Tariffs, production shifts create 'unfortunate condition' for Harley-Davidson
- Tariffs that led to Harley-Davidson's decision to move some production overseas are "an unfortunate condition," CEO Matthew Levatich said in an interview with CNBC.
- Levatich said the motorcycle manufacturer's preference is to supply globally from the U.S., but trade conditions and tariffs drove Harley to invest in international manufacturing over the last 20 years. "We have to do what we have to do based on the facts and circumstances before us," he said during the interview.
- Harley expects to incur up to $55 million of increased costs because of tariffs, Chief Financial Officer John Olin told investors during the company's second quarter earnings call.
Established companies are sometimes resistant to change, knowing they can rely on business practices that have worked for years while serving their customers' needs.
"We're a 115-year-old great American company, and we've manufactured our engines in Milwaukee since day one," Levatich told CNBC's Morgan Brennan.
External conditions, however, have forced change upon the motorcycle company. Shifting demographics have made motorcycles less in demand in the U.S., especially among young consumers.
Meanwhile, emerging markets are becoming important growth segments for Harley, with sales up 3.5%. The motorcycle company saw "significant growth" in China, Brazil and Mexico, although sales in India declined.
"We still sell motorcycles in India that are shipped from the United States at full 100% duties," Levatich said. "They're very expensive, and we still sell them. Obviously that duty elimination would allow us to sell many more, and that is our prime path."
In that sense, it's not surprising Harley is moving some of its production overseas, aiming to get its products closer to its customers and at a lower price "that is not burdened with excessive tariff," Olin said on the earnings call. Harley already has plants in Brazil and India, and it's building a facility in Thailand that is expected to be operational in the fourth quarter of this year.
With production spread out across the world, companies face increased risk of losing sight of their upstream supply chain. Visibility into several tiers is essential to ensure quality control and fair labor at all factories.
"If you walk into our plants in Brazil or in India ... you will see the same exact methods, same exact equipment, the same approach to quality and safety that we have in every one of our U.S. factories," Levatich said. "We do the best we can to preserve and protect the integrity of the American qualities of Harley-Davidson, because it's very important to our customers and it's very important to us."
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