Harley-Davidson and the India-U.S. Motorcycle Import Duties Explained

Only a few weeks ago, U.S. President Mr Donald Trump raised a storm about import duties on Harley-Davidson motorcycles to highlight inequity in trade with India.

In response, India's Modi government announced a new budget reducing the import duty on Harley-Davidson motorcycles from 75% tax to 50% import tax on bikes in the "CBU" category, or Completely Built Units built outside of India, imported into the country.

In a country where Honda alone has reached its 35 million-th customer in Q1 2018, motorcycles are big business. Here's the breakdown.

It seems that Trump is using H-D as a poster child for import tax parity

Trump's reasoning is that the U.S. does not impose import duties on motorcycles imported from other nations and demands reciprocity. He says that only reducing the duty is not fair.

Interestingly, Harley-Davidson says they're not concerned. Most bikes sold in India are actually made in India.

Trump is of the opinion that American brands such as Harley-Davidson and Indian Motorcycles are being forced to sell their products at higher prices, resulting in less market penetration. But, could it be that Asian customers are not that interested in buying 600cc+ motorcycles?

Trump wants reciprocal taxes on countries that "misuse" trade relations with the U.S. He feels that by allowing other nations to exploit the free trade in U.S, it's having a negative draining effect on the citizens of the country. He says, nations should not be allowed to get away with what they are doing because thousands of motorcycles manufactured in India are sold in the United States without any form of import duty charged on these machines, and President Trump doesn't feel that it is a fair trade.

On the other hand, India has been charging exorbitant import duties on high-end vehicles, with the justification of promoting local manufacturers. CBU imports were at times charged more than 100% in import duty. However, CKD import duties were increased by 5% - that is, Completely Knocked-Down Units to help international manufactures contribute to the local assembly of these vehicles.

While the motorcycling community of India will appreciate this move by President Trump, MSRP will go up on most motorcycles in India

Motorcycle OEM's that made local investments in the Indian market are now seeing a change in the norms that could leave a bad taste in their mouthes. Manufacturers, including Harley-Davidson, Triumph and Kawasaki, have invested heavily in assembly plants in India, and most of the best selling models of the premium motorcycles sold in India are CKD route imports. This move will be a blow to these manufacturers as they are now essentially being forced to increase their prices. Especially Triumph, who has seen tremendous growth in market share and mindshare despite the detuning fiasco.

But the brands that did not make these investments are going to be able to better compete with the CKD competition. And since the new duty structure only affects a few of the popular models, this isn't as big of a saving for the customers as initially thought.

With CKD duties being increased, the prices of the most accessible and sensible models available in India will get more expensive

Motorcycles coming via the CKD route sell a lot more than most CBU imported models. Triumph has already announced price hikes throughout their range, making their motorcycles anywhere from Rs. 40,000/- to Rs. 62,000/- more expensive. One of India's favourite "big bikes", the Street Triple S, has just seen a hike of Rs. 48,000. The worst hit will be for the 300-400 cc premium motorcycle segment.

Except for the KTM 390s, Bajaj Dominar 400 and the TVS RR310 (based one the G310R), all the bikes in this category are CKD imports with all of them costing almost twice as much as the competition.

On the flip-side there will be price drops

Ducati has announced a price drop, with Rs 2.9 lakhs to Rs. 7.36 lakhs. Indian Motorcycles has also announced price drops in their range, and so did Harley-Davidson. But looking deeper into the number, the huge price drop for Ducati is for the Monster 1200 and the Panigale 1299 range, both of with are niche products which are still too expensive for any real change in accessibility for the majority of motorcyclists in India. Harley-Davidson announced a Rs 3.7 lakh price drop for the CVO Limited, but at Rs 49.99 lakh it still won't be selling in large numbers.

As you can see, the results are quite mixed. But this will also mean that brands such as KTM and BMW who invested in manufacturing partners will still be able to have a huge price advantage, especially in the small premium motorcycle segment. So, the real market is going to see some changes as manufacturers try and figure out new strategies. The models and manufacturers that have had the most success are now going to see themselves have less of a price advantage over the CBU import bikes. The majority of consumers are also at a loss here, as Panigale 1299 FEs and Harley CVOs don't sell nearly as much as Street Triples, Z900s or Harley-Davidson Street 750.

The motorcycle industry might be first casualty of what seems to be start of a trade war

With the latest turn of events, these matters are going international as well. After addressing the Indian import duty concerns, President Trump has turned his attention to other markets. He has recently announced a tariff on importing Steel and Aluminium, as a measure to reduce the unfair trade practices employed by other nations. The EU has reacted to this by announcing that they will slap a tariff on to stereotypical American products such as Harley-Davidson motorbikes, Levi’s blue jeans and Bourbon whiskey. This could have serious implications on the motorcycle market as a whole, with a possible domino effect on prices of motorcycles all over the world.