Harley-Davidson plays hardball in Wisconsin: capitulate or we leave

No matter what marque a motorcyclist rides if they hear “Milwaukee, Wisconsin”, “Harley-Davidson” is the first thing comes to mind (or right behind beer). But now, barely two years after opening its self-referential museum in Milwaukee, Harley is threatening to move its manufacturing out of state.

It’s already shut the plant in Wauwatosa—and, of course, the Buell operations in East Troy closed down earlier this year. But Harley’s not doing well (more on that in the next entry) and desperate times call for desperate measures.

According to company spokesperson, Bob Klein, the Motor Company would rather stay there but is looking at other locations. Kansas City—who hoped to benefit from the troubles in York a few years ago—hopes to benefit from the Dairy state turning sour for Harley.

It all depends on the unions, according to Harley. All the workers have to do is agree to freeze their pay, cut hundreds of jobs, turn hundreds more into non-union jobs—many of which would be temporary jobs with no benefits. The three unions have encouraged their workers to accept the bad deal to keep the Motor Company in the state.

While Harley’s threat may sound drastic, a little history is in order to see this threat in its proper perspective:

In 2005, Harley-Davidson paid 1.5% of pre-tax profits in Wisconsin income tax resulting in almost $23 million in state taxes. In a series of political maneuvers and tacit threats to leave and promises to stay, employ and grow, H-D (and other big corporations) won tax rate breaks that had the Motor Company paying a mere $1 million in 2008 or less than 0.1% of profits.

In 2006, when Harley was riding high on the HOG, the Motor Company threatened to move manufacturing out of state unless the Wisconsin unions agreed to drastic cuts in wages and benefits. And, after some empty saber rattling, the union capitulated.

In 2007, union workers in Pennsylvania went on strike for two weeks before basically capitulating to Harley’s contract that lowered wages and benefits.

During these same years when its revenue soared and state taxes plummeted and unions rolled over, Harley also received not just federal credit for research and development but a Wisconsin state Transportation Economic Assistance grant of over a quarter of a million dollars to the Harley plant in Tomahawk, WI. According to a case study by the Federal Highway Administration

“The goal of the TEA Program is to attract and retain non-speculative business firms and create or retain jobs in the State.”

Iow, Harley took a quarter of a million of taxpayer dollars to create or retain jobs in Tomahawk in 2009 and plans to not only cut them in 2010 but move out of state.

In 2009, the Motor Company cut 370 union jobs and about 300 administrative jobs with most occurring at the facility in Springettsbury Twp in York County, PA.

Early in 2009, Harley announced it was laying off 12% of its workforce amounting to 1,100 jobs. Later in 2009, Harley threatened to build a new plant in Shelbyville, Ky and close the plant in York—and in November, 2009 the union in Pennsylvania agreed to cut jobs and benefits to keep the plant open—and the state of Pennsylvania gave the Motor Company around $15 million to stay in the state.  Though Shelbyville lost that time, it is coyly silent on whether it’s in the running for the Wisconsin operations this time.

Back at corporate headquarters—still in 2009, Harley Corporate complained bitterly that they had to pay 22.5 million in bookkeeping charges to determine how much the company would owe in the future because Wisconsin closed a corporate tax loophole. Iow, they complained about paying less than they used to for an entire year. For more on this, read here:

Oh, it seemed justified in 2009—Harley suffered in the Great Recession with plummeting motorcycle sales and egregious problems with credit defaults and the inability to securitize those consumer loans. Altogether the Motor Company lost $55 million.

But it’s an ill wind that blows no good and Harley used the recession to do some massive house-cleaning:  Buying the MV Augusta—who had gone through several owners all unable to make the company profitable was one of the most colossally stupid corporate decisions it had made in decades. The recession gave a easy reason to sell it.

Somehow it attracted the interest and investment of the legendary Warren Buffet—and, of course, it used the Great Recession to strongarm Pennsylvania with the very same threat it is now using in Wisconsin. Hey, if it worked once, why not do it again.

By the time the lay-offs are done, the full-time permanent workforce York, PA will have been cut by more than half from 1,950 to 700-800 employees. Not to mention the huge cuts in the labor force elsewhere—and upcoming in Wisconsin if the workers accept the over-the-barrel deal the Motor Company offers.

But every cloud has a silver lining—Pennsylvania hopes that if Harley shuts its factories in Wisconsin and moves the work to Kansas City that some of the work done now in KC will move to York—making that $15 million investment and the sacrifices of the York unions worthwhile.

Of course that’s what Wisconsin thought when it gave Harley the TEA grant and those unions took a haircut years ago. Now Harley wants the workers to shave their heads. And, if the union workers bend over again tomorrow to keep Harley there—well…just how long do you think it will be before Harley is threatening again.

Which is a word to the wise in KC—when their union negotiations come up, how much do you want to bet that Harley threatens to move out of Missouri to Wisconsin and/or Pennsylvania or Kentucky or somewhere else unless those unions, too, accept Harley’s terms?

Of course, Harley—though shipments are down almost 26% over 2008—had made a profit at the end of the second quarter (more on this tomorrow) even though shipments are only marginally up over the same quarter a year ago.

Iow, workers’ sacrifices will pave the way to Harley not just surviving the recession but doing so profitably. (Of course, we don’t know what the 3 and 4 quarter results will be).

