Harley to keep Pa. plant open after contract deal

AP News
Posted: Dec 03, 2009 6:58 PM

Harley-Davidson Inc. said Thursday that it is dropping any plans to move some operations to Kentucky after workers at the motorcycle maker's central Pennsylvania plant agreed to a new seven-year contract.

Instead, the company said it will spend hundreds of millions of dollars to reshape the York plant, its largest motorcycle assembly facility. That includes closing one of the two factories there and laying off nearly half the current unionized work force of about 1,950.

"A restructured York operation will enable the plant to be competitive and sustainable for the future, and the new labor agreement is critical to making that happen," Harley's CEO, Keith Wandell, said in a statement Thursday.

Thursday's decision came 24 hours after unionized workers at the York plant approved a contract that included concessions such as wage freezes, increased employee health insurance contributions and reduced vacation days. It brings to a close a process that began in May when the company said it would look to relocate a plant that is too inefficient and costly in light of steep sales declines.

Harley shares fell 95 cents, or 3.2 percent, to close at $28.62. Its shares have traded in a 52-week range of $7.99 to $30.

The company, based in Milwaukee, said the changes approved Thursday will cost approximately $200 million over three years, plus about $90 million in capital improvements at the York plant. But the savings should come to $100 million a year, it said.

The figures include about $15 million in capital grants and job training funds that Pennsylvania Gov. Ed Rendell dangled as an incentive to stay put. On Thursday, Rendell called the expected job losses unfortunate, but said Pennsylvania won the fight to keep a Harley plant that Wandell told him will have significant room to grow if sales bounce back.

"We believe there's a great opportunity for growth here," Rendell said.

The expected job cuts will pile on top of the layoff of more than 600 workers at the York plant, which consists of two motorcycle factories that assemble its Touring and Softail motorcycles.

Harley will close the Touring factory and produce the motorcycle in the building that currently makes the Softail motorcycles. It also will close down the component-making operation at the plant and buy the parts from suppliers instead, a spokesman said.

As Harley sought union concessions, company officials visited sites in Kentucky, Tennessee and a couple other states in recent months to scout other potential locations for a new plant. A site in Shelbyville, Ky., had emerged as the favored alternative.

To encourage Harley-Davidson to stay, Rendell offered about $15 million in incentives while union negotiators agreed to a contract that workers viewed with distaste, but approved anyway.

"There are no jobs out there. I need my job," worker Joe Sinclair told the York Dispatch after the vote.

Harley said the smaller work force it envisions after the layoffs will be more flexible and correspond to a streamlined operation. Once finished, it expects to have about 1,000 hourly employees, including 700 to 800 full-time production and maintenance workers and 200 to 300 on-call employees.

Another 120 of the 270 management employees will be laid off, Harley said.

Including this year's other cost-cutting moves at the company, Harley said it expects one-time charges of $415 million to $445 million over three years to produce a savings of $240 million to $260 million a year.