After 107 years, Harley plant may hit the road

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It’s been quite a ride for Harley-Davidson (NYSE: HOG). The iconic motorcycle company has been cranking out bikes since 1903, and is one of only two major motorcycle manufacturers to survive the Great Depression. The first Harley rolled off the line just a year after the first telegraph line crossed the Pacific Ocean, and now you can log on to Harley’s website to customize your “hog” or find a dealer on your smartphone.

But there’s a rough road ahead for the motorbike maker. The plant that cranks out Harley’s choppers in Milwaukee may finally be at its breaking point after over a century, with labor costs threatening to shutter the facility and end 107 years of tradition.

According to reports, Harley-Davidson warned employees in April that it will move its Wisconsin manufacturing operations elsewhere if it cannot cut millions of dollars from its production costs. That would mean the bikes known as “Milwaukee Iron” to some may have to get another nickname.

Harley’s CEO told the Associated Press the motorcycle company will reach a decision on relocation within a month or two. Harley execs aren’t necessarily going to leave the United States, and are reportedly scouting out other states outside of Wisconsin. There’s also a push to establish incentives to keep the 1,630 manufacturing jobs where they are, but that’s up to local lawmakers.

Harley-Davidson stock has been hit hard by the financial crisis, as “impractical” forms of transportation like motorcycles, RVs and SUVs became less popular and consumer spending dried up. HOG stock is down about -60% from early 2007, and the company has missed profit estimates for three of the last four quarters.

It’s worth noting that things are starting to improve at Harley. After a steep loss in the fourth quarter of 2009, the company has steadily been growing its earnings again and is turning a decent profit. But company executives – not to mention shareholders – are hardly satisfied considering Harley-Davidson’s previous successes. In 2009, HOG saw nearly -27% decline in shipments to dealers and a -23% decline in worldwide sales of Harley  motorcycles – so any gains this year are simply making up for lost ground.

As for whether Harley will pull the plug on Milwaukee, that remains to be seen. But the bigger question that HOG stockholders should ask themselves is whether a small dip in labor costs will really make that big of a difference in share prices. Moving a manufacturing facility may not make up for the fact that Harley motorcycles are an expense cash-strapped Americans aren’t prepared to shoulder in this era of high unemployment and economic uncertainty.

As of this writing, Jeff Reeves did not own a position in HOG stock.

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Article printed from InvestorPlace Media, https://investorplace.com/2010/08/harley-plant-may-hit-road/.

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