Harley Davidson Evaluating Moving Manufacturing Out of Wisconsin

This was just a matter of time.

Harley-Davidson Inc. (HOG) is seeking to cut millions of dollars in costs from its Wisconsin manufacturing plants, or those operations could be moved elsewhere, the company told employees Thursday.

At risk would be more than 1,400 jobs at the company’s plants in Menomonee Falls and Tomahawk.

In a meeting with employees, company officials said there were significant “cost gaps” that must be filled, and that manufacturing costs must be reduced by $54 million a year.

“Our preference is to keep the production operations in Wisconsin, but as part of due diligence we will also explore alternate U.S. sites” if necessary, company spokesman Bob Klein told the Journal Sentinel.

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In Wisconsin: “We are looking at labor costs and operational flexibility as some of the key areas where cost gaps exist,” Klein said.

The company’s contract with its largest union here, the United Steelworkers, expires in March 2012.

Management has not asked to reopen the contract, said Mike Masik, president of Steelworkers Local 2-209.

“If you look at the York contract, the company left hourly rates alone and went after health care and work rule changes. The union there got a pretty crappy contract out of it,” Masik said.

There are three big issues at play here.  First, there’s the fact that Wisconsin just jacked up Harley’s taxes to the tune of tens of millions of dollars via the implementation of combined reporting.  Also, there’s the regulatory burden and other things that make Wisconsin generally unfriendly to business.  These things can be tolerated in good times, but kill companies that are on the bubble. 

Second, there’s the union.  Just read the quote.  “Operational flexibility” is a statement about the inflexibility of the union to adjust quickly and easily to the market. 

Third, there’s the management.  Harley sells a luxury product, so it was natural to see them get hammered in a recession.  Also, their primary demographic is aging and they aren’t pulling in the younger demographic.  To be fair, products like this are subject to popularity trends, but management should have made better efforts to diversify its product line to insulate it from such whims. 

Regardless, Harley pulling its manufacturing out of Wisconsin would be a huge blow to both Milwaukee and the state.  Let’s hope they can find a solution.