Polaris Industries will pay a record $27.25 million civil penalty to the Consumer Product Safety Commission (CPSC) to settle two 2016 late-reporting claims involving defective recreational vehicles that were at risk of fire and later recalled.
The settlement announced Monday was the agency's first major penalty levied since caps were raised last year. It was issued in conjunction with a new Polaris recall, this time for 107,000 Polaris RZR vehicle models from 2014 to 2018.
Commission officials said the fine related to Polaris' RZR and Ranger recreational off-road vehicles that contained defects. Those defects potentially created "an unreasonable risk of serious injury or death," the CPSC said in a statement.
Polaris spokeswoman Jess Rogers said that Polaris will e-mail and send letters directly to customers and will work with dealers to make sure customers learn about the recall and get free repairs. Patty Davis, CPSC spokeswoman, said it is important for customers to stop riding the vehicles and take them in for a free repair.
The agency said Medina-based Polaris — one of the largest players in the recreational vehicle category — knew some of its RZR models from 2013 to 2016 could catch fire and that the company had in fact received reports of 150 fires. One of the fires resulted in the death of a 15-year-old passenger. The company also knew of 11 reports of burn injuries and a fire that consumed 10 acres of land, the agency said.
"Despite having this information," the agency said, "Polaris failed to immediately notify CPSC of the defect or risk posed by the off-road vehicles as required by federal law."
Polaris said it was abiding by the settlement and that it had made great strides to improve the safety of its vehicles. While the company agreed to the settlement, it did not admit guilt and said it "remains vigilant and focused on continually learning and bolstering its safety and quality practices."
The $27.25 million fine against Polaris "reflects the largest dollar amount of a CPSC civil penalty," Davis said. The penalty covers two series of violations, and is intended to enforce safety laws and ensure that customers are quickly informed about product risks.
Polaris could have faced penalties of $32 million, she said, based on the new penalty caps.
In comparison, the CPSC fined six manufacturers a combined $29.4 million in 2017. The combined total was $31 million in 2016 and $26.4 million in 2015.
"[Monday's] resolution settles these matters with the CPSC," said Polaris CEO Scott Wine in a statement. "Rooted in our long-standing commitment to our customers and dealers is our guiding principle of 'safety and ethics always' and a drive to continually grow and improve as a company, and we have."
During the past two years, Polaris centralized its product safety organization, created a new product-design process, hired 200 additional quality and engineering experts, enhanced post-sales surveillance and data analysis and invested in new tools and processes — all in an effort to improve safety.
The CPSC noted that Polaris' problems potentially affected thousands of customers. Polaris manufactured 133,000 of its 2013-to-2016 RZR 900 models and its 2014-to-2016 RZR 1000 models, the agency said.
As far as defects involving Polaris Ranger four-wheelers, the CPSC said that in 2014, the company received 36 reports of fires involving some 2014 Rangers. The agency said Polaris made design changes to those 2014 models to prevent heat shields from coming loose, but didn't report the fire and heat-shield problem to the government until July 2016, when it recalled 42,500 Ranger 2014 models.
The CPSC said that after the recall, Polaris received customer reports of three more fires and several heat shields that loosened or fell off its model year 2015 Rangers.
"Polaris failed to immediately notify CPSC of the defect or risk posed by the model year 2015 [Ranger off-road vehicles] as required by federal law," the agency said. "By the time Polaris did report, it had received 10 reports of heat shield incidents including five reports of fires. Subsequently, CPSC and Polaris announced a recall of 51,000 [off-road vehicles] in April 2017."
As part of the settlement, the agency said Polaris agreed to maintain "an enhanced compliance program" to ensure compliance with the Consumer Product Safety Act and a related system of internal controls and procedures designed to ensure timely reporting in the future.
In addition to the settlement, Polaris announced Monday that it is recalling 107,000 of its off-road RZR XP and RZR XP 4 1000 model vehicles from 2014 to 2018. The agency said RZR vehicles could have exhaust silencer fatigues or cracks. If present, the heat shield may fail, which could cause components to melt or catch fire.
Monday's settlement and subsequent recall with the CPSC comes after hundreds of thousands of Polaris vehicles have been recalled in recent years for a host of problems including overheating, fuel leaks, steering-shaft problems and fires that led in some cases to injury and death.
The company has since faced lawsuits, vehicle recalls, millions in warranty costs and a hit to the company's stock price.
Polaris said Monday's settlement is not expected to affect the company's prior 2018 earnings guidance of $6.00 to $6.20 per share. The settlement was previously accrued for, officials said.
Polaris stock fell $1.71 Monday to close at $112.81. The stock had traded as high as $153 three years ago.
The company informed customers they can go to Polaris.com/ridersafety to learn more about vehicle quality and safety, and safe riding practices.