If you blinked you might have missed it, but Harley-Davidson (NYSE:HOG) completely shut down one of its major manufacturing facilities, and it’s possible that means the motorcycle maker will be facing a big bike recall.
A manufacturing plant under pressure
According to regional news station WGAL, Harley confirmed it temporarily closed its plant in York, Pennsylvania, which it says it does from time to time, but wouldn’t say what the reason was behind the move or how many workers were affected. The York facility is where Harley assembles its Touring, Softail, CVO, and Trike motorcycles, as well as performs various manufacturing operations such as making frames, fuel tanks, and fenders.
York was also the plant that bore the brunt of the layoffs Harley initiated last year. At the time it said it was firing about 200 workers, and that half of them would come from the Pennsylvania facility, or some 12% of the workforce there. It was another indication that motorcycle sales weren’t progressing as well as hoped.
In its third-quarter earnings report back in November, Harley-Davidson said touring bike sales had fallen 6% over the first nine months of the year, and while its cruisers had jumped 9.5% over the same time frame for the quarter ending Sept. 30, they tumbled 24% year over year (touring bikes, on the other hand, rose 6% year over year).
Recurring problem plagues Harley
While the York plant was quickly brought back online after its temporary closure, WGAL reported that the reason for suspending operations was a “critical malfunction of a clutch assembly.” Harley isolated the issue at the York facility, but it might lead to recalls for the part.
It also wouldn’t be the first time Harley-Davidson had to initiate a major recall for problems with its clutch assemblies. Last summer, the bike manufacturer recalled more than 27,000 motorcycles for a defect in the hydraulic clutch master cylinder of touring bikes like its Electric Glide Ultra Classic, Road Glide Special, CVO Softail Pro Street Breakout, and others. In fact, if it proves true that this was the problem at the York plant, it will have been the third time in as many years Harley has recalled its bikes for clutch problems.
In 2013, Harley recalled more than 25,000 bikes, and in 2015, it recalled an additional 46,000 bikes for model years 2014 and 2015 of its Electra Glide, Street Glide, Ultra Limited, Road Glide, and Road King motorcycles. Another recall, then, wouldn’t be surprising — though it is worrisome.
Quality control is suffering
Persistent and repeated recalls have impacted rival Polaris Industries (NYSE:PII). Although it’s been the powersports vehicle maker’s RZR side-by-sides that have been most affected by recurring problems that led to massive recalls, just last month Polaris was forced to launch a recall of its wildly popular Indian Motorcycle brand. It was forced to recall 24,000 bikes, such as its Chief Classic, Chieftain, Roadmaster, and Springfield models, for potential fuel leaks.
Yet another recall for Harley-Davidson for a persistent problem is not what it needs right now. The motorcycle industry is in a slump. Polaris says industrywide retail sales for motorcycles with engine displacements 900 cubic centimeters and above were down by low-single-digit percentages in its just-reported fourth quarter. Harley will be reporting its own results next week, but in the third quarter, sales in the U.S. were down 7%, making it some three years since it has posted higher quarterly sales.
A make-or-break period
Harley-Davidson has come a long way from the days when quality was so poor the running joke was that you had to buy two Harleys, one to ride and one for parts. That’s not nearly the condition of the motorcycle company these days, but neither is it a time when it can take consumer concerns for quality lightly.
Polaris Industries has been stealing market share from Harley since it reintroduced the Indian nameplate several years ago, and it just announced it is shutting down its Victory brand to put all its resources into Indian. Harley-Davidson may still own half the market for bikes 600 cc and up, but if it can’t get a handle on these clutch problems soon — assuming the rumors are true — then the big bike leader may see it lose a lot more share in the future.
Read More: https://www.fool.com/investing/2017/01/27/is-harley-davidson-about-to-be-hit-by-major-recall.aspx