And before you give me any “unions are the curse of America” argument or the recession argument consider this: According to a op-ed piece, “Are Harley cuts a case of need or greed?” by Jack Norman published in the Milwaukee Journal-Sentinel yesterday, draconic cost-cutting is limited to the worker:

In 2009 when the USA was in the worst recession since the Great Depression and motorcycle sales had plummeted, the CEO salary (split between Zeimer and Wendell in 2009) was $1,105,169 with another $8,864,919 in extras.

External board members (not already on Harley’s payroll) collected $80,000 fee in 2009, plus $50,000 worth of stock. And things aren’t so bad at Harley that board members gave up their $1,500 annual allowance for clothes and accessories.

This at the same time as thousands (at the least) of their core demographic struggled to make their make their monthly payments or had to sell their bikes or had them repossessed. And more than 3,000 workers will have lost their jobs in the past two years.

But, hey, that’s the Great American Way, right? Except Harley has taken tens of millions from taxpayers—much of it based on promises to create or retain jobs.

In fact, Harley’s hand is always out either begging for bucks from taxpayers or strong-arming the American worker….it’s such a great example of the American free market, isn’t it?

The American worker who has been Harley’s base and yet, because of corporate shenanigans like Harley’s or Wall Streets have lost their jobs or forced to accept equally bad deals to keep a job while the CEOS suffer not at all. Really, does it deserve its fans that bleed black and orange?

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8 Comments on “Harley-Davidson plays hardball in Wisconsin: capitulate or we leave”

  1. Big Wayne Says:

    ——- low ?

    do you mean: an interjection, lo ?

    look! see! (frequently used in Biblical expressions; now usually used as an expression of surprise in the phrase lo and behold ).

  2. gymnast Says:

    Well the results of the election are in, Harley will stay in Milwaukee, and the workers have accepted HOG’s proposed contract in all particulars. I would wager that HOG will go up on the NYSE on Tuesday (a lot).
    Details here.
    http://www.biztimes.com/daily/2010/9/13/wisconsin-harley-workers-approve-contract

  3. Jim Says:

    This cram down of employee wages that is running through the economy can result in long term deleterious effects. Straight forward discussion of the dangers here http://www.slate.com/id/2266741/

    HD is not the only company doing this, which is the danger.

  4. wmoon Says:

    Jim, I agree that H-D is not the only one and that it has a very negative effect in the long run. I wish corporations remembered Henry Ford’s wisdom when it came to his workers. A strong and huge middle-class are steady, ardent consumers and that would do more to bolster our economy in the long run and strengthen the corporations….that’s what I think.
    Wendy

  5. Jim Says:

    You’re right Wendy, but from a corporato point of view, they don’t care if the middle class are Americans or Chinese. The corporation is a stateless entity that holds no national loyalty except in as much as it can secure a benefit for the company.

    The victims of this will not only be the employees, union and non-union, but any and all businesses that derive benefit from a strong and robust middle class, but who’s market is local, regional or national. As wages fall, those businesses will see pressure to reduce prices, which will beget another round of cost cutting, which will be mostly related to labor.

  6. wmoon Says:

    Jim, You’re absolutely right. I worked for a time for multi-national corp that was subcontracted by a multi-national corp who was sub-contracted by a multi-national corp (a rather down the rabbit hole exp crossed with the extreme paranoia of the corp that hired the company that hired me). It dealt with a ton of subcontractors–most small businessmen. One of my tasks was to deal with all the paperwork the vendors had to provide–and some of the forms cost them $100. Which doesn’t seem like much but, as one of the small-time guys said, EACH company required its own form, each big corp had it’s own company that vetted their services/financials, etc. Huge corps required two million dollar insurance liability policies just to get past the gates. And each corp cost big bucks (up to a $1,000). It cost him a lot of money to do business with the 2nd contractor. There he was bitching about government and how onerous government regulation was. And I said–hey, you haven’t said one word about how government makes it difficult for you or costs you money. You just spent the past 20 mins telling me non-stop about how mega corporations demand all these regulations and red tape and stiff you your money. It sounds like big corporations are far more onerous to you than big government. And he looked startled and said he had never thought of it that way but I was right.

    Not that there isn’t too much government regulations, etc. but damn, big corporations are acting, in many ways, like governments unto themselves–at least when it comes to employees and small businesses. Take MSF, for example–the states passed the laws that MSF’s attorneys developed, and MSF’s regulations are far more onerous–and totally in their self-interest–than the state’s requirements…. MSF–a corporation of motorcycle manufacturers’ corporations–is much more big government than the state or federal government. And yet people who would proud to call themselves Republicans, Tea Party members or Libertarians bend over and take from MSF what they would rally against from a government…Go figure.
    Wendy
    W.

  7. CaptCrash Says:

    Not a business guy but still biz-curious; won’t HD eventually HAVE to leave? I mean really? I was mondo impressed with my walk through the factory in KC, the welding robots are amazing…but eventually there won’t be raises to give back, hours to cut, full time workers to make flex force…

    OR do they off shore milling and such and simply do assembly in the US? (or are they already doing that?)

  8. wmoon Says:

    CaptCrash, I know that some parts are already made overseas. I vaguely remembered that H-D was looking into buying into a mc biz in (Communist) China (as opposed to Taiwan). But looking into China is something a lot of corps do but don’t act upon and H-D knows its base wouldn’t like it if their products are no longer made in the USA.

    As to whether it will “have to”–who knows. I’m sure if it does, it will present it as a “had to”.
    W.


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