Trump blasts Harley-Davidson plan to shift US production to avoid EU tariffs

 Harley-Davidson said it would not pass on any retail or wholesale price increases in the EU and that the company would instead focus on shifting some US production.
Harley-Davidson said it would not pass on any retail or wholesale price increases in the EU and that the company would instead focus on shifting some US production.PHOTO: REUTERS

BENGALURU (REUTERS) - US President Donald Trump on Monday (June 25) slammed Harley-Davidson Inc after the motorcycle maker said it would move production for European customers overseas to avoid retaliatory tariffs that could cost it up to US$100 million (S$136.2 million) per year.

Trump said he has fought hard for the company and was surprised by its plans, which he described as waving the "White Flag." Harley-Davidson, the dominant player in the heavyweight US motorcycle market said earlier on Monday it would not pass on any retail or wholesale price increases in the EU and instead focus on shifting some US production.

Harley shares closed down nearly 6 per cent and analysts cut their profit forecasts on concerns about how quickly the company would be able to adapt to the 25 per cent import duties the European Union began charging on June 22.

"I fought hard for them and ultimately they will not pay tariffs selling into the EU, which has hurt us badly on trade, down US$151 Billion. Taxes just a Harley excuse - be patient!" Trump said in a post on Twitter.

The United States earlier this month imposed tariffs on steel and aluminum imports from the European Union, provoking a"tit-for-tat" response from the trading bloc against US goods.

In a regulatory filing, the 115-year-old Milwaukee, Wisconsin-based company said the retaliatory duties would result in an incremental cost of about US$2,200 per average motorcycle exported from the United States to the European Union, but did not provide more details on current motorcycle costs.

Harley's entry-level bike in France currently costs 7,490 euros (S$11,939).

The company said it expects the tariffs to result in incremental costs of US$30 million to US$45 million for the rest of 2018 and US$80 million to US$100 million on a full-year basis.

"We think Harley's decision to protect EU demand is wise for the long-term health of the market," Baird Equity Research said in a note. "But we expect the near-term impact to weigh on estimates and sentiment until a clearer path to mitigation is outlined."

Trump vowed to make the iconic motorcycle maker great again when he took office last year. But since then the company has been counting the costs of his trade policies.

In late April, Harley said Trump's metal tariffs would inflate its costs by US$15 million to US$20 million this year on top of already rising raw material prices that it expected at the start of the year.

White House trade and manufacturing adviser Peter Navarro said on Monday the administration wants Harley to make more motorcycles in the United States.

"Remember, they came to us, for example, pointing out that India had a 100 percent tariff on Harley Davidsons. That's certainly not fair," Navarro told CNBC.

"We want Harleys made here, more made here, and that's going to happen under the president's trade policies." In response to Navarro's comments, a Harley spokesman said the company has made its position clear in Monday's filing.

Harley has been aiming to boost overseas sales of its motorcycles to 50 per cent of annual volume from about 43 per cent.

In January, the company announced the closure of a plant in Kansas City, Missouri, after its motorcycle shipments fell to their lowest level in six years.

In 2017, Harley sold nearly 40,000 new motorcycles in Europe which accounted for more than 16 percent of the company's sales. The revenues from EU countries were second only to the United States.

Harley said ramping up production overseas could take at least nine to 18 months. It has three assembly plants outside the United States - one each in Brazil, India and Thailand.

The company decided to build the Thailand plant after Trump pulled out from the Trans-Pacific Partnership, which would have lowered import tariffs on its bikes in some of the fastest-growing motorcycle markets in Asia.

The company said it will provide more details on tariff-related plans when it reports second-quarter earnings on July 24.

Analysts at Baird Equity Research cut its 2018 profit estimates for Harley-Davidson to US$3.70 per share from US$3.90 and now expect 2019 profit of US$3.85, down from US$4.20.

CFRA Research lowered its 12-month price target for the stock to US$47 from US$49.

Harley-Davidson shares have lost about 9 per cent since early March when the trade skirmish between the United States and the EU started, and are down over 18 per cent since end-December 2017.

Mercedes-Benz maker Daimler last week cut its 2018 profit forecast citing growing trade tensions. Its German rival BMW said it was considering "possible strategic options" in view of the rising trade tensions between China and the United States.

Trump has also threatened to crackdown on auto imports. Analysts at Moody's reckon a 25 per cent tariff on imported vehicles and parts would be negative for most of companies including Ford Motor Co and General Motors Co.