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Harley plans to cut another 1,000 jobs

Company also plans production shutdowns at several of its plants

Employees enter the Harley-Davidson Inc. headquarters in Milwaukee on Thursday, after the company announced that an additional 1,000 jobs were to be cut because of falling sales. Nearly half of the 1,000 job reductions will be in Wisconsin.

Employees enter the Harley-Davidson Inc. headquarters in Milwaukee on Thursday, after the company announced that an additional 1,000 jobs were to be cut because of falling sales. Nearly half of the 1,000 job reductions will be in Wisconsin. Photo By William J. Lizdas

July 16, 2009

Easing off the throttle and cutting 1,000 more jobs, Harley-Davidson Inc. has hit a rough patch of road.

The world's largest manufacturer of heavyweight motorcycles on Thursday also said it was shutting down production for 14 weeks later this year at plants in Wauwatosa and Kansas City, Mo. The company also is suspending production between five and 14 weeks at other plants, including Menomonee Falls, Tomahawk, and York, Pa.

Nearly half of the 1,000 job reductions announced Thursday will be in Wisconsin, including 300 hourly production jobs and 180 salaried positions, mostly at the Milwaukee headquarters and product development center. Worldwide, the company has 9,200 employees.

Harley-Davidson is slashing its payroll and slowing production to address the current difficulties of selling motorcycles that can cost up to $35,000.

Even many die-hard Harley loyalists, caught by the severity of the recession, aren't buying new bikes.

"I think the company is rightsizing itself and preparing for a smaller market going forward," said analyst Philip Gorham with Morningstar Research, in Chicago.

Harley said its second-quarter net income fell 91% to $19.8 million, or 8 cents per share. That's down from $222.8 million, or 95 cents per share, in the same period last year.

Much of the drop could be explained by two non-cash charges related to the company's motorcycle financing division. But Harley also said its worldwide motorcycle sales fell 30% during the quarter, and its U.S. sales were down about 35% from a year ago.

Earlier this year, the company said it planned to cut from 1,400 to 1,500 hourly positions and about 300 salaried jobs. Thursday's announcement of another 1,000 layoffs was worse than some union officials expected.

"It's going to go pretty deep with us. People are going to get hurt," said Mike Masik, president of United Steelworkers Local 2-209 in Milwaukee.

The Steelworkers already have about 240 people on indefinite layoff from Harley.

"You can get a gut feeling about what's happening," Masik said. "We hope that we will see people coming back to work here in January," but there are no guarantees.

Restructuring since May

Harley has been restructuring since the beginning of the year as it sought to cope with weaker sales. In May, the company said it was considering closing its motorcycle assembly plant in York, Pa., and a study is under way to assess whether production will remain in York or move to another U.S. site.

Harley now expects to ship from 212,000 to 228,000 motorcycles to its dealers and distributors worldwide this year, down from 25% to 30% from 2008 shipment levels and lower than earlier expectations.

"We are pulling back on everything," CEO Keith Wandell said in an interview. "We will be shutting down the Sportster production line in our fourth quarter, and that will have an impact on the Capitol Drive plant which makes engines for Sportsters."

The shutdown will accelerate a plan to close the Capitol Drive facility and move its production to the company's factory on Pilgrim Road, in Menomonee Falls.

"With the plant being down, we can move a lot of the equipment at that time," Wandell said.

The cost-cutting measures announced Thursday could result in more than $70 million a year in savings for Harley and do not include anything that might come from York. The company's decisions could affect another several thousand jobs.

"Let me assure you that we are not taking these actions lightly. We are taking them because we feel a strong sense of accountability to make the tough calls that are required to ensure the long-term viability and success of Harley-Davidson," Wandell said in a conference call with analysts.

A hundred jobs are being eliminated at Harley-Davidson Financial Services, the consumer lending arm of Harley-Davidson Inc.

That division, which currently has 780 employees, posted an operating loss of $62.1 million in the second quarter, down from operating income of $37.1 million a year ago. Tight credit conditions have weighed on the unit, which has been heavily reliant on the battered securitization market for funding.

"It was another rough quarter for HDFS, but that was to be expected," said analyst Ned Douthat with Ockham Research.

Buyout program

Harley has offered salaried employees a buyout program that could reduce the number of layoffs. Most of the salaried job reductions are expected in the next three months.

A decision on whether to close York will come by the end of the year, Wandell said.

"We are trying to be respectful of the process and are asking our employees there to make some tough decisions around flexibility, work rules, job classifications and outsourcing of some production that's not core-competency for us," he said.

The drop in quarterly sales, while steep, was better than the 48% decline in the heavyweight motorcycle market overall.

Harley increased its market share in the heavyweight category, despite the sales decline.

That's encouraging, but it won't change the near-term outlook for the company, according to Gorham.

"We see no end in sight to Harley's challenging operating environment," he said. "We do not expect any recovery in this highly discretionary industry until consumer confidence has returned and the labor market has stabilized."

Harley shares rose 8.4% Thursday to close at $18.96.

Analysts said Wall Street likes it when a company cuts costs, even if it results in thousands of job losses.

"In the short term it's certainly important that Harley get some of its costs out of the system," Gorham said.

"Companies can always ramp up again once things turn around. It's easier to ramp up than it is to wind down," he said.

Harley-Davidson, Inc.

2nd quarter     %
06/28 2009 2008 change
Sales $1,153 $1,572 -27
Net income 19.8 222.8 -91
EPS (diluted) .08 .95 -91
6 months      
Sales $2,444 $2,878 -15
Net income 137 410.3 -66
EPS (diluted) .59 1.74 -64

Figures in millions except for earnings per share. Percentages are based on unrounded sales and income figures.

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