Just when it looked like Harley-Davidson (NYSE:HOG) was pulling itself out of the ditch, in again it tumbled. Harley warned yesterday that certain of its 2009 and 2010 Touring models are at risk of leaking gasoline in the event of a frontal collision. Granted, this sounds a little obvious, but Harley has decided to play it safe and recall the bikes for a fix. (And kudos for this.)
While I admire the excess of caution, this is going to cost Harley. With the recession weighing on sales, 111,000 bikes amounts to roughly a third of each of the past two years' production now going back to the shop.
Troubles all around
Adding financial injury to reputational insult, 2009 has been an exceptionally bad year for Recession-scarred vehicle manufacturers. As recently as last month, Toyota (NYSE:TM) announced a massive 4.3 million-vehicle recall for problems with sticking gas pedals. Before that, it was Ford (NYSE:F) blaming faulty Texas Instrument (NYSE:TXN) switches on its cruise control mechanism for a 4.5 million-vehicle callback. And before that, Honda (NYSE:HMC) took a socket wrench to hundreds of thousands of its own vehicles over airbag concerns. It all adds up to millions of dollars in profits lost to careless manufacturing processes.
How big of a deal is this for Harley?
The honest answer is that we don't know yet. According to news reports, 111,569 Hogs are getting called back to the farm as part of this recall. Were this problem as big as the one that led to the recall of 13,400 Dyna series motorcycles back in 2005, that would imply a potential cost upwards of $40 million.
Fortunately though, while we don't know the exact cost of this recall, it actually sounds like a pretty simple fix Harley will be doing -- just installing a couple of braces to stiffen up the chassis in the event of a collision, making ruptures less likely. My guess is that we're probably looking at a few cents a share, max.
Foolish takeaway
Long story short, Harley can walk away from this crash. A few cuts and bruises at most. Not enough to send your portfolio to the emergency room.
