Harley Davidson to quit India, take $75 million in restructuring cost
By Administrator_India
Iconic US 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 that Harley is also exploring a strategic tie-up with India’s largest two-wheeler maker Hero MotoCorp. UK-based Triumph Motorcycles, Harley’s rival in the 500-cc 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 distribution for Triumph.
“We are open to all kinds of partnerships. Whenever there is a good match available, we will certainly evaluate,” Pawan Munjal, chairman at Hero MotoCorp, had earlier told Business Standard.
Harley is the third US automaker to shut operations in India during US President Donald Trump’s tenure.
In 2017, General Motors — an American multinational corporation headquartered in Detroit — wound up its operations in the country and sold its plant in Gujarat.
Last year, another US automaker Ford Motor Company pared back its interests and ceased independent operations in India. It transferred most of its India assets to a joint venture with Mahindra & Mahindra, after failing to gain a foothold for more than two decades in the world’s fourth-largest automobile market.
The departure is seen as the latest setback for Prime Minister Narendra Modi’s strategy to encourage domestic manufacturing that would keep more of the fruits of a gigantic home consumer market in India.
The move by Harley will result in termination of 70 employees involved in its India operations. It will retain only a scaled-down sales office in Gurugram.
Sanjeev Rajasekharan, managing director of India, has been transferred to Singapore, where he will be head of Asia and emerging markets of the company.
Harley entered the Indian market a decade ago, but has so far managed to sell only 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 only 100 motorcycles and for the whole of last financial year, it was 2,470 units — dropping from 4,708 units in 2015-16.
The Milwaukee-based motorcycle manufacturer has been scrambling for years to grow sales beyond baby boomers in the US and has not posted retail sales growth there in the past 14 quarters.
Chief Executive Officer Jochen Zeitz, who took the reins at the company in February, unveiled a major ‘Rewire’ in July to boost profits by reducing Harley’s product portfolio by 30 per cent and investing in 50 markets with growth potential in North America, Europe, and parts of Asia Pacific.
India was one of the markets the company at that point committed to investing in more heavily. Thursday’s statement said the move to leave had been pushed through since August 6.
Harley said it now expects total restructuring costs of about $169 million in 2020, but warned that the restructuring programme — referred to internally as ‘The Rewire’ — was likely to 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 to additional restructuring actions under The Rewire related to optimising its global dealer network, exiting certain international markets, and discontinuing its sales and manufacturing operations in India,” Harley said in its 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 at Bawal in Haryana, where it assembles completely knocked-down (CKD) motorcycles for local sales. While this unit accounts for a bulk of its sales in India, the company also imports completely built-up (CBU) motorcycles, where the import duty is as high as 50 per cent.
In the past year, Harley has become a rallying point for the US government to push for reduction of import duty on American motorcycles. Trump has on several occasions pointed to what he has described as high import tariff on Harley bikes.
In July, Trump once again expressed his displeasure, saying that even after India’s February 2018 tariff cut from 75 per cent to 50 per cent on CBU units, the rate was still too high and not acceptable.
“He (Narendra Modi) gets 50 (per cent), and they (India) think they’re doing us a favour. That’s not a favour,” said Trump, referring to India’s decision of lowering duty to 50 per cent from 75 per cent in February this year.
A CKD unit attracts 15 per cent duty. Harley builds two models in India, imports 11 as CKDs, and four as CBUs.Growth in domestic sales has slowed of late — with sales of cars and motorbikes falling 18 per cent in the last financial year to March 31 from a year ago.
