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H-D profits down in 2008

Restructuring expected to cut 1,100 jobs

By Motorcycle.Com Staff, Jan. 23, 2009
Harley-Davidson has announced its strategy for weathering the economic crisis as the company reports a decrease in revenue over the fourth quarter of 2008.

“We have a strong core business anchored by a uniquely powerful brand, but we are certainly not immune to the current economic conditions,” says Jim Ziemer, chief executive officer, Harley-Davidson Inc. “We have a clear strategy to not only deal with the economic conditions, but also strengthen our long-term operations and financial results. We are executing that strategy with confidence and conviction.”

The Motor Company reported fourth quarter revenues of $1.29 billion, down from $1.39 billion in 2007. More dramatically, net income for the quarter decreased to $77.8 million compared to $186.1 million in the fourth quarter 2007.

In total, annual revenue in 2008 decreased to $5.59 billion compared to $5.73 billion in 2007 while annual net income dropped to $654.7 million from $933.8 million. 

Harley-Davidson is adopting a three-part strategy for weathering the global economic struggles.

“Our strategy is focused on three critical areas: to invest in the Harley-Davidson brand, get our cost-structure right, and obtain funding for Harley-Davidson Financial Services (HDFS) to help our dealers sell motorcycles and our retail customers to buy them,” says Ziemer.

Harley-Davidson will consolidate the paint and frame operations at its York, Pa., facility.
Harley-Davidson is closing its Parts and Accessories Distribution Center in Franklin, Pa.

The first part, investing in the brand, involves increasing efforts in marketing to reach out to younger and more diverse riders. Harley-Davidson says its Sportster trade-up program has been well received by both dealers and consumers.

Managing its cost structure is the second part of Harley-Davidson’s strategy. Production was reduced in 2008 and Harley-Davidson is planning a further reduction of 10% in 2009.

“We reduced our production levels prudently in 2008, helping our dealers achieve lower inventory levels,” says Ziemer. “And we’re going to show similar discipline in 2009. That’s not only critical for the health of our business, but for our dealers’ businesses, as well.”

Harley-Davidson announced plans to consolidate its two engine and transmission plants in the Milwaukee, Wis., area into a facility in Menomonee Falls, Wis., consolidate paint and frame operations at an assembly facility in York, Pa., and outsource Parts and Accessories and General Merchandise distribution.

The Company will also discontinue its domestic transportation fleet operation.

The restructuring and volume reduction are expected to result in the loss of 1,100 jobs over the next two years. These jobs include 800 hourly production positions and 300 primarily salaried, non production jobs. Harley-Davidson expects these changes to result in one-time charges totaling between $110 million to 140 million over 2009 and 2010 but will represent annual savings from $60 million to $70 million once the restructuring is complete.

“We obviously need to make adjustments to address the current volume declines,” says Ziemer. “But we are also determined to do that in a way that will make us more competitive for the long term. Our management group will engage with union leaders, through our partnering relationship, regarding these changes.”

As reported earlier, Harley-Davidson is seeking assistance through the Federal Deposit Insurance Corporation to support its financial segments.

HDFS reported an operating loss of $24.9 million for the fourth quarter of 2008, down from a $38.6 million operating income in 2007. The Company says it will explore other options to support HDFS.

“Our priorities for HDFS in 2009 are to continue to obtain funding for its lending activities, manage credit losses in this challenging environment and provide support to the Harley-Davidson dealer network,” says Tom Bergmann, chief financial officer of Harley-Davidson, Inc. and interim president of HDFS.

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