Milwaukee without Harley? A real possibility

It’s possible that Harley-Davidson will leave Milwaukee, and without employee and management changes and an attitude adjustment by Wisconsin lawmakers, Milwaukee Iron will simply be the name of a minor league football team.

Harley officials announced Thursday they must cut $54 million in manufacturing costs to remain competitive or possibly leave the state in search of a better business environment. The loss of Harley-Davidson would throw 1,400 employees in Menomonee Falls and Tomahawk out of work and land another major blow to Milwaukee’s heritage of heavy industry.

We watched this scenario unfold when Mercury Marine announced it would leave the state without employee union concessions. When the union opposed concessions, Mercury moved ahead with plans to relocate operations to Oklahoma. That is when the reality of business set in. Employees begged for a second chance at the ballot and voted to keep their jobs, while government officials bent over backwards to provide tax concessions and loosen restrictions on local government’s ability to keep existing jobs in communities.

Harley spokesman Bob Klein is reading from the same playbook as Mercury officials. “Our preference is to keep the production operations in Wisconsin, but as part of due diligence we will explore alternate U.S. sites.”

However, many of the problems the Mercury faced are the same ones that Harley is facing now.

First, Harley Davidson sells a product that is completely dependant on discretionary income. When your job is in jeopardy, the interest on the mortgage has jumped and your investments have tanked, the purchase of a $20,000 motorcycle isn’t on the list of priorities.

This has been proven as worldwide retail sales of Harleys dropped from 58,583 bikes in the first quarter of 2009 to 47,925 bikes in the recently completed first quarter.

Second, Harley Davidson is saddled with employment costs that restrict growth and leave shareholders exposed to losses. Employees here and in York, PA have previously taken cuts in pay and benefits, including lower pay for new hires and the loss of 4,500 jobs in exchange for keeping factories open. But company officials now say it wasn’t enough to offset the increased costs of production (energy, health and taxes) and drop in income due to the recession.

When costs go up and income drops, the only thing a company can do is lay-off employees, demand concessions on wages and benefits or close up shop.

This leads to problem number three — taxes. In the global economy, companies have options as to where to locate operations. Many items factor into where a company locates: prevailing employee wages, union presence, government regulations and taxes. Wisconsin has these things in spades. Companies can work with employees on wages and benefits, but Wisconsin’s overzealous anti-business legislation and legislators are harder to change.

While we do have lower income and sales taxes than some states, a recent business tax may be forcing Harley to look elsewhere and will factor into the choices of businessmen and women make regarding locating or keeping a business in Wisconsin.

“Combined reporting” requires companies based in Wisconsin with out-of-state subsidiaries elsewhere to report income from all locations as state income. In Harley Davidson’s case this increased their state tax burden by $22 million in 2009 over 2008. While it doesn’t make up the total Harley needs to cut to stay competitive, not having to pay this tax would be a big step in keeping them in the state.

Finally, Harley Davidson management needs to take some ownership of this problem. The recent closure of the Buell Motorcycle division was touted as a cost saving measure by management, when it actually was a giant cost drain. Instead of accepting a purchase offer from Canadian motorcycle builder Bombardier, they spent $121 to shut down the Buell division. Seems someone at Harley hasn’t heard that getting paid for something you don’t want anymore is better than spending $121 million to close it up.

We can hope Harley employees have learned from their Mercury counterparts and believe the company will leave if concessions aren’t approved. Isn’t a job at a lower wage better than no job at all?  Isn’t having some health insurance coverage better than none at all while looking for a new job?

Even though Harley Davidson management says Wisconsin’s tax policies have nothing to do with the financial hardship it is dealing with, a $22 million tax increase can’t be discounted. Imagine if your tax rate jumped 10.6 percent in one year while your income dropped by 71 percent. It would be a hardship, right?

So while employees, management and politicians argue whether taxes or unions or the bad economy has caused this mess, they also need to look to themselves and do the right thing to keep this Milwaukee icon here and viable for generations to come.