Few companies have had as bad a year as the once sought-after Peloton (PTON): between waning demand, halted production and wide-scale treadmill recalls, the company recently had to push out its chief executive and fire over 2,800 employees. Its Stock, meanwhile, is down nearly 78% from a year ago.
On top of business woes, Peloton also had to navigate a number of PR crises. In the fall and early winter, shows like "Sex And The City" sequel "And Just Like That" and "Billions" both showed characters experiencing heart attacks on a Peloton bike. All of that, of course, pales to the tragic death of a six-year-old child who got pulled into one of the Peloton treadmills last March.
What's This Story About Rusty Bikes?
The latest news, then, does Peloton's already-battered image no favors. Company executives, according to a Financial Times report, have been concealing rust on the $1,500-plus bikes with a chemical solution and selling them to customers.
In a cover-up plan internally known as "Project Tinman," company executives reportedly had workers cover up rust instead of sending bikes with signs of corrosion to manufacturers.
Peloton Bikes
"Employees said the scheme was called Tinman to avoid terms such as 'rust' that executives decided were out of step with Peloton’s quality brand," the report reads.
Internal documents unveiled by Financial Times showed that one "standard operating procedure" was to cover up signs of rust on less visible parts like the handlebars and seat frame with a chemical solution that reacts with "rust to form a black layer." The details were also confirmed by eight current and former Peloton employees across the country.
"It was the single driving factor in my beginning stages of hatred for the company that I had spent the previous year and a half falling in love with," an outbound team lead said in the report.
What Will This Do To Peloton's Image (And Stock)?
Earlier this month, Peloton stock briefly surged by more than 30% after a Wall Street Journal report mentioned that Amazon (AMZN) was one of the companies interested in buying Peloton. Over the ensuing weeks, speculation on who some other potential buyers could be reached a fever pitch that is still ongoing.
While the Peloton's PR image is currently at dismal levels, the company is still attractive to potential buyers due to the rapidly-expanding home fitness and subscription models and core demographic of wealthy users. The rust, then, could be a mere wrinkle in some big player's larger plans to turn the company around.
"We have not found evidence or received Member complaints that this specific issue has presented a problem," a Peloton representative told Financial Times regarding the rust reports. "If we become aware that this specific issue has caused a problem in any Bike, we will work with the Member to resolve it, including replacing the Bike."
