Category Archives: International

Another Harley-Davidson Story

Harley-Davidson is an ongoing story in the news, not because it’s a huge company, rather it’s an American icon. An icon that President Donald Trump used to spread his message about keeping American manufacturing here.

Then came an announcement that normally wouldn’t receive much attention outside of the motorcyclist industry and its loyal biker cadre. Harley-Davidson, the big HD, was going to move some of its production to somewhere in the EU, due to increasing costs for motorcycle imports into those markets. The reason announced, increasing costs, due to increasing tariffs.

Paul Krugman is an American economist who is currently Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for The New York Times. A regular contributor to the NYT of economic opinions, most especially, anti-Trump. He’s almost gloating with glee to add this latest on how he thinks the disastrous Trump economic policies are beginning to be exposed in the latest announcement by Harley-Davidson and the subsequent comments of displeasure by Donald Trump.

Paul_Krugman_at_the_German_National_Library_in_Frankfurt

Paul Krugman – public domain image

His column, Trump Versus the Hog-maker, excoriates the increasing pressure the Trump administration has placed on international trade, which for years hasn’t been the “open market”, many had supposed.

I prefer you click on the above link and read his post before you continue with mine. I’m going to refer to it and other announcements which I will provide in links.

If you’re not familiar with Donald Trump’s reaction to the Harley-Davidson offshore production announcement, click in this link to read as background.


Let me start with a few givens…

  • I’m not an economist.
  • I don’t know how the long-term effects of the Trump influenced economic decisions will play out over time.
  • I don’t think Paul Krugman, or any other economist knows how they will work out, either.
  • His June 28th opinion column is less about economics and more about politics.
  • By the end of this post, I’m more interested in you thinking about what’s being told to you, rather than just accepting it, because someone with huge public recognition says it to be so.

Let’s also start with a few pragmatic assumptions.

  • Paul Krugman doesn’t want to see the economy fail to prove his point, right?
  • Donald Trump doesn’t demand fair trade policies just because he thinks it will only benefit himself, right?
  • Harley-Davidson made these offshore production decisions before Donald Trump made any tariff proclamations?

Wait a minute? What was that last assumption?

Let’s examine what has taken place by rewinding to the past HD proclamations, and what are the industry trends.
— Quoted from CNN article June 26, 2018 – Trump vs. Harley-Davidson: What’s Really Going On? —
Harley says moving more production overseas is its “only sustainable option” in the wake of the growing trade war.

So what’s really going on?

Americans are buying fewer motorcycles. People outside the United States are buying more, and Harley wants to build bikes closer to its international customers.

Last quarter, Harley’s sales in the United States fell 12%, but they grew 6.8% in Europe, the Middle East, and Africa. In Latin America, sales grew 7%.

In 2017, Harley-Davidson said they would close their plant operations in Kansas City, and expand manufacturing in Thailand. That was long before Tariffs were announced.  (CNN June 26, 2018)

HD_motorcycle_shipments

Harley-Davidson is a publicly traded company and like any such company answers to stock holders. During this downward cycle, they’ve attempted to put the best spin on a market reality, their primary buyer base is getting older. Younger motorcycle buyers in the USA aren’t as large a percentage of the population as they were when looking back over 40 years. Any quick look at who is buying what kind of transportation in the USA will find, younger buyers have made a clear choice for trucks and cars, but not a large number of motorcycles. That’s different in Asia, where you can find motorcycles are far cheaper to buy and operate, than cars.

During the low-cost & easy to get a loan for luxury items prior to 2008, many an aspiring motorcyclist were caught up with the cache of the name, HD. Harley is also competing with their 10-year-old, like new bikes for market share. It’s now common to find 10-15 year old Harley’s with less than 10,000 miles,  many less than 5,000 on the odometer. stack of money

The problem for Harley-Davidson, like other companies when it comes time to explain things, they opt for any opportunity to get out from under adverse stockholder scrutiny. Harley-Davidson made the decision several years ago to move some of their production offshore. RideApart November 14, 2013 .

Harley-Davidson worldwide retail motorcycle sales were down 6.7 percent in 2017 compared to 2016. U.S. retail sales decreased 8.5 percent and international retail sales were down 3.9 percent.

During 2016, the company reported its best-ever retail sales results in Asia Pacific and EMEA. The company added 40 new dealer points internationally. (Europe-MiddleEast-Africa). PRN

“Our actions to address the current environment through disciplined supply and cost management position us well as we drive to achieve our long-term objectives to build the next generation of Harley-Davidson riders globally,” said Matt Levatich, president and chief executive officer, Harley-Davidson, Inc. “We finished 2017 with over 32,000 more Harley-Davidson riders in the U.S. than one year ago, and we delivered another year of strong cash generation and cash returns to our shareholders.”

