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Sunday, October 25, 2020

Harley-Davidson, Trump’s sticking point over ‘high tariffs’, to ride out of India

There is a possibility this exit will be used by the US to push for a further revision in India’s tariffs on goods such as top-end motorcycles, given that the tariff barrier did not sustain Harley-Davidson’s Make in India efforts, said a trade analyst on condition of anonymity.

Written by Prabha Raghavan , Sandeep Singh | New Delhi | Updated: September 25, 2020 10:26:28 am
The firm reportedly sold a little over 2,600 motorcycles in the country in FY19, a drop from reported sales of around 3,400 units in FY18. (File)

Motorcycle maker Harley-Davidson, which was at the centre of US President Donald Trump’s repeated criticism of India’s “high” tariffs and had come to symbolise some of the sticking points in trade relations between the two nations, is officially shuttering operations here. The decision, following the firm’s announcement in July that it would exit international markets with poor volumes and profitability, also comes at a time when India and the US are said to be close to inking a limited trade deal.

There is a possibility this exit will be used by the US to push for a further revision in India’s tariffs on goods such as top-end motorcycles, given that the tariff barrier did not sustain Harley-Davidson’s Make in India efforts, said a trade analyst on condition of anonymity.

In the last few years, Trump often cited the Narendra Modi-led government’s tariffs on Harley-Davidson as an example of why India is a “tariff king”. India did lower duties on the Milwaukee, Wisconsin-based motorcycle maker to 50 per cent in 2018 from around 100 per cent earlier, but the US President found the new tariff rate “still unacceptable”.

“Harley-Davidson plans to close its manufacturing facility in Bawal and significantly reduce the size of its sales office in Gurgaon. The company is communicating with its customers in India and will keep them updated on future support,” stated the firm in a release. Harley-Davidson is the second US auto major to close Indian operations in recent years due to poor sales. Some experts feel the firm’s decision could be in anticipation of the mini trade deal between India and the US working out soon.

Duties on large-engine motorcycles had made Harleys “too expensive” for Indian consumers, a piece by foreign policy practitioner Alyssa Ayres in think tank Council on Foreign Relations stated.

Yet, despite the company setting up an assembly plant here to make the bikes more affordable, it had sold fewer than 3,700 units in India in 2017 — that too, mostly cheaper models assembled in the country, she stated.

The firm reportedly sold a little over 2,600 motorcycles in the country in FY19, a drop from reported sales of around 3,400 units in FY18.

“The decision to close the manufacturing unit would be based on the company’s assessment about the Indian market for their bikes,” said trade expert Biswajit Dhar, professor at JNU’s Centre for Economic Studies and Planning. “This is not a large enough market to allow economic scales of production. Such levels of demand can be met by importing the bikes, which can be addressed if India and the US enter into a limited trade agreement, which the Indian government is looking for.”

“The India action will include an associated workforce reduction of approximately 70 employees,” the firm told the US Securities and Exchange Commission (SEC) on September 23. Its decision to shut down sales and manufacturing operations in India would be contributing to restructuring expenses of approximately $75 million incurred by the company in 2020.

H-D Motor Company India, the domestic arm of the American company, has witnessed a dip in business in the last three years.

While in 2015-16 it reported a net profit of Rs 30 crore on a revenue of Rs 531 crore, the company announced a net loss of Rs 12.17 crore on a revenue of Rs 382 crore in FY19. It had even posted a loss of Rs 7 crore in 2016-2017, though it saw a net profit of Rs 5.16 crore in the year ended March 2018.

The company has been under further stress due to Covid-19 over the last six months, with a steeper dip in sales. It has not yet submitted the financials for the FY20 with the Registrar of Companies. However, at a global level, Harley-Davidson Inc announced a loss of $92 million against a net income of $195 million in the corresponding quarter last year.

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