STEEL TARIFFS

                                                         STEEL TARIFFS SET AT 25%

                                                                           2017

Steel Imports

• 28 EU nations make up nearly 20 percent of U.S. steel imports or 
• 7 billion tonnes i.e. roughly $ 7 billion of EU steel imports into the USA
• Germany is largest source at 3 % of US steel imports ≤one million tonnes 
• with dollar value ≤ $1 billion

US Exports

• EU countries, together, rank 1st as an EXPORT market for the United States
• Manufactured goods EXPORTS from USA to EU approx. $280 billion 
• i.e. Steel imports=2½% of manufactured exports   
• Aircraft ($38.5 billion), Machinery ($29.4 billion)

Just for fun: 

                   25% steel tariff adds $1.7 billion to USA tax revenues

                     1% tariff on US Mnfr. Goods exports to EU adds $2.8 billion to EU tax receipts!

• The EU imports Aircraft ($38.5 billion), Machinery ($29.4 billion).This last does NOT include Harley Davidson which is in “consumer goods” category.
• A  2.5% tariff just on these two sectors [one tenth of the 25% USA steel tariff] would generate about $1.7 billion –note the symmetry please.
• Listen to the cheering in Toulouse, Bristol and Munich at the prospects for the next round in Trumpski’s trade war
• The groans are from Seattle
• A mere 5% tariff on Aircraft, parts etc should generate in excess of $2 billion for the EU or significantly reduce Boeing sales to EU airline fleets.
• A 15% tariff should finish off all US Aircraft exports to EU.

Choose your own manufacturing sector. The arithmetic is inexorable.

Now a tale of One Company.The one the EU intends to use to retaliate for Trumpski’s latest idiocy.

HARLEY DAVIDSON is Head Quartered in Paul Ryan’s Wisconsin Congressional district.

House Speaker Paul Ryan broke with President Donald Trump over his decision to impose tariffs on imported aluminum and steel products, setting the stage for a high-profile policy fight between Republican leaders and the White House-WSJ 5March 2017

·    Harley's 2017 bike sales fell for fourth year in a row.Revenues dropped to $4.92 billion.

·  Profits: Net income $500 mm. EBITDA $1.1 billion

·   Current Share Price $ 44.16. Range 52 weeks $43.48 - 63.40

·   Operating margin fell 8 points to 2 percent in the third quarter; 9% over the year.

·   Debt to equity ratio    4x

·   Margins on exports to Europe would be the highest the company earns.

·   Harley-Davidson announced closure of assembly plant in Kansas City and merge operations into its plant in York, Pa

· Harley shipped 241,498 motorcycles globally, 38,000 to Europe.

· That is 16% of shipments are to the EU.

· In the US the cheapest HOG sells for $10K the most expensive north of $20K

· In Europe they sell for between $14-30,000

 They have serious competition from Japanese producers Suzuki, Honda and Kawasaki, and the Italian Ducati. Price competition is fierce. 

• Assuming an average price of $20,000, then EU Exports are worth $760 million. 
• Similarly 16% of $4.9 billion global sales is roughly $780 million.
•  A 25% tariff would raise Harley prices in EU by $5,000/bike.
• Making the heroic assumption that this did not destroy the HOG market –
• A 25% tariff absorbed by Harley would cost it a little under $200 million, 
• about 40% of 2017 profits. 
• And 20% of its net cash flow. 

Manufacturer with a 4:1 debt ratio suddenly losing some combination of 10-15% of sales or 40% of its net revenues will likely be devastated...

p.s. HRH forgot:

•  Most of the material in Harleys is steel.
•  Assuming that about 40% of the Harley sales price is accounted for by steel cost and that the 25% tariff is passed on to HD
• Then the margin per bike is reduced by 10% percentage points.
• Wiping out the HD profit for each unit.
• This will no doubt made up by increased volume at a higher price 😖??
• Or by increased European sales---😰oops.