Harley-Davidson Gets All Its Ducks in a Row - Renegotiates Kansas City Labor Agreement

Last week Harley-Davidson reached a deal with the leadership at the International Association of Machinists and Aerospace Workers (IAM) Local 176 and the United Steelworkers (USW) Local 760 labor unions, but details on the deal were under wraps until the labor unions’ membership at Harley-Davidson’s Kansas City plant could vote on the deal. Ratifying the seven-year contract, Harley-Davidson will be implementing a new production operating system that is being rolled out across all of Harley’s production facilities, including the Missouri plant.

While Harley-Davidson’s new production system is expected to provide greater flexibility for seasonal and other volume-related production changes, it will also allow for great flexibility in customizing customers’ bikes directly on the assembly line. Harley-Davidson has been touting its H-D1 factory customization service, and this new production system would appear to be the back-end changes necessary to make that program possible. We imagine the union members cared less about this added flexibility in Harley’s production line, and were instead more concerned over the 145 workers who would be moved from full-time positions to flexible positions.

In order to better adapt to the seasonal nature of the motorcycle industry, Harley-Davidson is moving 21% of its workforce at Kansas City to flex-time, meaning during the height of the season these workers will be employed full-time, and during lulls in the season they could be reduce to part-time work. Judging from the trends seen lately in Harley-Davidson’s sales numbers, we suspect those 145 workers will see few full-time weeks.

“Together with our unions, Harley-Davidson is making the necessary changes across all our production facilities to succeed in a competitive, global marketplace,” said Keith Wandell, President and Chief Executive Officer of Harley-Davidson, Inc. “The Company is well on its way to building a world-class, sustainable, lean operating structure and I want to thank our employees at Kansas City for their participation in this journey. The ratification of the new contract will help ensure that we can continue to meet and exceed the expectations of our customers.”

Released in phases, the changes at the Kansas City plant are expected to generate an annual operating savings of approximately $15 million in 2013, the first full year in which the agreement will be fully implemented. In turn, Harley-Davidson expects to incur approximately $15 million in additional restructuring charges through 2012 related to this new labor agreement.

When fully implemented, Harley-Davidson expects previously announced company-wide restructuring activities, together with the implementation of the changes at Kansas City, to result in one-time charges of $510 million to $525 million, and annual ongoing savings of $305 million to $325 million.