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.
[...]
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.
Quick! We need to create a specialized license plate honoring H-D, and name H-D as the Official Wisconsin State Motorcycle. That oughta do it…
Posted by .(JavaScript must be enabled to view this email address) on April 29, 2010 at 1731 hrs
Neumann and Walker need to start squawking RIGHT NOW about the repeal of combined reporting. I realize that combined reporting is only one part of the equation, but it would be something of a reassurance to the company. They need to cut costs regardless, and I really don’t see any way that they are going to be able to maintain their manufacturing in the high wage-unionized northern states, if in the United States at all. I don’t think we are too far away from seeing most of H-D’s parts manufactured overseas, with assembly taking place in Kentucky or Alabama.
Posted by .(JavaScript must be enabled to view this email address) on April 29, 2010 at 1749 hrs
“management should have made better efforts to diversify its product line to insulate it[self]”: They exclude a broad band of potential customers, i.e., the crotch-rocket market. One would think as the Japanese (mainly) have steadily provided products with more and more power, acceleration, reliability, ease of maintenance, excellent looks, and tons of options at a decent price, Harley would have evolved into products with a broader spectrum of appeal. Than came the Japanese cruisers.
I wonder if Harley makes comparable profits on their brand name products outside of bikes, i.e., t-shirts and jackets.
Check out Ebay and Craigslist for all the Harleys on sale within 100 miles of West Bend. Their market of drilled out pipes (sorry quiet riding Harley owners) appears saturated.
Posted by .(JavaScript must be enabled to view this email address) on April 29, 2010 at 1931 hrs
Operational flexibility” is a statement about the inflexibility of the union to adjust quickly and easily to the market
I don’t think that’s what it means. The rest of the statement had to do with ‘labor costs,’ so what he’s talking about is the Rules—the ones which prevent management from implementing cellular manufacturing, where the employee does multiple tasks instead of just setting-up and then watching a machine turn parts all day.
IOW, it appears as though HD has work-rules similar to those found at GM and Chrysler (maybe FoMoCo, too)—as opposed to those found at Toyota or Honda American facilities. In fact, it’s usually “the Toyota system”. The old “not my job” game.
If that’s the case, it would be very disappointing to learn that the HD union hasn’t seen the handwriting on the wall up to this point in time. Toyota’s system has been implemented in damn near every manufacturing environment in the US and has saved a bazillion dollars in floor-cost.
Also—that was a pretty frank chit-chat session, not the usual flowery BS.
Looks like Decision Time for the union.
Posted by dad29 on April 29, 2010 at 1933 hrs
EDIT that last to read:
“.....In fact, it’s usually CALLED the Toyota system.”
NEXT EDIT: Delete the sentence referring to “not my job.” It is a reference to “the Rules”...
Too much coffee.
Posted by dad29 on April 29, 2010 at 1937 hrs
I should think liberals would be thrilled at the news. Another big corporation brought to it’s knees by fair taxation. Now all we need to do is seize the corporation (it’s too big to fail), turn part of the assets over to the union, mandate purchase of it’s products and harass the foreign competition.
We’d have another GM success story then. Paradise.
Posted by .(JavaScript must be enabled to view this email address) on April 29, 2010 at 1941 hrs
Too much coffee.
Beer has the same effect on me
Posted by .(JavaScript must be enabled to view this email address) on April 29, 2010 at 1946 hrs
I wonder how many rank and file union workers at Harley voted for Jim Doyle, (twice) because he in the political party that represents the working people of Wisconsin?
I sincerely hope they work out an agreement that keeps them here.
Posted by .(JavaScript must be enabled to view this email address) on April 29, 2010 at 1952 hrs
Let’s not kid ourselves here. The only way H-D keeps its manufacturing here is if the union takes significant cuts.
The only way that H-D headquarters stays here is if they get rid of the combined reporting.
I doubt that either will happen. Harley rode its product line past the tipping point and failed to take those profits and re-invest some of it into new products.
Plenty of blame to go around.
Posted by .(JavaScript must be enabled to view this email address) on April 29, 2010 at 2139 hrs
This really is about this fact: Harley’s 2008 profit fell 30% to $654.7 million as motorcycle shipments slid 8% to 303,479.
Wisconsin did not raise any corporate income taxes. It closed a loophole that let corporations pretend they made the money they earned in Wisconsin in another states to avoid paying taxes. Do you think Wisconsin businesses that only have locations in Wisconsin should pay the taxes for businesses that have locations out of state? Because that is what was happening before combined reporting became law.
If you want to argue that WI shouldn’t have a corporate tax at all, fine, that’s an argument. But to argue that some corporations should get to use loopholes to avoid taxes is a strange argument.
Combined reporting is not some liberal position that is way out there. The “tax crazy” state of TX has combined reporting because it is more fair to all businesses.
