Wait: Harley Davidson Makes Money From Recalls?
Despite recalls motorcompany has ways of turning profit.
Harley Davidson recently recalled nearly 200,000 touring bikes for a malfunctioning brake light. Hot on the heels of that recall was another recall for 1,110 Nightsters due to – gulp – handlebars that might snap in two due to faulty welds.
Recalls are never a good thing for a manufacturing company. They call into question the quality of the product and cost the company a ton of profit. Or do they?
Not necessarily, according to one company who has dug into the history of recalls by Harley Davidson.
Nobody’s Fool
The Motley Fool used the years 2013-2015 as examples of how the Motor Company can offset lost revenue because of recalls.
In 2014, HD recalled roughly 10 times as many motorcycles as it did the year before, according to numbers the publication got from the Wall Street Journal, another respected business journal. And 2015 wasn’t exactly a stellar year for the legendary motorcycle maker; The company recalled around 46,000 touring bikes for a faulty clutch master cylinder.
There were another 9,000 bikes recalled for yet another problem, this time the rear reflector assembly was the culprit. Well over 300,000 bikes were recalled that year.
Twenty Four ‘Uh-Ohs’
Adding all this up, the Motor Company had 24 separate recalls over a three-year period, according to a filing from the company with the Securities and Exchange Commission.
HD shelled out $30 million on warranty costs. That works out to about $1.25 million per recall. That’s money the company did not anticipate having to spend.
“Looked at another way, though, the 230,000-odd motorcycles recalled in those 24 incidents cost Harley just $130 or so per bike to fix,” the Motley Fool points out.
Shop ’til They Drop
Now here’s the crux of the matter. When the owners of those Harley machines that have been recalled find about about the recall news, what do they do? They take their bikes into the dealership to get them fixed.
What do they do when they sit around waiting for their bikes to be fixed? There is only so much free coffee to drink and so many other owners to stand around and jaw with.
Turns out, they shop. A lot. And sometimes they even buy new motorcycles. In short, it turns out recalls are a sort of marketing tool, at least according to the Motley Fool story. What’s a paltry $130 per bike when you have customers filling your dealership and buying stuff?
HD Still Made Profit
“Weighed against the $16,699 starting price of a Harley-Davidson Fat Boy, though, (the $130 fix) is less than 0.8 percent of the bike’s price,” the story claims. “Despite these (recall) costs, Harley-Davidson still averaged a 19.5 percent operating profit margin across those three years (according to data from S&P Capital IQ.”
Now, obviously nobody is saying Harley Davidson is a little cavalier about recalls, and nobody is saying they exploit them for profit. Nobody associated with the company would ever admit to that because recalls definitely affect reputations of companies that produce and ship products.
Still, some people may be a little less inclined to feel sorry for the Motor Company over lost profits due to recalls. The numbers do tell quite a story many people might never have considered.
Photos: Harley Davidson
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