IJMS / Roundtable / McBee / Harley-Davidson's Future (Abroad)

In 2005, New York Times reporter Louis Uchitelle explained that even though the United States was no longer the “industrial dynamo it was a half-century ago,” the “reports of the death of American manufacturing” were “greatly exaggerated.” If the United States’ manufacturing output was “measured as value added”—“the dollar value created within each country when material and labor are melded into finished products”—the United States “accounted for 23.8 percent of the world’s manufacturing output in 2004,” which was still the highest total of any country (Japan was second at 20.9 percent), and the U.S. has had an average output 24.6 percent since 1982. Harley-Davidson was one example the author used to highlight America’s success, the company having increased production every year from its turn-around in the mid-1980s to 2005—a roughly ten-fold increase in production. H-D’s chief executive, James L. Ziemer, admitted that achieving this success and maintaining it was a complicated balancing act. Two-thirds of Harley-Davidson’s customers were ages thirty-five to fifty-four, mostly Baby Boomers whose purchases of Harleys were expected to slow down because they had become more interested in weekend outings in their RVs than on their Harleys, which meant that the company’s future depended on finding that next generation of enthusiasts. China was Ziemer’s answer to his dilemma and the larger need to sell more motorcycles worldwide (Uchitelle, “If”).

By 2010, Ziemer’s prediction would come true and overseas markets would account for about 30 percent of Harley-Davidson’s total sales (in Europe, Latin America, China, and also India), but the company’s expansion abroad also coincided with growing questions about production. H-D came of age in the postwar years thanks to its big, rugged bikes, the motorcycle’s association with the “outlaws” who rode them, and because the company was the last major American motorcycle manufacturer. When The New York Times asked Ziemer and his executives about Harley-Davidson’s production, they insisted that their customers would not tolerate it moving outside the United States. But in that same article describing H-D as one of the few companies consciously resisting globalization, Ziemer failed to mention their assembly plant in Brazil that opened in 1999. Indeed, by the time overseas markets began to consume a sizeable number of Harleys (in 2010), the company was selling over 100,000 fewer motorcycles than it had been just a few years earlier; it had plans to open another assembly plant in India, and production had become the single most important issue facing Harley’s future and the future of its unionized American workforce.[1]

Support for “Buy American” or “made in America” has been conspicuous throughout the postwar years. It first appears immediately after World War II as British-made lightweights poured into the U.S. market. The arrival of Japanese Hondas in the early 1960s only made the situation worse for Harley-Davidson, whose response was economic nationalism. H-D’s “The Great American Freedom Machine” slogan debuted in 1972, a year after the company started using the over-sized number 1 festooned with stars and stripes. By the early to mid-1970s, Harley-Davidson was only selling between 4 and 7 percent of the motorcycles in the United States, and its share of the large motorcycle market—those motorcycles 750 ccs or bigger--would face increasing competition by the late 1970s and early 1980s. Honda introduced its first 750cc motorcycle in 1969, and in 1979 the now-famous 1000cc Goldwing made its appearance. H-D’s sales of 1000cc motorcycles (and larger) “nearly tripled between 1969 and the mid 1970s”—from 12,000 to 13,000 motorcycles a year to about 35,000. By the late 1970s, the company was selling about 50,000 a year. But by the early 1980s, as Japanese manufacturers began promoting V-twin engine touring cycles that, Harley-Davidson complained, copied their basic design and marketing schemes, their numbers began to slip. By 1982 that number had dropped to around 30,000, a figure comparable to what H-D was manufacturing ten years earlier, and the company’s share of the heavyweight motorcycle market decreased from 21 percent in 1977 to just over 13 percent (13.3 percent) in 1982 (Stewart G1).

