Strike threat leaves Harley plant in dust

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http://money.cnn.com/2007/02/01/news...ex.htm?cnn=yes

Production is halted as workers at York, Pa. plant overwhelmingly reject proposed contract offering lower wages and benefits for new workers.
February 1 2007: 1:39 PM EST


CHICAGO (Reuters) -- Harley-Davidson Motor Co. said Thursday that it halted production at its largest assembly plant after workers there rejected a proposed three-year contract and authorized a strike that could begin early Friday.

The workers at the motorcycle maker's York, Pennsylvania, plant voted overwhelmingly Wednesday to reject a proposed new contract that called for lower wages and benefits for new workers and forced all union-represented workers to pay more for health insurance.


The 2,798 York workers, who are represented by the International Association of Machinists and Aerospace Workers Local 175, also voted to authorize a strike beginning a minute after midnight, when the current contract expires.

In a statement released Thursday that acknowledged the vote, Harley said it was disappointed by the potential disruption, which one analyst said could cost the company $11 million in lost sales and shave a penny off earnings per share for each day it lasts.

In 2006, Harley earned $3.93 a share on sales of $5.80 billion.

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Harley said the contract concessions were necessary to help the company, which is currently enjoying growing sales and profit, avoid finding itself "in the same position that the Detroit auto industry is in now" 10 years down the road.

Harley said it was immediately suspending production of the Touring and Softail motorcycles the York plant produces.

No strike since '91
The stakes in a prolonged walkout are potentially high. In a note to investors, Tim Conder, an analyst at A.G. Edwards & Sons, pointed out that the two bikes that come out of York are Harley's highest-margin products and account for about 60 percent of all the units it makes.

Michael Savner, an analyst at Bank of America Equity Research, estimated a strike would cost the company roughly $11 million in sales, and about a penny per share of profit for every day the production shutdown lasts.

But Conder said he was optimistic that the issues would be "quickly resolved," and a strike averted, citing Harley's "long history of extremely good company/labor relations."

Harley, which faces similar contract expirations in Kansas City later this summer and in Milwaukee early next year, hasn't experienced a work disruption since 1991.

At that time the York workers, who make between 700 and 800 bikes a day, staged a walkout that was quickly resolved.

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Craig R. Kennison, an analyst at R.W. Baird, said he thought any strike this time would be similarly "short-lived." Harley had planned for a short strike when it issued its first-quarter shipment guidance last month and that shipments of the two bikes the plant makes during the fourth quarter left dealers with "ample supply to satisfy demand during the off-season," he said.

"While a prolonged strike could do some harm to the brand," Kennison wrote in a note to investors, "a short disruption would do little damage."

Shares of Harley (up $0.71 to $68.98,) rose 1 percent in afternoon trading on the New York Stock Exchange.

Harley's stock has lagged competitors in the last three months. It has risen 0.9 percent, compared to gains around 11 percent for Ducati, Honda and Polaris.