’s sales are to Europe, and the company has warned that in addition to the effects of metal import tariffs in driving up manufacturing costs, “a punitive, retaliatory tariff on Harley-Davidson motorcycles in any market would have a significant impact on our sales, our dealers, their suppliers and our customers”.
For Harley, the threat of tariffs has a ring of familiarity. In 2003, the EU also threatened additional tax levies on its bikes after George W Bush sought taxes on imported steel.
But the company has proved itself more agile than its Fat Boy rides in manoeuvring around foreign trade obstacles in its path.
In India, Harley skirted 100% import tariffs by opening an assembly plant in Bawal in 2011. Harley’s sales have grown by 30% there in the past two years, according to the Milwaukee Journal-Sentinel. A similar assembly plant system already operates in Brazil.
But the company cannot win. It came under fire from US workers over plans to open an assembly plant in Thailand, where tariffs on imports are about 60%.
The United Steelworkers president, Leo Gerard, described Harley-Davidson as the “crown jewel of American manufacturing” and called the management’s decision to take production outside the US as “a slap in the face to the American worker and to hundreds of thousands of Harley riders across the country”.
“Offshoring production is the wrong path to prosperity,” Gerard added.
In this, Harley is caught between two opposing forces. Foreign sales – which account for about a third of its overall number – are crucial to its future, and the company has said it intends to grow its international business 50% by 2027. But foreign sales declined 4% last year, a decline the company attributed to soft sales in China.
In 2017, the company shipped 241,498 bikes to US dealerships, the lowest number in six years. This year, it expects to ship between 231,000 and 236,000 units.
Morningstar’s Katz notes that Harley has attempted to adapt to millennial demand by increasing their range of custom and street bikes, which come at a lower price than the old-school touring bikes. “So not only do they see unit demand shrinking they have other price-mix factors impacting the business,” said Katz.
But fundamentally, Katz warns, a Harley that costs upwards for $20,000 once you’ve added in all the accessories, is just not what younger consumers are looking for.
“The traditional rider – male, over 50, Caucasian – is no longer the core buyer, and they are not replacing bikes as quickly. Younger consumers want experiences over things, and a Harley is a thing and an experience for them is not about hitting the open road.”
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