Iconic American motorcycle manufacturer Harley-Davidson, Inc. (Harley) will discontinue its sales and manufacturing operations in India. The move is seen as part of its global restructuring initiative, under which it plans to exit international markets, where volumes and profitability have been elusive.
Industry sources said Harley is also exploring a strategic alliance with India’s largest two-wheeler maker, Hero MotoCorp. UK-based Triumph Motorcycles, Harley’s rival in the 500cc and above segment, has a non-equity partnership with Bajaj Auto, under which it produces its products at Bajaj’s Chakan factory. Bajaj also handles the Triumph distribution.
“We are open to all kinds of associations. As long as there is a good match available, we will certainly evaluate it, ”Pawan Munjal, president of Hero MotoCorp, previously told Business Standard.
Harley is the third American automaker to close operations in India during the term of US President Donald Trump.
In 2017, General Motors, an American multinational corporation based in Detroit, closed its operations in the country and sold its plant in Gujarat.
Last year, another American automaker, Ford Motor Company, cut its stakes and ceased its independent operations in India. It transferred most of its assets in India to a joint venture with Mahindra & Mahindra, after failing to establish itself for more than two decades in the world’s fourth largest car market.
The exit is seen as the latest setback in Prime Minister Narendra Modi’s strategy to encourage domestic manufacturing that would bear more fruit from a gigantic domestic consumer market in India.
Harley’s move will result in the layoff of 70 employees involved in its operations in India. You will keep only a reduced sales office at Gurugram.
Sanjeev Rajasekharan, Managing Director for India, has been transferred to Singapore where he will be responsible for the company’s Asia and emerging markets.
Harley entered the Indian market a decade ago, but has so far managed to sell just 27,000 bikes, barely half of what the country’s segment leader Royal Enfield sells in a month. In the first quarter of this financial year, it sold just 100 motorcycles and for the entire last financial year it was 2,470 units, down from 4,708 units in 2015-16.
The Milwaukee-based motorcycle maker has been struggling for years to increase sales beyond the baby boomers in the US and hasn’t seen retail sales growth there in the past 14 quarters.
CEO Jochen Zeitz, who took over the reins of the company in February, introduced a major ‘Rewire’ in July to boost earnings by reducing Harley’s product portfolio by 30% and investing in 50 markets with growth potential in North America, Europe, and parts of Asia Pacific.
India was one of the markets in which the company was committed at the time to invest more. Thursday’s statement said the decision to leave had been postponed since August 6.
Harley said it now expects total restructuring costs of around $ 169 million in 2020, but cautioned that the restructuring program, referred to internally as ‘The Rewire,’ will likely incur more charges.
“The company had previously disclosed restructuring actions associated with The Rewire that were approved through August 5. Between August 6 and September 23, the company approved commitments for further restructuring actions under The Rewire related to optimizing its global dealer network, exiting certain international markets, and discontinuing its sales and manufacturing operations in India. Harley said in his regulatory filing with the US Securities and Exchange Commission.
The company will incur a restructuring cost of $ 75 million, including one-time termination benefits of $ 3 million, non-current asset adjustments of $ 5 million, and contract termination and other costs of $ 67 million.
Harley has an assembly plant in Bawal in Haryana, where it assembles fully disassembled (CKD) motorcycles for local sales. While this unit accounts for the majority of its sales in India, the company also imports fully built motorcycles (CBU), where the import duty reaches 50 per cent.
In the past year, Harley has become a rallying point for the US government to push for the reduction of import tariffs on American motorcycles. Trump has repeatedly flagged what he has described as a high import duty on Harley motorcycles.
In July, Trump once again voiced his displeasure, saying that even after India’s tariff reduction in February 2018 from 75% to 50% on CBU units, the rate was still too high and unacceptable.
“He (Narendra Modi) gets 50 (percent), and they (India) think they are doing us a favor. That’s not a favor, ”Trump said, referring to India’s decision to cut tariffs to 50 percent from 75 percent in February this year.
A CKD unit is taxed at 15 percent. Harley makes two models in India, imports 11 as CKD and four as CBU.
Domestic sales growth has slowed lately, with car and motorcycle sales dropping 18 percent in the latest financial year to March 31 from the prior year.
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