Back in the grim, dark years when Harley-Davidson's (NYSE: HOG ) was owned by AMF, the standing joke was that you had to buy two motorcycles: one to ride, and one for parts. Out of all the company's 110-year history, it's not a period that Hog lovers look back on fondly.
While things may not be so desperate today as they were then, Harley's recall announcement for 29,000 bikes from its 2014 line is not a good omen. The bike maker, which issued a "Do Not Deliver" notice to dealers and a "Do Not Ride" notice to owners, found a problem with its hydraulic clutch that keeps it from engaging, meaning you might not be able to stop when you want to -- or need to.
In 2011 Harley was forced to recall some 300,000 bikes because of a rear brake light problem. This is a order of magnitude smaller, but the risk to the bike maker could be greater. In its 2012 annual report, the biker maker said that over the past three years, it has initiated 12 voluntary recalls of its motorcycles, which cost it some $17.2 million.
Unfortunately, product recalls are a fact of life these days for manufacturers, and bike makers from Honda to Suzuki to Triumph have all had to recall motorcycles. Last year, BMW recalled over 2,000 bikes because of a foaming brake fluid problem that could inhibit braking. Triumph recalled some 12,000 bikes because of a stalling problem. And Polaris Industries (NYSE: PII ) recalled 6,600 Victory motorcycles for throttle cable problems. In 2011, Honda had to recall 126,000 bikes made between 2001 and 2010, as well as certain models of its 2012 Goldwing because of a braking issue.
Harley's been riding high in recent years, as sales of its iconic bikes recover from the crash of the recession. After peaking at almost 350,000 bikes shipped worldwide in 2006, shipments plunged 40% as the financial crisis gripped the country. They've only just begun to recover, with shipments reporting their first gains in 2011, running 10% higher than the year before, but already they're beginning to stall.
Shipments rose only 6% last year, and even at the high end of its guidance, Harley's estimating it will only match that effort for 2013. Having to recall more than 10% of its estimated production run is worrisome.
Shares of Harley-Davidson sit 59% above the level they traded at a year ago, and at less than 17 times estimates, it compares favorably to rivals like Polaris, whose stock has risen by a like amount. But with growth rates slowing and with a large recall hitting its 2014 line of bikes, I see Harley-Davidson falling from hog heaven.
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