The Latest Polaris Industries Recall Is Not a Good Sign At All

By Rich Duprey Markets Fool.com

Not this again. Polaris Industries' (NYSE: PII) has issued yet another recall, but this time, the problematic vehicles are its vaunted Indian Motorcycles.

Continue Reading Below

Although still a relatively small component of the powersports vehicle maker's overall business, its motorcycle segment has been the one driving results over the past few years, and in 2016, it was the one carrying the weight of the company in the wake of recalls of itspowersports vehicles. Indian was the primary reason Polaris was able to hold up. With this safety recall, Polaris could be headed for a crash.

Image source: Indian Motorcycle.

Up in smoke

Over the past year Polaris Industries stock has essentially traded sideways. Multiple vehicle recalls have increased its costs, lowered sales, and likely damaged the company's reputation. Recalling its Indian bikes isn't going to help.

According to Polaris, nearly 24,000 Indian motorcycles ranging from its Chief Classic, Chief Dark Horse, Vintage, and Chieftan to the Chieftan Dark Horse, Roadmaster, and even its latest Springfieldmodel, are being recalled due to a potential fuel leak. On bikes manufactured between April 2013 and July 2016, the fuel rail can come in contact with other bike parts in a way that can cause a leak, and could start a fire. Although no injuries have been reported, the bike maker is recalling the motorcycles in conjunction with the National Highway Traffic Safety Administration, and will make repairs free of charge.

Continue Reading Below

This is the same type of problem that's been plaguing Polaris Industries vehicles for more than a year, beginning with its popular RZR side-by-side, a literally trailblazing ATV that has dominated the market since it was first introduced. That model is now being dragged down by repeated recalls due to fire risks, or as Polaris terms them, "thermal hazards."

So too with its Ranger ATVs, and more recently, its three-wheeled Slingshot motorcycle. Both of those vehicles had fire hazard-related recalls. And Indian bikes have endured several recalls since the brand was resurrected out of bankruptcy a few years ago. The most recent previous problem came to light this past summer, when some 18,000 motorcycles were recalled to repair a different fire hazard -- an ignition issue in which unburnt fuel might pass through the exhaust system during a misfire, causing exhaust temperatures to rise, and potentially causing the bike to catch fire.Ultimately, tens of thousandsof Polaris vehicles have been recalled just this year alone.

Image source: Polaris Industries.

Hard to recall a time when before recalls were common

Vehicle manufacturers, whether motorcycle or automobile, now routinely recall their vehicle. It's expected that manufacturers are going to exercise an abundance of caution when it comes to a suspected defect that could lead to injures or deaths, if only to protect themselves from potential lawsuits.

General Motors (NYSE: GM), for example, is facing numerous suits, amounting to an estimated $10 billion, relating to a faulty ignition switch affecting some 2.6 million vehicles -- a defect it allegedly knew about for years, but did nothing to fix until injuries and deaths started to mount.

In the case of the defects that led to Polaris Industries' recalls, they have fortunately caused only one death, when a RZR rider crashed and a fire ensued. Subsequent recalls were initiated at least in part to avoid further injuries and deaths, which is to the powersports vehicle maker's credit. Yet the fact it continues to issue recalls forsimilar defects across virtually all its product lines suggests something troubling at work within the manufacturer.

Flash fire

Polaris previously indicated it had the problems in hand, and that a fix was in the works, only to see new problems appear. It's all taking a toll on its financials; third-quarter revenues fell 19% and profits plunged 80%. Fortunately, this is the slow season for motorcycle sales, but it does the brand no favors when owners have to bring their bikes back to the dealer repeatedly to fix manufacturing defects, even free of charge.

Polaris Industries needs to get its manufacturing problems resolved once and for all, and soon. Otherwise, the gains and goodwill it has accrued over the past few years will go up in smoke.

10 stocks we like better than Polaris Industries
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Polaris Industries wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of Nov. 7, 2016

Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Polaris Industries. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.