Corporate Tax Rateharlyvintage-ad-2

For 2017, Harley-Davidson’s effective tax rate was 39.6 percent compared to 32.4 percent in the prior year. The increased tax rate was largely due to the impact of the write-down of deferred tax assets related to the 2017 Tax Cuts and Jobs Act.

The Company expects its 2018 full-year effective tax rate to be approximately 23.5 to 25.0 percent, down considerably behind the expected benefit of the new tax legislation.  HD 2017 Investor Relations

If you examine the individual components of a HD motorcycle, you will find some of the American brand name is first made overseas, then assembled in the US to claim it as an American made product. Wheel, brake, and electrical components are made outside of the US. It’s nearly impossible to determine the exact percentage of parts made in America. There are several thousand “manufacturing customers” of HD.
Here’s what can be easily found.

Menominee Falls, Wisconsin – Powertrain
Tomahawk, Wisconsin – Windshields, composite plastic parts
Kansas City, Missouri – Assembly, Powertrain <— Closed
York, Pennsylvania – Fabrication, Paint, Final Assembly
Manaus, Brazil – Assembles models sold in Brazil
Bawal, India – Manufacture of Street models for India, Italy, Spain, and Portugal

harley_vintage_3History is littered with defunct motorcycle companies, as well as resurrected ones. Many of the resurrected ones died again during the last recession.

According to a Harley Davidson 2013 annual report:

Six in 10 customers are from outside the United States.
Two out of every three new dealerships are in “emerging markets”.
>>>>
3.5 billion people live in cities globally
50% of the population is under 30
The strategy is to grow outside the US faster than growing inside the US
The strategy inside the US is to grow the ‘outreach segment,’ which includes women, young adults 18-34, African Americans, and Hispanics
In 2013, this outreach segment grew twice as fast as ‘core’ customers.

Their newest bikes, the Street 500 and Street 750, were engineered with the young urban rider in mind – smaller, more efficient bikes.

Harley-Davidson has committed to manufacture and assemble the motorcycles used in the United States. But companies aren’t blind to their ability to export motorcycles to the world at large, or to recognize other segments of their market, nor should they be. To expand in these new areas and markets, in many cases, they’ve opened facilities overseas or outside US borders. The flexibility to export using foreign facilities certainly doesn’t seem like a bad thing for an American company as it grows.

Analysts are divided about what impact the protectionist measures will have on the broader economy. That’s understandable. We’ve seen the greatest of prognosticators under the “Boffins hat” of an Economist predict the opposite of what does happen.

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Another Half-Truth News Story

The latest headlines are talking about Harley-Davidson is moving manufacturing overseas. Specifically, it’s being tied to tax and tariff policies that President Donald Trump has announced. What it largely fails to do is place the current Harley-Davidson story in perspective of it’s past announcements, as well as the changing markets.

For background, I’m posting a few past announcements made by Harley-Davidson, which I will also refer to by another name, the “Motor Company”.

Let’s take a little more spin-off the current news cycle. They’re not doing a good job of truly informing you…

In 2014, an article came out about the changing fortunes of the Motor Company.

Sales were significantly down in 2014. They still had profits.

Forbes Announced in 2015
Harley-Davidson Pre-Earnings: U.S. Retail Sales Could Return To Strong Growth In Q1

In 2017 — “While we expected the U.S. industry to be challenged, we were disappointed by the unexpected magnitude of the industry softening in the quarter,” Harley CEO Matt Levatich told analysts.

But investors are concerned that Millennials aren’t interested in the “hog” lifestyle that energized previous generations.
Levatich said Millennials were buying used bikes in encouraging numbers, but the company must persuade them to buy their new motorcycles.

harley-davidson-sales-2014-to-2017

HD Sales Continue Downward Trend

“It’s up to us to inspire even more of them to ride and to engage with Harley-Davidson’s products and experiences ..” he said.

Here’s what happened… dwindling-domestic-sales
“It’s unlikely the news will lose Harley-Davidson any fans it hasn’t already lost to cheaper, smaller and more reliable brands that are often foreign-owned. The “Made in the U.S.A.” crowd has merged with the “Make America Great Again” masses, and neither really seem to care that red baseball caps are sewn in China. And in recent years, Harley-Davidson has been courting a younger, more culturally diverse audience anyway.”Ad Age June 2018

That’s because the “Baby Boomers” are retiring or dying, Ad Age, and the millennials aren’t the target market. Asia and Europe are, and that ship has sailed before this latest June 25, 2018 news cycle started generating stories about Trump trade policy an it’s effects.

“The core customer base for Harley comprising baby boomers is aging, and millennial customers have looked to hold off on extravagant purchases, a term which can be associated with heavyweight luxury motorcycles, especially after a prolonged period of slow economic activity. However, 2015 could be different.” – Forbes April 2015

motorcycle-sales-statistics-01

In 2013, Americans purchased nearly 466,000 motorcycles, with the iconic Harley-Davidson (NYSE:HOG) laying claim to a good chunk of those domestic sales. But riders — and investors — might not realize that there’s a world full of cycle enthusiasts outside our borders that dwarfs the U.S. market.”

