The company also reported an operating loss at its in-house finance unit as a result of continuing dysfunction in the credit markets as well as growing delinquencies among borrowers.

Harley said it was taking several actions to cut costs, including plant closures that would result in the elimination of 1,100 jobs. That would be about 12 percent of Harley's total workforce, according to its most recent annual report.

Fourth-quarter net income fell 58 percent to $77.8 million, or 34 cents a share, from $186.1 million, or 78 cents a share, a year earlier.

Analysts on average expected the Milwaukee-based company to report a profit of 57 cents a share.

Sales fell 6.8 percent to $1.29 billion.

During the fourth quarter, Harley said worldwide retail sales of its motorcycles fell 13.1 percent, pulled down by a 19.6 percent drop in the United States, its largest and most important market. But sales also fell in once-robust overseas markets, including Latin America, which saw a 28 percent decrease.

In response to the slowdown, Harley said it would slash its production of motorcycles in 2009 by as much as 13 percent from already reduced 2008 levels.

"We reduced our production levels prudently in 2008, helping our dealers achieve lower inventory levels," Jim Ziemer, the company's outgoing chief executive said in a statement, "and we're going to show similar discipline in 2009."

Along with the production cuts, Harley said it would combine its two engine and transmission plants, consolidate paint frame operations into one facility, and close its parts and accessories distribution center altogether. In the future, Harley said it would use a third-party to distribute those products.

The 1,100 jobs to be cut over 2009 and 2010 include about 800 hourly production positions. Harley said most of the layoffs would occur this year.

At the in-house financing unit, higher projected credit losses forced Harley to take writedowns of $35.1 million on retained securitization interests and $28.4 million on finance receivables held for sale.

(Reporting by James Kelleher; Editing by Lisa Von Ahn)