Posted by .(JavaScript must be enabled to view this email address) on April 29, 2010 at 2217 hrs
Carrie,
Regardless of how you want to spin combined reporting, it is an expense that Harley has to pay that they didn’t have to pay last year. Sure, it may be “fair” but that doesn’t change the economics. If I think it’s fair to impose a $10,000 tax on you, I may be right, but that doesn’t change the fact that you’re out $10,000.
Posted by Owen on April 29, 2010 at 2221 hrs
Hey, H-D, come on down to Texas! We don’t have many of those crappy work-slaying unions down here, and the ones we do have aren’t nearly as arrogant or powerful as the ones up north.
Plus, our weather is MUCH better for year-round motorcycle riding.
Posted by .(JavaScript must be enabled to view this email address) on April 29, 2010 at 2305 hrs
It’s always sad to see a manufacturing icon disappear, but this may be the case for Harley Davidson. HD has always catered their bikes to a certain type and age of rider, and quite frankly, that customer pool is dwindling. As baby-boomers grow older, they’re turning their Hogs in for the more luxurious, high-end bikes from Honda or giving up riding all together and hopping into a Lexus or Infinity. Younger riders seem to prefer the sleek Japanese “crotch-rockets”. In addition, Harleys cost a lot of money, making it a purchase hard to justify in hard economic times. The union in York, PA was willing to negotiate a “tough” contract with management that also resulted in the elimination of 1,000 jobs; hopefully the union in WI will see the writing on the wall. As for the tax credits, it’s pretty hard to offer them as an incentive when sales are way down in a tough economy. The right incentive would be to delay or reduce the combined reporting tax.
Posted by .(JavaScript must be enabled to view this email address) on April 30, 2010 at 0654 hrs
But to argue that some corporations should get to use loopholes to avoid taxes is a strange argument.
So it’s a loophole to pay a reduced Wisconsin tax rate on income made in California?
$35,000,000.00 equals how many jobs? Should’ve called the combined reporting a Jobs Bill…
Posted by .(JavaScript must be enabled to view this email address) on April 30, 2010 at 0740 hrs
I hope Harley moves. Let these political chatters live in the mess they create by “just trying to get things done” and trying to make things work. Government is a failure and the sooner we get rid of it so we can actually concentrate on the important things in life the better.
Posted by Jay4Liberty on April 30, 2010 at 0850 hrs
Doyle couldn’t have phased in combined reporting?
Posted by .(JavaScript must be enabled to view this email address) on April 30, 2010 at 0852 hrs
Anyone here still think the economy is on the up turn?
Posted by .(JavaScript must be enabled to view this email address) on April 30, 2010 at 0913 hrs
Do you think Wisconsin businesses that only have locations in Wisconsin should pay the taxes for businesses that have locations out of state? Because that is what was happening before combined reporting became law.
Sure, it was allowing multi-state companies to possibly play with their accounting to their advantage where in-state only companies can’t. But corporate taxation is always a losing game - government picks winners & losers through tax code, and the big corps will always have better tax lawyers. At best, corporate taxes are actually collected - having been paid by the customers just like any other business expense is passed along. So I will argue for no corporate taxes.
But all of this doesn’t change the facts: taxes have consequences. One result of combined reporting is that companies will move their locations out of the state. And it’s the corporations with multiple locations that find it most easy to move. Be proud of “closing the loophole,” “sticking it to the big evil corps,” and evening things out for companies located only in the state - but take you medicine and admit that at the very same time, the other side of the coin of the wonderful “fix” will send millions out of the state. When all is said and done, probably hundreds of millions when you consider the of pay checks and income taxes of the lost employees, property and utility taxes, subsequent sales taxes, etc.
And just to be clear - this is not the law of unintended consequences. There were people all over saying this is exactly what was going to happen - it’s a very predictable result of the combined reporting tax changes.
Posted by .(JavaScript must be enabled to view this email address) on April 30, 2010 at 0929 hrs
Hey, H-D, come on down to Texas!
As a shareholder in HOG, I echo those sentiments. My Wide Glide was made in Kansas City, not Milwaukee, anyway.
That way when I retire and move to Texas I can tour the new H-D Headquarters and Visitor Center.
Posted by .(JavaScript must be enabled to view this email address) on April 30, 2010 at 0938 hrs
If combined reporting gets repealed, watch Cubic Zirconium Jim stand up and say “See, I’m here to help Wisconsin business!” What an asshole.
Posted by .(JavaScript must be enabled to view this email address) on April 30, 2010 at 0956 hrs
Not that many years back a H-D held its value very well, you could purchase new drive it a few years and sell it for what you paid.
Then came the anniversary years and every yuppie on the planet needed one so they could attend the birthday bash, or trailer it to Sturgis. The market is flooded with cheap used bikes, ten years back many of us seen this coming, I think they should have produced a limited amount of product every year no matter how much demand there was.
You also need to factor in the present economy and aging customer base of course. I guess the term Milwaukee Iron will be of little use anymore, Waco Steel does offer some charm.
