Harley’s “reverse” strike pays off
Today's Financial News - Posted November 25, 2009
A nasty recession is just what Harley Davidson (NYSE:HOG) needed to force its union to ratify a new contract, without the threat of a strike. As Harley cuts its labor costs, shareholders are sitting on new highs.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): I am no fan of unions. They had their time and place, but now that America’s economy is about as robust as Mark Sanford’s political career it’s time for them to find a comfortable spot amongst the history books.
Even with my disdain for organized labor, I will admit when unions do something right. What’s fair is fair. Plus, it doesn’t happen very often.
For Harley Davidson (NYSE:HOG), unions have been an unreachable thorn in its side. The problems are almost mirror images of the woes in Detroit: not enough flexibility, high wages, top-notch benefits and a constant threat of a strike.
This economic downturn is just what the motorcycle maker was prayer for. It gave the company all the leverage to say shut up or get out. More specifically, Harley told the union shut up or we’ll get out.
Riding into the sunset?
The company’s largest manufacturing facility is located in York, Pennsylvania. The union’s current labor contract is set to expire early next year. Knowing the company had a major battle brewing, executives went proactive.
They started a search for a replacement factory, one with better technology and, more importantly, a cheaper workforce.
It’s basically a reverse strike. Sign the contract or the factory walks.
While nothing has been signed just yet, there is a very good chance York’s union will vote in favor of ratification on December 2. When it does, Harley shareholders will be in a good spot.
I got a peak at the contract last week. It gives the company just what it needs… flexibility.
While pay is an issue, Harley has no problem paying top dollar if it means high-quality workers. But Harley can’t afford to pay some gray-bearded grump to sit in the break room. That’s why the new contract cuts the labor groups to a mere fraction of previous levels.
No longer can a worker claim, “I’m a welder. I don’t touch a wrench.”
Now, if he’s working, he’s doing what the boss says. It will allow Harley to cut the factory’s headcount nearly in half, saving massive annual labor expenses.
Not good for union recruitment
The new contract also calls for Harley to put about $90 million into modernizing the current facility. While it will be an added line on the expense sheet, you can bet executives are counting on a quick payback.
I wish I could claim to be the only investor watching the action unfold, but I’m not. Over the last few days, shares of Harley have climbed steadily, sending shares to new 52-week highs.
Over at TFN Strategic Trader, we took full advantage of the action. Last Friday, we entered a set of the company’s December call options. And yesterday, we sold them for quick-and-easy gains of 60%.
For once, I have a reason to be thankful for unions. They made us money.
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