Iconic motorcycle manufacturer Harley-Davidson Inc. (HOG) has had to cope with declining sales and its stock falling 18% this year. Adding to its woes, President Donald Trump has made it one of his prime targets on social media as he drums up support for his trade policies.
On Sunday, Trump praised Harley owners planning to boycott the company if it moves some manufacturing abroad.
Many @harleydavidson owners plan to boycott the company if manufacturing moves overseas. Great! Most other companies are coming in our direction, including Harley competitors. A really bad move! U.S. will soon have a level playing field, or better.
— Donald J. Trump (@realDonaldTrump) August 12, 2018
However, the century-old firm has argued that it was left with little choice after the European Union raised tariffs on U.S. motorcycles in June from 6% to 31% in retaliation to Trump's tariffs on European steel and aluminum. According to Harley-Davidson, manufacturing overseas is the only way it can "maintain a viable business" and remain accessible to customers in Europe, its second-largest market. The company has decided not to raise prices and revealed in a filing that Trump's trade war with Europe will cost it $100 million on a full-year basis.
Union leaders speaking with NPR have accused the company of planning the shift well in advance and using the tariffs as an excuse, a claim CEO Matthew Levatich has denied. Harley has also seen criticism for using its tax savings to please shareholders and close a Kansas factory instead of adding jobs.
Based in Wisconsin, Harley-Davidson was hailed as a "true American icon" by the president back in February 2017, but all that changed in June after it revealed its plans to shift some manufacturing out of the U.S. Since then the president has accused the company of quitting and warned that it will be "the beginning of the end" for the firm. "A Harley-Davidson should never be built in another country — never!" he said on Twitter.
A Harley-Davidson should never be built in another country-never! Their employees and customers are already very angry at them. If they move, watch, it will be the beginning of the end - they surrendered, they quit! The Aura will be gone and they will be taxed like never before!
— Donald J. Trump (@realDonaldTrump) June 26, 2018
But Harley-Davidson has been building motorcycles abroad since 1998. Outside of the U.S. it currently has manufacturing units in India, Brazil and Thailand. It also has a factory in Australia that it plans to close because of falling demand. The company makes it clear it isn't selling vehicles made abroad to American customers.
"We've invested in international manufacturing over the last 20 years, really, for the single reason that there are trade and tariff situations in certain markets that make it prohibitive of-- prohibitive of us to be relevant in those markets without that investment," Harley-Davidson CEO Matthew Levatich told CNBC last month. "We're only doing that because these are important growth markets for the company that without those investments we wouldn't have access to those customers, at any kinda reasonable price."
This is inconvenient for the president because his tariffs were meant to keep jobs and investment in the U.S. However, Harley-Davidson cannot work with the president because of the nature of the market.
Looking Overseas for Profits
In 2017, Harley sales declined 8.5% in the U.S. and 3.9% overseas. Its struggle in the U.S. has been attributed to its failure to appeal to millennials while its passionate fans grow older and stop riding. "It's like the Cadillac or the Mercedes," said David Beckel, an AllianceBernstein analyst who tracks the company, to CNBC. "You might turn away from it if you're younger because it's not your idea of cool."
The U.S. accounted for 61% of the company's sales volume last year, and weak demand at home has pushed the company to seek greener pastures. It is planning to build its international sales volume to 50% of overall sales.
In India, the company plans to launch cheaper 200-500 cc motorcycles, a segment dominated by Eicher Motors-owned Royal Enfield, which has seen phenomenal success as disposable incomes in the country rise.
If the next generation of riders lies abroad, Harley-Davidson is hoping to find them before it's too late. Abandoning the "Made in America" tag may be necessary if it plans to survive another century.