With the understanding that foreign markets, especially the Asia-Pacific region, are the key to generating millions of motorcycle sales on annual basis, I offer this challenge: Can you guess which motorcycle brand is the world’s top seller?

.. if you said Honda (NYSE:HMC) then you should have real bragging rights as you correctly guessed the world’s top-selling motorcycle brand.” – Motley Fool Investor August 2014
Motorcycle_Business_graphics_2014


The adoption of electric and hybrid motorcycles to emerge as a prominent trend in the global market

A recent trend observed in the motorcycle market is the increase in the adoption of electric motorcycles in some regions such as Europe and South Africa. With the governments focusing on electro mobility and reducing pollution, zero emission vehicles are being increasingly promoted through attractive incentives and schemes.

Chasing younger riders, Harley Davidson announces plans for a production electric motorcycle

It shouldn’t come as a surprise, but it still does to anyone who’s grown up with a very fixed image of what Harley-Davidsons are all about: outlaws, choppers, carefree big-bore dinosaur burners that never moved with the times because they never had to.

Matt Levatich, H-D President and CEO, summed up his company’s view thus: “The EV motorcycle market is in its infancy today, but we believe premium Harley-Davidson electric motorcycles will help drive excitement and participation in the sport globally. As we expand our EV capabilities and commitment, we get even more excited about the role electric motorcycles will play in growing our business.” – New Atlas 2014

Royal Enfield – An Indian company – Now Largest Big Bike Manufacturer in the World

Royal_Enfield_Indian_motorcycle_2

Indian Motorcycle took over British product > 50 years ago

Royal Enfield set to buy Ducati as new 210 hp 1100c V4 Stradale engine. They have plans for their own super bike.

Royal_Enfield_motorcycle_production_world

Royal Enfield an India based company now largest manufacturer of motorized bikes

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If you’re “ShocKed” by the news of Harley-Davidson, recognize there are larger forces at play on the world stage than Presidents and political alliances. Changing demographics are driving this and other changes. The best HD can do, or for that matter any company, is adapt to survive.

I still stick with what I own… A 750cc Honda. Honda_Motorcycle_750_ACE

 

 

 

Economic Tomfoolery

Economic ignorance allows us to fall easy prey to political charlatans and demagogues.” ~ Dr. Walter Williams

The world economy is six times larger than it was half a century ago, growing at an annual rate of 4 percent during the period. New technologies have paved the way for more efficient production systems in a wide range of industries and promoted economic growth. From 1965 to 2013, the average annual growth rate of world GDP per capita was about 2 percent, and in more than half of the past 50 years, the world grew faster than this average. As a result, global per capita GDP more than doubled between 1965 and 2013 despite a major increase in population.” ~ IMF

Judged by the huge strides that people all over the world have made in overcoming poverty and want, it is only a slight exaggeration to say that little of economic consequence happened before the last three centuries. Before that, most of the world not only took poverty for granted, but also assumed that little could be done about it. Even the most optimistic early writers could not imagine that more than a few percent of the population would ever be well off; they thought that the best we could do for the masses would be to minimize their suffering on Earth.
~ econlib.org

Poverty and inequality

Money - ResourcesThe world population grew from 3 billion in 1965 to about 7 billion in 2013, but the global economy grew faster than the world population, leading to a better standard of living for the average world citizen.” ~ IMF

Life expectancy grows even though the population growth rate decreased.

The average world citizen is richer than ever thanks to the growth the global economy has enjoyed over the past 50 years. However, the benefits of this growth have not been equally distributed—the result is enduring poverty and inequality.” ~ IMF

When we read about the great civilizations of ancient Egypt and Rome or of the Aztecs and the Incas, we tend to compare them with the empires of Britain or the growth of the United States. This comparison, judged in economic terms, is highly misleading. Although the great civilizations in Egypt and Rome were able to construct big buildings, the vast majority of their citizens, by today’s standards, were dirt poor.” ~ econlib.org

Technology drives world progress. Certainly having sufficient energy, clean water, and adequate food supply, are foundations for advancement. Governments play a huge role. The most drastic comparison between how governments affect an economy, examine North and South Korea. Each country started as similar in background, however their respective governments are vastly different in the level of control they apply to their population. The short summary is that North Korea is a highly controlled, central managed economy, whereas South Korea allows more individualized control and free markets. Embargoes by the west exacerbate North Korea’s problems, but even without those, the government restricts business to a degree where it can’t create, adapt and overcome market obstacles on a competitive basis.

