Could production of snowmobiles be moved out of the Snowbelt and to a factory in Mexico? That’s the question being posed after some strongly worded comments from Polaris CEO Scott Wine in relation to the burgeoning trade war between the U.S. and China.
In comments to CNBC yesterday, Wine called the proposed 25 percent tariffs proposed by President Donald Trump “downright catastrophic in terms of impact on the company and employees.” And, in an interview with Bloomberg, referred to the threatened levy on certain Chinese imports as “lunacy” that could cost Polaris nearly $200 million and cause it to potentially move jobs from its U.S. factories to its facility in Monterrey, Mexico.
Polaris has previously stated in financial disclosures that the current 10 percent additional tariff placed on some Chinese imports is projected to cost the company around $90 million in this calendar year. However, with a trade deadline between the U.S. and China looming for this coming Friday and dynamic tweets by President Trump on the topic stirring the financial markets, Wine said in the CNBC interview that the impact would increase to between $195 and $200 million.
“When we are hit with tariffs, that’s what I mean by impact to employees,” he said in the CNBC interview. “Through no fault of our own, one-third of our net income could go away.”
Here’s how it works: Polaris imports many components for its snowmobiles, ATVs, UTVs, boats, motorcycles and other products from China and assembles them into the whole goods as part of final production here in the U.S. The costs of those components would rise dramatically if the trade war continues to escalate. However, if those same Chinese components were instead imported to Mexico and assembled into vehicles at Polaris’ plant on the other side of the U.S./Mexican border, the assembled products wouldn’t be hit by the same sort of tariffs.
Referring to an assembly plant built by Ski-Doo/Can-Am maker BRP and a Polaris plant in Alabama within the last decade, Wine said, “What’s most ironic is I invested $150 million to build a new plant in Huntsville — at the same time our competitor built one in Mexico,” Wine said in the CNBC article. “They don’t pay the tariffs, and we do.”
“Ultimately if this was not resolved, we would have no choice but to move production to Mexico,” Wine said in the CNBC interview. “This would essentially be forcing me to push jobs outside the U.S.
“I’m paying tariffs because I hired American workforce and I’ve invested in American plants,” Wine said in the Bloomberg interview, “and I cannot stand for that.” Later he added, “It is not my desire to ever move a job out of the U.S. We have great employees here, we make great vehicles here, and that is what we’re trying to do.”
The company has also absorbed an almost $20 million impact on the Indian motorcycle side due to retaliatory tariffs enacted in Europe.
In the meantime, with all of this trade war talk going on, Polaris’ stock took a mighty hit on Wall Street so far this week – it was trading at $101.30 per share late last Friday but is down to $90.68 per share as this story is being posted on Wednesday afternoon. Varying reports seem to come out hourly related tot he likelihood that the U.S. and China will be able to broker a final deal, so the situation is evolving.
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