In 1998, nobody thought opening a new manufacturing facility in Kansas City was going to save Harley-Davidson. That’s because in 1998, Harley-Davidson didn’t need saved. They were on a tremendous upswing, dominating the North American motorcycle market over their European and Asian competitors. Japan’s Big Four were cranking out cruiser-style bikes as fast as they could – some of them, like the Honda Shadow, even being made in the USA – but they just couldn’t pry market share out of Harley’s grip.
Ten years later, when the economy crashed in what is being referred to as the Great Recession, Harley’s tune started taking on a more sour melody.
In the company’s Q4-2017 earnings statement, Harley-Davidson announced that they’ll be closing their Kansas City plant and moving its operations to York, Pennsylvania, by July 2019. The last 800 jobs remaining in Kansas City will be supplanted by 450 “full-time, casual and contractor positions” added in York, according to HD spokesperson Bernadette Lauer in a report put on the web by FOX43. HD anticipates spending nearly $200 million to consolidate the facilities, plus another $75 million in capital investment over the next two years. Their expected savings from the consolidation tops $65 million a year – after 2020. Using the worst-case numbers, that means Harley won’t recoup the cost of closing Kansas City and bumping up York until some time in 2024.
This is the first time in a while that Harley has announced it will be adding jobs in York. Based on research I did for another blog post, we know the number of employees in Harley’s York facility is down over 50 percent since 2009, and they laid off 118 more people as recently as Q1 2017 – oddly enough, because they were tooling up to build Softails in Kansas City!
Various reports about the Kansas City closure are making hay from Harley’s disclosure of an 82 percent drop in Q4 revenue – the figure they quoted as HD’s Q4 earnings was a measley $8.3 million. It was Harley’s worst quarter ever that didn’t involve an outright loss. Their peak earnings (in net income) – according to their own earnings reports – came in Q4-2006, when they raked in $252.4 million. Their worst quarter was, thanks to the Recession, Q4-2009, when they lost $218.7 million. Obviously they’re up from that, but what caused Q4-2017’s drop?
Sales are falling in the US, for one. Sales in the USA are expected to continue falling in 2018, with Harley saying they’re looking at up to another 4 percent drop in 2018. They’re starting to rely more on overseas sales, where numbers aren’t falling as precipitously as they are in North America. (This is one of the reasons they’re building a factory in Thailand, read the other blog post linked above.) From 2016 to 2017, Harley’s sales fell 8.5 percent in the USA, were down 3.9 percent overseas, and were down 6.7 percent overall (260,289 sold in 2016 vs. 242,788 sold in 2017).
Harley also had to take a write-down in Q4-2017, which they said was due to the impact of deferred tax assets related to the 2017 Tax Cuts and Jobs Act, which became law on 22 December 2017. The write-down boosted Harley’s effective tax rate from 32.4 percent to 39.6 percent. They shouldn’t have such a huge tax issue in 2017, when their tax rate will drop considerably thanks to the new tax law.
A lot of folks are quick to jump on Harley’s sales slump as a harbinger of doom for the motorcycle industry at large, but I think that’s short sighted. Like any large manufacturing company, Harley is looking at the long term big picture. Their comeback plan is slated for a ten-year schedule, during which they say they’ll be introducing 100 new “high impact” motorcycles. They have to rely on these new models to bring in new customers, because their Baby Boomer customer base is going to start dying off or at least getting out of riding in ever-growing numbers over the next decade. (The earliest Baby Boomers were born in 1946, making them 72 this year; the youngest were born in 1964 and will be turning 54 in 2018. According to census data, this age group makes up about 20 percent of the US population.) Without new customers, no motorcycle company will survive, but Harley will be especially hard hit, as they still dominate the market share for motorcycles in this country.
Unlike a lot of manufacturers, Harley already has an electric motorcycle in the works and we should see that on the street in five years or less.
Harley has reached a point in its life cycle where it can’t simply rely on its name to sell motorcycles. The heady days of the 1980s & ’90s, when riders had to order bikes, wait months and then pay a premium over MSRP for them are gone, never to return. Harley isn’t sitting back and taking it on the chin – they’re revamping their products and trying to build their customer base with good, old-fashioned hard work. We’ll see in a few years if their efforts will pay off.
That’s not much comfort to the 800 folks losing their jobs in Kansas City, but for 450 folks in York, 2018-19 hold promise for a better future.