Harley-Davidsons’s fortunes began to change in the mid-1980s, in part, because of the substantial increase in tariffs on motorcycles of 700 ccs or larger. The company had successfully filed a complaint with the U.S. International Trade Commission, claiming that Japanese manufacturers had stockpiled significant numbers of motorcycles and when released onto the market, prices would drop precipitously and adversely affect Harley-Davidson, if not push the company out of business altogether. The Reagan administration accepted the committee’s recommendations and increased the tariff on the larger cycles from 4.4% of the cost of the vehicle to 49.4%--an increase of 45% (with declining tariff rates for the next four years). The Reagan administration repeatedly stressed the importance of saving the last major “American” motorcycle manufacturer even as it ignored the crisis facing other American industries, mainly textiles and steel. Congress, for example, had repeatedly approved of increasing tariffs on imported textiles to try to save American manufacturing, and in each case Reagan vetoed the legislation.[2] Reagan’s interest in saving H-D is summed up best by Willie Davidson just before the tariff was passed in 1983 (Klein). “The red, white, and blue loyalty of Harley-Davidson’s customers,” he proclaimed, “is extraordinary.” Reagan also came to power in the wake of the disillusionment of the 1970s that began with the bitter loss of the war in Vietnam and ended with a hostage crisis in Iran, when America was also beset by the worst economic downturn since the Great Depression. Reagan’s successful use of patriotism to rejuvenate the country and help its citizens forget the lessons of the 1970s—that there were limits to U.S. power and influence at home and abroad—fit especially well with his attempt to save Harley and the values the bike embodies—rugged individualism, freedom, and American ingenuity—values Reagan also wanted to be identified with.

Indeed, every president (and most presidential wannabes) except Obama has made a conscious effort to link himself to the American manufacturer since Reagan made an appearance at an assembly plant in 1987—especially the Republicans. Bush made at least two separate appearances during his presidency; Cheney appeared once as vice president; McCain appeared at Sturgis in 2008 just before the election against Obama; and this past Memorial Day Sarah Palin was photographed on the back of a Harley at the Run for the Wall Ceremony at the Vietnam War Memorial in Washington D. C.[3]

The growing connection to the Republicans cannot be ignored, because the Republicans have so openly touted their own patriotism and so consciously attempted to be identified with American symbols of freedom. The conservative ascendancy of the past fifty years made ideas about freedom central to its success. Conservatives feared “big Government (liberalism)” as a threat to freedom (economic and personal), and they viewed themselves as the defenders of the nation’s heritage. What one historian has described as a “civic religion,” translated into a strict interpretation of the Constitution and a commitment to what Republicans believed was the government’s original ideas and intent—hence all the talk then, and now, about the Founders (McGirr).

Unions and Production

While customer loyalty to “American made” has convinced Harley’s management to support keeping production in the United States, production has also stayed in the U.S. because of the success of Harley-Davidson’s unions. Amid the company’s reorganization in the early 1980s, while it was benefitting from tariff protection from the Reagan Administration, a bargain was struck with Harley’s unions—the International Association of Machinists; the Paper, Allied-industrial, Chemical and Energy Workers; and the United Steel Workers--that required “labor and management to agree on decisions affecting workers.” This agreement allowed the unions to have some say in the selection of a new assembly plant site (Kansas City, MO) in the mid-1990s, and it recognized that Harley’s management “cannot transfer ‘core production’ overseas without union consent. . . [or] lay off workers unilaterally” (Uchitelle, “If”).

