Earlier this year, Harley-Davidson began an assessment program to determine whether or not it would be in the company's best interest to move production outside of Wisconsin, and they had even gone so far as to scope out a few likely new homes. However, the new labor contract agreements will allow for a $50 million savings by the end of 2013, making the company's old plants more attractive than uprooting and starting new facilities elsewhere. Part of those savings come from the fact that by the time the new contract takes effect, the company will have 250 fewer full-time hourly unionized workers than what's outlined under the current agreement.
While these and other restructuring changes will incur a number of one-time charges, Harley-Davidson is looking to see annual ongoing savings of anywhere between $290 million and $310 million. Hit the jump for the full press release.
Ratified New Labor Agreements Enable Production Flexibility and Efficiency for Long-Term Competitiveness
MILWAUKEE, Sept. 14 /PRNewswire/ -- Harley-Davidson, Inc. (NYSE:HOG) announced today it will keep production operations in Wisconsin, following yesterday's contract votes by the Company's Wisconsin unionized employees.
The decision follows Monday's ratification of three respective new seven-year labor agreements by employees represented by United Steelworkers (USW) Local 2-209 and International Association of Machinists and Aerospace Workers (IAM) Lodge 78, both in Milwaukee, and USW Local 460 in Tomahawk, Wis. The agreements take effect in April 2012 when the current contracts expire.
Harley-Davidson produces motorcycle powertrains (engines and transmissions) at its plant in Menomonee Falls near Milwaukee and motorcycle components such as saddlebags in Tomahawk.
"Change is never easy, and we have asked our employees to make difficult decisions. However, we are pleased to be keeping production operations in our hometown of Milwaukee and in Tomahawk," said Keith Wandell, President and Chief Executive Officer. "Together, we are making the necessary changes across our entire company to succeed in a competitive, global marketplace while continuing to meet and exceed the expectations of our customers."
A key component of Harley-Davidson's restructuring is a standardized continuous-improvement production system across company facilities. That system focuses on greater flexibility for seasonal and other volume-related production changes, an enhanced ability to vary product mix in line with customer preferences including the customization of motorcycles at the factory, and greater production efficiency overall. The production system includes the addition of a "casual" workforce component - unionized employees who work as required, depending on seasonal needs and to provide coverage for vacations and other absences.
The decision to remain in Wisconsin concludes a two-path assessment that began earlier this year to determine whether the Company could achieve the needed changes for the Wisconsin operations to be competitive and if not, relocate those operations.
All three of the new Wisconsin labor agreements contain essentially identical provisions except for variances in wage rates and incentives related to contract ratification. All provide a very competitive compensation package while enabling the flexibility and efficiency needed for the Company to be cost-competitive. The agreements also move full-time hourly employees to the same health benefits plan that salaried employees have and maintain a non-contributory defined benefit pension plan at current benefit levels funded entirely by the Company.
Based on the new ratified labor agreements, the Company expects to have about 700 full-time hourly unionized employees in its Milwaukee-area facilities when the contracts are implemented in 2012, about 250 fewer than would be required under the existing contract. In Tomahawk, the Company expects to have a full-time hourly unionized workforce of about 200 when the contract is implemented, about 75 fewer than would be required under the current contract. The Company also expects its Wisconsin production workforce to include 150 to 250 casual employees on an annualized basis to cover seasonal volume spikes, vacations and other absences as the new labor agreements are implemented.
The new contracts are expected to generate about $50 million in annual operating savings in 2013, the first full year of the agreements. The Company expects to incur approximately $85 million in additional restructuring charges related to the new contracts through 2012, of which about $55 million will be cash charges.
When fully implemented, the Company expects previously announced restructuring activities, together with the implementation of the new contracts at the Wisconsin operations, to result in one-time charges of $515 million to $545 million, and annual ongoing savings of $290 million to $310 million. In 2010 on a combined basis, Harley-Davidson expects to incur restructuring charges of $225 million to $245 million and to generate related savings of approximately $135 million to $155 million.