Harley-Davidson’s troubles just don’t seem to end. After announcing a drop in domestic sales (its biggest market) last year, the iconic American brand is now trapped in the recent US-EU trade war.
The crisis began when the US government imposed additional tariffs on steel and aluminium imports from the European Union (EU) region. In retaliation, the EU hiked tariffs on multiple American-made goods, due to which Harley saw a massive jump in tariff from 6 percent to 31 percent.
This hike has hit the American brand hard, and it expects a price rise of around $2,200 (Rs 1.49 lakh) per motorcycle for every unit imported from the USA. This will sting particularly badly as the EU is Harley’s second-biggest market, with the company exporting nearly 40,000 units to the region in 2017. These higher tariffs will result in an incremental cost of around $30 to $45 million (around Rs 170 crore to Rs 306 crore) for the remainder of 2018.
Harley-Davidson has announced that it will absorb the cost and estimates in the short-term and not pass it on to its customers immediately. However, the two-wheeler manufacturer estimates the aggregate annual impact to be around $100 million (Rs 680 crore) and is left with no choice but to look at options to counter it. The immediate solution will be to shift part of its production from the USA to overseas markets; it currently has manufacturing units in India, Thailand, Brazil, and Australia.
In response to Harley-Davidson’s proposed move, President Trump expressed his disapproval on Twitter: “Surprised that Harley-Davidson, of all companies, would be the first to wave the White Flag. I fought hard for them and ultimately they will not pay tariffs selling into the EU, which has hurt us badly on trade, down $151 billion. Taxes just a Harley excuse – be patient!”
According to reports, this shift in production will take place over the next 18 months. As things stand, Thailand seems to be the logical direction for Harley to head in. Early this year, and well before these trade-war issues came up, the bike maker announced the closure of its Kansas City plant in America by mid-2019. While some of the work from this plant will be shifted to its other plant in York, Pennsylvania, labour unions claimed at the time that another portion of the work would move to Thailand. Even with these latest developments, the Thailand plan still appears to be on course for the American brand. Thailand is also already a manufacturing hub for big brands like Ducati and Triumph.
Naturally, production for the domestic USA market will stay within the country, but even if some production is shifted to Thailand, India still stands to benefit. This would be thanks to the Free Trade Agreement which should result in a lowering of prices for the models that could eventually come from the Thai plant.
As for India, while it would be great to see more production shift here. Wildly volatile government policies in the last two years (BS3-BS4, demonetisation, GST and duty structure changes to name a few) will certainly make any international business think long and hard before making an investment. Harley-Davidson’s India plant at Bawal, Haryana currently has a manufacturing capacity of 12,000 units per annum and exclusively manufacturers the Street 500, Street 750 and Street Rod. The plant also enables CKD assembly of a number of bigger motorcycles from Harley’s Sportster and Softail families.
We will update this when we receive some form of official communication from the company.
Azaman Chothia
Vishal Venugopal
