The Milwaukee-based motorcycle company had warned it would move the production to another state if its three Wisconsin unions rejected the deal. A move would have eliminated about 1,350 jobs.
After reviewing the results of the unions' votes, the board of directors agreed to call off the search for replacement sites.
"Change is never easy, and we have asked our employees to make difficult decisions. However, we are pleased to be keeping production operations in our hometown of Milwaukee and in Tomahawk," company president and chief executive officer, Keith Wandell, said in a statement.
The contract freezes employees' pay, slashes hundreds of production jobs and assigns large volumes of work to part-time workers.
Some 1,140 union members from the suburban Milwaukee plant voted, approving the contract by a 55 to 45 percent margin. Almost 300 ballots were cast at the Tomahawk plant in northern Wisconsin, where workers approved the deal by a broader margin of 73 to 27 percent.
A number of workers who voted to approve the deal said they did so grudgingly, accepting Harley's ultimatum for the sake of saving jobs. Others voted against it because they said the terms were too harsh.
Harley said it had to play hardball because its labor costs at the two plants were too high. The concessions made the costs more manageable, it said, so it now makes sense to keep the plants open.
Under the previous rules, it could take as long as three months to let go of unneeded workers or recall laid-off workers, chief executive Keith Wandell told analysts this summer. Harley's goal was to gain the ability to hire and lay off workers more quickly to better adjust to seasonal business fluctuations, he said.
The company got what it wanted, but it's unclear whether the contract will lead to any lingering animosity.
Mike Masik, the president of the local chapter of the United Steel Workers, said the close vote there showed how upset his members were.
"With 45 percent of the people voting against this thing there's going to be a rip," he said. "There's a split in the house we're going to have to put back together."
Harley has been dealing with its own share of problems.
A shrinking market and an economic downturn have undercut demand for its pricey, chrome-laden bikes. Sales of Harley motorcycles, whose prices range from $7,000 to $25,000 can take a big hit when the economy goes south.
The company has been focused on cutting costs and streamlining its business. Last year, it announced the shutdown its Buell sport-bike line. In December, the company and its union at its main motorcycle plant in York, Pa., agreed to a cost-cutting contract that involved layoffs for about half the company's unionized work force there.
The company also told analysts in July it expects to ship 5 percent to 10 percent fewer motorcycles to dealers this year, standing by an earlier forecast.
Some Harley workers said the company caused its own troubles through foolish business decisions, and now it's trying to make its money back by squeezing workers with an unfair contract.
Tony Daube, 55, a tool grinder from Mequon who has worked for Harley for 20 years, said that's why he voted against the contract.
"This ultimatum has no guarantees that they're even going to stay around," he said. "They're just going to keep on doing what they want."
Brian Harycki, a 36-year-old machinist from West Bend, said he was equally disillusioned.
"I don't agree with what the company is doing, with the direction it's going. It's ridiculous," said Harycki, who also voted no. He said he was disappointed that his fellow union members voted to approve such a draconian contract.
"I'm not OK with it, but I guess it keeps jobs in Wisconsin," he said. He looked at the ground for a few moments, then sighed and added, "for now."