As sales began to drop by the mid-2000s, conflict between workers and management became more conspicuous. The relationship between labor and management that took shape in the mid-1980s and centered on the principle of “made in America” was dependent on balancing the need to increase production and sell more Harleys, the growth of (and cost associated with) automation, with maintaining job security for H-D’s workers. But that balance quickly fell apart as Harley-Davidson’s sales dropped precipitously. Harley-Davidsons’s comeback would pick up steam toward the end of the 1980s and continue until about 2007 when sales began to decline. Between 2006 and 2010 sales of Harleys in the U.S. decreased 52%, and the company produced about 100,000 fewer cycles between 2006 (349,196) and 2011 (Harley is expected to ship between 221,000 and 228,000 motorcycles this year) (Raj). The strikes and contract negotiations in 2007, 2008, and 2010 that accompanied this decline saw union workers and management arguing over pensions, health care costs, and the prospect of a two-tier employee system that would lead to permanent layoffs of full-time union workers for part-time employees (or what have been called “casuals”) to allow the company to deal with seasonal slowdowns. In “years past,” The New York Times argued, employers have used “two-tiered systems” to drive down costs but “mainly at companies already in trouble” and with the assumption that these systems would “expire in a few years.” In recent years, those attempts have been successful at companies like GM, Chrysler, Delphi, Caterpillar and at Harley Davidson, and it appears the shift is permanent. During the negotiations over a new contract in Milwaukee, Harley-Davidson union employees were upset with the prospect of a pay freeze, the elimination of hundreds of production jobs, and the establishment of a two-tiered system, but they begrudgingly approved of a new contract that would start in April of 2012, after the company threatened to move its factories out of the state. “This is absolutely a surrender for labor,” said Mike Masik Sr. President of the United Steel Workers of America, who added that the union’s support for the contract did not guarantee that the company will stay in Wisconsin until the contract ends—“only that the company would stop searching for alternate sites.” A similar agreement at Harley-Davidson’s York, Pennsylvania plant that went into effect about a year earlier shrunk the core workforce “by more than half, to nearly 800 full timers, while adding 300 ‘casual’ employees, who are union members [but] without benefits.” The Milwaukee agreement will also reduce the full-time payroll significantly. Already down to 1,250 from 1,600 before the recession began, the new agreement would shrink it further to 900 (Uchitelle, “Unions”).

Harley-Davidson’s president and chief operating officer, Matthew S. Levatich, explained the new contract as a “simple economic fact”: “we overproduced and now we have to burn off the excess,” adding that the new contract “is a recognition of this truth on the part of our workers,” but Masik was not so sure about the implications of the slim majority vote in favor of the contract. “It shows people are really getting sick of being threatened,” he said in an interview just after the vote to approve the new contract. Indeed, outside the Waukesha County Exposition Center where union members voted, “‘For Sale’ signs hung on about a dozen of the approximate 100 Harley motorcycles parked outside the center,” perhaps a simple expression of the hard times to come as union members faced an uncertain economic future, or perhaps a poignant example of the disillusionment of growing numbers of workers who recognized the new contract as the beginning of the end of a system that had valued workers’ contributions and union workers (“Organized Labor”).

During these negotiations, Kansas City, Missouri, was often discussed as a potential place for relocating production, or somewhere in the “South,” where wages and unionization rates are typically lower. Missouri, after all, is still a non-right-to-work state, with a rich tradition of union work.[4] But is there any reason to believe that production would not leave the United States altogether? Harley-Davidson’s success in overseas markets has increased significantly over the last few years, and even during the leanest of years, those markets have continued to grow. Overseas sales would make it easier for Harley-Davidson to balance its costs and potentially make higher profits for its shareholders. Actually manufacturing a motorcycle in the country the bike is sold in allows a company to avoid costly tariffs and further reduce the overall cost of the motorcycle.