China and Honk Kong

When the United Kingdom’s lease ended on Hong Kong in 1999, China was handed a jewel in that region of the world. Myself, having traveled and transacted business there before the change over, I saw a vibrant overall economy with a significant amount of freedom. Evidently, China found they didn’t want to kill the golden goose, and incorporated many of the free market ideas from this island economy.

The IMF states, more than a billion people, mostly in sub-Saharan Africa and south Asia, are in extreme poverty. What they claim are some of the causes, are more along social-democrat ideology, rather than the obvious. Those who live within the borders of despotic, highly centralized, corrupt governments, suffer the most with inequality and poverty. It’s free market economies and those who have governments with less corruption, less emphasis on large military’s that are the biggest winners.

It’s popular to condemn greed but it’s greed that gets wonderful things done. When I say greed, I don’t mean stealing, fraud, misrepresentation, and other forms of dishonesty. I mean people trying to get as much as they can for themselves. We don’t give second thought to the many wonderful things that others do for us.“ ~ Dr. Walter Williams

People in the education and political establishments pretend they’re not motivated by such “callous” motives as greed and profits. These people “care” about us but which areas of our lives do we derive the greatest pleasures and have the fewest complaints, and which areas do we have the greatest headaches and complaints? We tend to have a high satisfaction level with goods and services like computers, cell phones, movies, clothing and supermarkets. These are areas were the motivation is greed and profits. Our greatest dissatisfaction are in areas of caring and no profit motive such as public education, postal services, and politics.” ~ Dr. Walter Williams

.. economics studies the consequences of decisions that are made about the use of land, labor, capital and other resources that go into producing the volume of output which determines a country’s standard of living. Those decisions and their consequences can be more important than the resources themselves, for there are poor countries with rich natural resources and countries like Japan and Switzerland with relatively few natural resources but high standards of living.” ~ Dr. Thomas Sowell

Economic Equality

Economic equality is firstly a false concept. It ignores market fundamentals as basic as water level & gravity, meaning different inputs are going to produce different outcome. I’ve heard advocates of basic income for all. Their belief is the economy would improve as everyone would at least have enough to sustain themselves and would increase demand for goods and services.

When aspiring entrepreneurs are brought into the TV reality show, Shark Tank, they present their product or service, then asked a series of questions. The “Sharks” are successful entrepreneurs in their own right. Their goal is to get a return on their investment and own a piece of the next big business idea. Three things should be obvious to the casual observer.

  • You need to be prepared with a good idea with market research.
  • Capital will flow to you from those with greater wealth.
  • The government doesn’t create wealth.

There’s an ongoing effort to counter marketplace realities with explanations and statistics stating “trickle down economics” doesn’t benefit anyone. A simple catch phrase or populist econo-babble doesn’t negate the basics behind economic success.

  • a market with less barriers and cost will be more successful.
  • products & services must be sufficiently desirable for people to want to engage in trade.
  • in order to launch and maintain a product or service in the marketplace startup and working capital must be obtained.

If you want to place a coined phrase on this process, “trickle down” is a poor representation of the entire process. It may be simplified to suggest capital flows from places of sufficiency or even excess, to those who have skills, products, or services that are sought after, but doesn’t necessarily come to those with little or no skill. Despite the efforts of the IMF to suggest the world doesn’t benefit from free market economics is disingenuous. To the contrary, they owe their existence to the wealth produced by prosperous nations, primarily the United States.

What is the IMF?

The IMF was created in 1945, with the goals of fostering global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. the IMF is governed by and accountable to the 189 countries that make up its near-global membership.

The IMF has had two recent disgraced leaders, Dominique Strauss-Kahn was charged with allegedly brutally attacking a New York hotel maid, Nafissatou Diallo on 14 May 2011. The charges were dismissed at the request of the prosecution which described serious doubts in Diallo’s credibility and inconclusive physical evidence. The physical evidence indicated a sexual encounter but did not prove use of force or non-consent. Strauss-Kahn admitted his liaison with Diallo was a moral fault and described it as “inappropriate” but that it did not involve violence, constraint or aggression. He said that Diallo had lied and that he had no intention of negotiating with her over a civil suit she had filed against him. The suit was later settled for an undisclosed amount, but subsequently reported to have been $1.5 million.

In his defense, Diallo had previously fabricated a detailed story of being gang raped by soldiers in Guinea, which was later found to be untrue.

The next Managing director of the IMF, Christine Lagarde, was found guilty of criminal charges on 19 December 2016. She was linked to the misuse of public funds dating to her time as France’s finance minister. She didn’t serve jail time or have to pay a fine. She maintained her innocence throughout the trial, calling the charges politically motivated. The IMF has stood by her, and her IMF biographical page doesn’t mention this case or conviction.

These individual leaders have escaped severe legal consequences for their actions. It doesn’t however speak well of their judgement. People don’t operate in a vacuum. Their personal lives do affect other aspects of their business without often being conscious of it.

References

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