Polaris doubling down to keep customer loyalty despite recall problems

Polaris Industries is on the defensive, after a run of fires that sparked massive recalls of its ATVs.

Some analysts say the company's profits won't recover until 2020. They note that at least 10 lawsuits have been filed, the stock is down 50 percent from 15 months ago and the company is spending $120 million to fix the problems with the ATVs.

Industry observers say the Medina-based company's future comes down to how much it broke trust with consumers and if customers will consider the response strong enough to buy Polaris vehicles in the future.

The company says it has added support for dealers affected by the recall, made "significant" enhancements to infrastructure and leadership to improve the products and invested in new product innovations. CEO Scott Wine said in a statement last week that Polaris is "fundamentally strong."

"Our No. 1 priority is to get our loyal owners back to riding safely," Wine said last month in announcing lowered profit expectations for the year.

Polaris' recovery could be helped by others in the industry. In the past five years, almost every major outdoor vehicle brand — from Canada's Bombardier to local competitor Arctic Cat and Honda — has had recalls, some for safety problems as serious as Polaris'.

A study by the National Automobile Dealers Association found that Ford Motor Co. did not take a huge long-term hit in reputation after Firestone tires on its Explorer SUVs were recalled because they shredded, triggering rollovers. The mild ding to its reputation was because Ford didn't have a stellar reputation to begin with, the study found.

"By contrast, Toyota suffered much more from multiple recalls the company issued related to unintended acceleration in late 2009 and early 2010," the study concluded. The company had a 40 percent price advantage over competitors before the recalls. By the end of 2010, that differential fell to 20 percent. Now it has recovered, but is still only 30 percent.

Only time will tell how Polaris fares. It issued eight rounds of recalls since 2015 for more than 252,000 all-terrain vehicles, following 160 product fires that caused 19 injuries, one teen's death and 15 acres of destroyed Utah forest. Problems were pervasive, hitting Polaris' off-road Rangers, its RZRs, its RZR Turbo machines and some snowmobiles. (The company even recalled its beloved and Batman-like Slingshot three-wheeler for steering and roll bar problems last year.)

Earlier this year, irate customers who have had to haul in recalled ATVs for repairs, mercilessly bashed Polaris on social media. That prompted dealers to beg Polaris to help quiet the storm. This summer, Polaris responded with customer gift certificates, vouchers, extended warranties and personalized outreach.

Last month, after learning of more fires and launching another 53,270 recalls, Polaris said it will spend $120 million in 2016 in the form of fire fixes, retests, research, new warranties and promotions. It also slashed its profit forecast for the year by 43 percent.

At least six lawsuits are pending from burn victims. More than 10 shareholder groups launched class-action lawsuits after the stock drop. (The company says the securities filings are "without merit" and that officials cannot comment on ongoing product-liability litigation.)

Experts now are wondering if the company will fully recover.

The recalls' "impact on [future product] demand is less clear," said UBS Investment Research Analyst Robin Farley.

Farley recently downgraded her 2017 profit margin expectations for Polaris to levels not seen since 2009. But even she sees hope.

If Polaris' persistent recalls finally slow and stop, its sales could recover by December 2018. But profits won't recover until 2020, she said.

Restoring consumer confidence will take time. But eventually "I do think that Polaris' strong reputation over the years is bigger than the recalls of 2015 and 2016," Farley said.

If more fires or recalls occur, analysts who recently reeled back their profit targets for the company (such as KeyBanc, UBS, Raymond James, Longbow Research and others) may be forced to recalibrate once again, experts said.

The big question is, will customers stick with Polaris.

Logan Grizzel, a brand and marketing expert with Cricket Consulting in Boulder, Colo., said it depends. Every major company experiences a product problem at some point.

"A consumer will generally give a brand a bit of understanding when an error is first identified, if the brand owns up to the error, admits it, and says we have a solution for this, so we can prevent this from happening in the future," Grizzel said. "If a company is able to do that, then … the consumer can understand that everybody makes mistakes occasionally."

However, if the company doesn't get in front of the problem soon enough, "that is when you start to encounter challenges with keeping your consumer."

The question is how customers perceive Polaris' response. Did it fix the problems once and for all.

In Polaris' case, it's too soon to know which way the company will land. But one thing is clear, Grizzel said: "Polaris is huge," and everyone's watching.

After the social media uproar and subsequent new rounds of recalls, dealers became frustrated and asked Polaris for help.

"Honestly, a lot of customers kind of put their middle finger up to the recalls," said Shane Churchill, operations manager at Northway Sports in East Bethel.

Determined to restore its image, Polaris supercharged its outreach.

In September, Polaris sent recall customers personal letters and special promotions. Those owning multiple recalled machines received extra discounts. That should help, Churchill said.

"I think they have gone way above and beyond the call of duty of any manufacturer that I have ever seen as far as trying to get the machines fixed, make the customer happy and trying to incentivize the customer not to jump brands," Churchill said.

He thinks the efforts to retain customers will work.

Ray Schoenfelder, owner of Cannon Power Sports in Cannon Falls, Minn., and Ejay Dawson who owns Five Seasons Sports in Eveleth, also said Polaris' outreach is working.

"The customers were disappointed at first," Schoenfelder said. "I mean they had to bring their vehicles in. And because it was a 'Do Not Ride' recall notice, they couldn't ride them until they got it fixed. Many had to haul the vehicles into the dealer from northern Minnesota or Wisconsin, so they were upset. But then they got Polaris' [$1,000] gift certificate and an extra one-year warranty. They liked that."

Dawson said customers have told him they are still "behind" Polaris "because it was out in front with this and told people about the problem, said they would take care of it, which they did."

Dee DePass • 612-673-7725