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Recession Throttles Harley Profits

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The Associated Press

Published: January 24, 2009

NEW YORK - Harley-Davidson Inc. said Friday that it will cut 1,100 jobs over two years, close some facilities and consolidate others as it grapples with a slowdown in motorcycle sales.

The Milwaukee-based company also reported that its fourth-quarter profit fell nearly 60 percent, and said it is slashing motorcycle shipments in 2009 to cope with reduced demand.

The iconic motorcycle maker said it will consolidate two engine and transmission plants in Milwaukee into its facility in Menomonee Falls, Wis. It will shrink the paint and frame operations in its York, Pa., plant and close its distribution facility in Franklin, Wis.

Harley also is exiting its domestic transportation operation - its fleet of long-haul truckers who transport parts between manufacturing facilities - and outsourcing duties to a third party.

The job cuts make up slightly more than 10 percent of the company's total work force.

"Harley-Davidson is not immune to the current economic conditions," Jim Ziemer, the company's outgoing chief executive, said in a conference call. "We're going to show great discipline in protecting the value of the brand."

The company said the cuts consist of 800 hourly production positions and 300 nonproduction, mostly salaried positions. It said 70 percent of the job cuts will occur this year and the rest in 2010.

In an interview, Ziemer said about 650 of the cuts will be in Wisconsin and more than 400 jobs will be lost in York, where its transportation operation is also based. About 85 cuts will be made at the company's motorcycle plant in Kansas City, Mo., Ziemer said.

"Right now, it's more fear than anything else, and consumer confidence" that's hurting demand, he said.

The job cuts will result in one-time charges of $110 million to $140 million over 2009 and 2010, Harley said. Once all the cuts are made, they will save between $60 million and $70 million per year.

Harley has been stung by the rapid downturn in motorcycle demand. The economic recession has prompted many consumers to put off purchases of high-end bikes, while the credit crunch has frozen financing for some would-be customers.

"It's industrywide," said Robin Diedrich, senior consumer analyst for Edward Jones. "It's the global economy that's impacting discretionary items, especially something that's as discretionary as a motorcycle."

Harley said worldwide retail sales fell 13.1 percent in the fourth quarter, with sales in the United States - its biggest market - falling nearly 20 percent. International sales crept higher, though, and the overall heavyweight motorcycle sales fell 25.5 percent in the same period, Harley said.

For the full year, worldwide retail sales fell 7.1 percent.

Harley said it is slashing new motorcycle shipments in 2009 to between 264,000 and 273,000 to cope with the down market. That would be a drop of 10 percent to 13 percent from a year earlier.

In 2008, Harley said it shipped 303,479 new motorcycles, down 8 percent from 330,619 new motorcycles in 2007.

Harley said its fourth-quarter profit fell 58 percent to $77.8 million, or 34 cents per share, for the quarter ended Dec. 31, compared with $186.1 million, or 78 cents per share, in the same quarter last year. Revenue fell 6.8 percent to $1.29 billion from $1.39 billion in the year-ago quarter.

Chief Financial Officer Tom Bergmann said delinquency rates on loans from Harley-Davidson Financial Services have crept higher from last year as cash-strapped consumers are having difficulty making payments. The troubled financial arm has hobbled Harley-Davidson recently, and many analysts have suggested the lending unit may have to be sold because it is struggling to unload its debt in the financial markets.

For the full year, Harley said its earnings fell 30 percent to $654.7 million, or $2.79 per share.

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