On a brighter note, this company was left for dead in the thirties and the seventies, somehow they always find a way to reinvent themselves and come back stronger.Posted by .(JavaScript must be enabled to view this email address) on April 30, 2010 at 1123 hrs
The tax contributed to HD’s problem, but only for one reason: the amount of the tax was not ‘built in’ to HD’s pricing structure.
Now it will be.
The manufacturing-cost problem is NOT a tax problem. Note that “manufacturing-cost” and “tax” are even spelled differently.
The new Big Boss at HD also addressed the ‘new products’ issue, stating that they were going to stop trying to develop 15 new goodies at once and focus on only a few which WILL capture more markets or market share.
No question that HD got a little ‘fat’ after 20 years of very good sales and profit growth. Now it’s time to slim down a bit.
Posted by dad29 on May 01, 2010 at 0747 hrs
Dad29, what is the source of Wandell’s new product development directive?
Posted by .(JavaScript must be enabled to view this email address) on May 02, 2010 at 1207 hrs
Duke and Dave: When you cheer for Harley to go to Texas you have to keep in mind that Texas already has combined reporting.
Posted by .(JavaScript must be enabled to view this email address) on May 03, 2010 at 0955 hrs
Harley is not going anywhere. This is the Mercury plan. Threaten to move out of state and watch the tax credits roll in. No one in goverment is going to let Harley leave. We may soon be getting a new tax to turn the proceeds over to Harley.
Big companys would be stupid not to play this card. Why pay taxes when you can negotiate them awy.Posted by .(JavaScript must be enabled to view this email address) on May 03, 2010 at 1045 hrs
Carrie,
When Harley takes into account combined reporting, they’ll also take into account a few other items, such as local property taxes, overall state income taxes, etc…. it called the ‘big picture’.... there is a reason Texas has added over a million jobs recently and Wisconsin is losing manufacturing jobs…
Posted by .(JavaScript must be enabled to view this email address) on May 03, 2010 at 1050 hrs
dad29 hit the nail on the head in #4..
Operational flexibility means to loosen up the work rules. Like the attendance “points” system. Like having to promote the guy with the highest seniority to a position that he can’t perform because he weighs over 400 lbs and can’t walk/has to ride a scooter - including making sure he gets offered overtime. Like paying a guy just to basically change light bulbs. These examples are real btw and I could tell you oh-so-many-more.
It’s the “no you can’t carry that box over there because that is so-and-such’s job” mentality. You can see it in Mr Masik’s comment about how crappy a deal that York got by leaving the hourly wage (which are pretty darned good) and changing healthcare coverage and work rules. The union knows where its bread is buttered right now and a change in work rules could make some of those dinosaurs finally extinct.
Posted by .(JavaScript must be enabled to view this email address) on May 03, 2010 at 1154 hrs
Well said Smeety. Combined reporting isn’t the problem… combined taxation IS.
@Reaper: Perhaps you have not noticed a trend in Wisconsin. Taxes go up, and businesses with headquartered here or with a major presence move away. Miller, Midwest, Menards, GM, Super Steel, Cummins, Sanford Corp, NCR, 200 jobs here, 1500 jobs there. I’m not seeing a similar list of new business start ups though. We’ve lost hundreds of thousands of jobs these past 6 years.
Posted by .(JavaScript must be enabled to view this email address) on May 03, 2010 at 1206 hrs
There was a time when despite poor quality, and only 5 models to choose from, riders bought H-D’s bikes because they were loyal to the brand. Dealers might be Mom&Pop; down at the corner. Buyers knew the whole family by name, and the mechanics as well. Have a problem, or a question, go talk to mom, or Pop, over a coke, and things were straightened out pronto. Then came the days of sorry we have no bikes, we’ll put you on the lists, “A” if you have a trade in, “B” (or oblivion) if you dont. All the doctors, lawyers, and other yuppie scum bought their way into a better spot, and those who had kept the MoCo alive in the “good ol’ days” and have ridden the brand for decades were not considered as important as the Gold card RUBS. Now the Worm turns once again.
H-D has wasted many opportunities to improve their market share,because of their attitude toward the buying Public,and the “New Vision” of what H-D should be, requiring Dealers to build huge expensive temples to avarice. So much has been spent on the sizzle, that there is little left for the Steak. Just how many different models are needed? How much made in China, over priced junk is really needed?
H-D had Buell to answer the sport bike market, they are good bikes, well, they were good, The moss backs of MoCo shut it down. H-D also has the V-Rod, which while it has its charms, and a dedicated following, hasn’t really taken off as hoped.
Dealer attitudes need to change as well. Used to be you could talk with anyone you needed to, now, its as bad as an auto dealership, with multi layered barriers to communication. Its no surprise to me that H-D is falling on its face. After 45 yrs of riding their bikes, I’m done. I’ll build my own next time.Posted by .(JavaScript must be enabled to view this email address) on May 08, 2010 at 1334 hrs
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