Harley-Davidson, Inc. (NYSE: HOG) will cease operations at New Castalloy, its Australian subsidiary producer of cast motorcycle wheels and wheel hubs, and source those components through other existing suppliers. Harley-Davidson expects the transition of supply from the Adelaide-based New Castalloy to be complete by mid 2013.
The decision to close New Castalloy comes as part of an overall strategy Harley-Davidson embarked on in 2009 to develop world-class manufacturing capability throughout the company by restructuring and consolidating operations for greater competitiveness, efficiency and flexibility. Under the strategy, the Company is focusing its production operations on metal fabrication for motorcycle fuel tanks, fenders and frames, paint, final assembly and powertrain production, and has been transitioning to suppliers work that is outside these areas or cannot be performed competitively in house.
“The Company’s decision on wheel production follows a review of the long-term fit and competitiveness of the New Castalloy business with our strategy and was not made lightly,” said Matt Levatich, President and Chief Operating Officer, Harley-Davidson Motor Company. “New Castalloy has been a valued part of the Harley-Davidson team. We appreciate the many significant contributions of New Castalloy’s employees over the years.”
The facility produces the majority of cast wheels for Harley-Davidson motorcycles and has a workforce of 212, including 183 employees and 29 contract workers.
Harley-Davidson acquired the wheel producer in 2006 to ensure continuity of supply at a time when the facility – a long-time supplier to Harley-Davidson – was on the verge of closing amid the bankruptcy proceedings of its then parent company.
The sourcing of the New Castalloy production to other existing suppliers is expected to generate about $9 million in annual ongoing savings beginning in 2014. Harley-Davidson expects to incur about $30 million in restructuring charges related to the transition, including approximately $10 million in 2011 and $20 million in 2012. Approximately 35 percent of the $30 million will be non-cash charges.
Including the closing of the New Castalloy operations, Harley-Davidson now expects all restructuring activities initiated since early 2009 to generate annual ongoing savings upon completion of approximately $315 million to $335 million, and to result in one-time overall costs of $505 million to $525 million, including costs of $75 million to $85 million in 2011 and $45 million to $55 million in 2012.