TPP Pullout Spurred Harley's `Plan B' Factory in Thailand

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(Bloomberg) -- Harley-Davidson Inc.’s chief executive officer said he decided to build a plant in Thailand when it was clear the U.S. would abandon the Trans-Pacific Partnership, the free-trade agreement President Donald Trump withdrew from last year.

The factory was the “Plan B” that Harley employed after the U.S. abandoned the trade pact with a bloc of 11 countries mostly in Asia, CEO Matt Levatich said in a phone interview.

“We would rather not make the investment in that facility, but that’s what’s necessary to access a very important market,” Levatich said of Thailand. “It is a direct example of how trade policies could help this company, but we have to get on with our work to grow the business by any means possible, and that’s what we’re doing.”

Harley has since said it will cut about 260 U.S. jobs as it closes a plant in Missouri due to a prolonged sales slump in its home market. The iconic American motorcycle maker reported Tuesday that U.S. retail sales plunged 12 percent this year through March and have dropped in 13 of the last 14 quarters.

Harley is now hinting at a tuned-up turnaround plan to boost ridership, promising “significant additional steps” that will be revealed this summer. The plans include using data to better understand consumer behavior and debuting fresh product including electric bikes for customers in cities, Levatich said. The Milwaukee-based company’s shares jumped as much as 5.1 percent and traded up 2.7 percent to $42.12 as of 3:30 p.m. in New York trading.

“We have to instill confidence that we understand what’s going on in this market and our plans are grounded in insight and focused,” he said. “We have to be very focused in what we do to pull the right levers in the U.S. marketplace, otherwise we’ll over-invest in things that aren’t making a difference.”

After pulling the U.S. out of the TPP last year, Trump recently directed officials to explore returning to the pact that’s since been renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP.

While Trump’s comments were welcomed by members of the trade bloc, ministers from countries including Japan, Australia and Malaysia said they opposed renegotiation of the deal to accommodate the U.S. should it decide to rejoin at a later date. The president then tweeted last week that he was still opposed to joining and preferred bilateral trade agreements.

Pacific Trade Deal Is a Big Deal, With U.S. or Not: QuickTake

Trump’s trade skirmishes keep ensnaring Harley in the headlines. European Union leaders threatened last month to tax imports of the company’s bikes in retaliation for the president’s tariffs on steel and aluminum imports.

Raw material costs will be $15 million to $20 million higher than the company expected at the start of the year, Chief Financial Officer John Olin said on a conference call Tuesday. The tariffs have created a “highly volatile situation” and the company is concerned about the potential for European levies, but there’s been no change in its pricing thus far.

Read more: Harley braces for trade harm after Trump pledged to help

The Thailand plant will allow Harley-Davidson to price its motorcycles more competitively in the region and stimulate growth for its U.S. supply chain, Levatich said. The factory will start making motorcycles later this year to circumvent what he called “unbelievable trade and tariff barriers” in “critical” Southeast Asian markets.

“We were very optimistic about what the TPP would enable for Harley-Davidson,” Levatich said. “It took seven years for it to come to fruition. We could see the writing on the wall, and we got busy with Plan B.”

©2018 Bloomberg L.P.

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