Dive Brief:
- Harley-Davidson CEO Matt Levatich expressed satisfaction with his company's 2018 move to shift production from the U.S. to Thailand on the company's first-quarter earnings call. The motorcycle maker shifted manufacturing from Missouri to Thailand to avoid European tariffs as that market gained importance in its sales volume.
- "During the quarter, we saw proof in the wisdom of our Thailand manufacturing investment ... The tariff mitigation we realized allowed more competitive pricing and access to more customers," Levatich said.
- Current mitigation efforts may not last, however. Harley-Davidson is awaiting approval from the EU to lower the import tariff rate for motorcycles from Thailand back down to 6%. A rate of 31% was enacted last June. "That tariff will increase another 25 points in June of 2021 to 56 points total," Levatich said.
Dive Insight:
"We expect [the] first quarter will be adversely affected by incremental tariffs, unfavorable mix, lost absorption on lower shipments and unfavorable currency, partially offset by lower year-over-year restructuring costs," Harley CFO John Olin predicted on the company's January earnings call.
He was right. Revenue for the company's motorcycle segment in the first quarter was down 12.3% year-over-year.
Executives are more optimistic about the retail environment in the remainder of 2019, but improving consumer trends are cold comfort in a shifting trade environment that seems to get worse for Harley at every turn. The company said in January it expects to pay $100 million in tariffs this year.
Moving production from Missouri to Thailand will have only been a short-term fix if the EU does not approve Harley's request to lower the tariff rate. If the EU denies the request and tariffs rise to 56% for Harley, the company will consider starting production in Europe.
"Europe has always been an option as we looked at how to mitigate the EU retaliatory tariffs. It wasn't our preferred option — Thailand was," Levatich said. "So we have a number of other alternatives that we have at our disposal, should that approval not come our way."