Recent developments also suggest that the day a Harley is actually built (including parts) in another country is closer than any of us may have imagined. H-D employees agreed to the recent contract establishing a two-tier system, in part, because of the fear that production might be moved to another state. As Laurence Richardson, editor of Clutch & Chrome, an online magazine for motorcycle enthusiasts explained, “when you go down the international road, it is hard to say, Buy my product, but I don’t want you to build it.” About a month after union workers in Milwaukee agreed to the new contract, Obama and several corporate executives made a trip to India to negotiate for expanding economic opportunities for American companies in India. Out of this visit, Harley-Davidson gained the opportunity to set up an assembly plant in India. But according to Motorcycle News, H-D is “now deciding to virtually ‘junk’ plans” for a mere assembly plant and instead build what the author called a “mother plant” or an entire factory that would build bikes from the ground up. According to the Financial Express, an Indian paper cited by Motorcycle News, this “development was prompted by an overall turnaround in the domestic market and a gradual shift in focus to international markets such as India and China.” Harley-Davidson’s India spokesperson did “not confirm or deny the development,” but only emphasized that “Harley-Davidson is committed to global growth.” The Financial Express added that tariffs on imported motorcycles are 110% of the cost of the bike and 60% on motorcycles that are shipped in parts and assembled in India. Building motorcycles in India at a nonunionized “mother plant” will reduce costs for Harley and reduce the purchase price for the Indian consumer (“Harley-Davidson”).

While Harley has insisted that only bikes made by American workers would be sold in the U.S., these motorcycles are likely to make their way into the U.S. in the not-too-distant future. In a recent Wall Street Journal article David Foley, Harley-Davidson’s Asia-Pacific chief, said that the company was “expecting sales outside the U.S. to exceed 40% of the total by 2014,” and the assumption is that the plant in India will provide a significant share of these motorcycles (“Revving Up”). At that rate, a majority of Harleys could be built outside the U.S. by 2020, if not earlier. China and India are virtually untapped markets (with over two billion people) and a growing middle-class anxious to become avid consumers. Harley-Davidson has also recently introduced a Fatboy created especially for the Indian market with a “redesigned seat and a lower handlebar, that will make the FatBoy the Harley Davidson with the lowest seat in the motorcycles maker’s profile” (Prashanth).

The impact of Harley-Davidson’s expansion may attract increasing scrutiny during this next presidential election cycle. Obama will likely point to his efforts to open up markets abroad and inadvertently draw attention to H-D’s shift toward India, and if he does not, the Republicans are likely to criticize him for these developments. The Republicans have been exploiting their connection to Harley-Davidson for nearly thirty years to highlight their support of freedom and “made in America” even though they have consistently supported trade policies that benefit corporations more than workers and have generally been hostile to unions (think of the recent fight with state employee unions across the country, especially in Wisconsin). Indeed, in the current political climate, the conservative right has propped up Reagan as the standard by which all other politicians are judged. What better way to highlight the differences between him and Obama than to talk about Harley-Davidson? Reagan’s support of H-D (and inadvertently its unions) was out of step with his general opposition to organized labor and his support of free trade policies that challenged American manufacturing. Nearly thirty years later and American unions are in much worse shape than they were during Reagan’s presidency, and increasing globalization has further challenged the American workforce. Harley-Davidson, in particular, has steadily moved away from the basic values that saved the company in the mid-1980s and nobody has been affected more by this shift than its unionized workers. Obama’s direct efforts to improve trade with India have coincided with the growing conflict between Harley-Davidson and its unions. The company’s response has been to increase its support of international markets and threats to move their production facilities. In this context and against backdrop of the larger history of Harley-Davidson’s turnaround, Reagan has been credited with saving the last major American motorcycle manufacturer. Obama is likely to be condemned as the politician who compromised it. Either way, Harley-Davidson’s future is about to change and with it one of the most prominent symbols of American freedom and ingenuity.

Notes

[1] On the plant in Brazil see The Business Journal; on the plant in India see Raj.

[2] On economic nationalism see Frank.

[3] On Bush see Riechamann, Borsuk; on Cheney see “Cheney Touts Harley”; on McCain at Sturgis see “McCain Revs up Crowd in Sturgis”; on Palin see Shear.

[4] A non-right-to-work state is a state where a union can demand that an employer fire a worker who refuses to pay their union dues and the company is required by law to comply. In a right-to-work state, an employee cannot be fired for refusing to pay his/her union dues. A union in a right-to-work state thus faces more problems collecting the income needed to be an effective voice in the workplace.

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Harley-Davidson's Future (Abroad)

Randy D. McBee