Peloton executives are said to have devised a plan to cover the rust and corrosion of their high-end motorcycles with a chemical solution just months after the company’s expensive treadmill pull plunged the company into crisis last year.
When employees noticed paint was peeling off some of the machines last year, the company said it had started using a chemical solution that masks corrosion on engines by “reacting with rust to form a black layer,” according to Financial Times.
In a plan called “Project Tinman”, employees hid corrosion on motorcycles that could cost more than $ 3,000 and enjoyed a huge increase in demand during the Covid pandemic before it was announced that it would send them to customers.
This came after the company’s share prices began to fall and the company saw a drop in demand for products just months after Peloton withdrew its treadmills in the United States and the United Kingdom after the death of a six-year-old child last May.
The alleged cover-up also came after Peloton, once a favorite of the pandemic, saw its shares fall sharply by 76 percent in 2021.
In December 2020, the company’s shares reached a record high of $ 151.72, after many customers decided to continue training from home due to the temporary closure of many gyms due to Covid-19.
But later, the company saw a drop in demand for its fitness classes and equipment as people began to leave their homes and re-visit gyms.
Peloton is accused of covering up rust and corrosion on his motorcycles with a chemical solution that “forms a black layer”. (Stock image)
According to the latest allegations from former and current Peloton employees in four US states, employees began noticing that the paint came off some of the training bikes last September.
It is alleged that the company’s bosses decided to cover the rust with a chemical solution that forms a black layer on the corrosion, in an attempt to avoid costly seizures before sending them to customers.
A current employee told The FT: “Even for Bike-Pluss, which had rusted internally, they still supplied them.
“Sometimes the bikes had things outside, so we couldn’t deliver them, but … . [there were] many bikes that were rusty inside that were still on sale.
The alleged cover-up came after Peloton withdrew 25,000 Tread and Tread + treadmills in the United States after the death of a six-year-old child.
Last May, US Consumer Product Safety Regulators warned people with children and pets to stop using the Peloton Tread + treadmill immediately after a young child was dragged under the back of the treadmill and died.
Injuries to other children, which were also pulled under the tread +, include broken bones and cuts.
The withdrawal led to a 27 percent drop in the bike manufacturer’s shares.
Speaking at the time, former CEO John Foley said: “The decision to withdraw the two products was the right thing for Peloton members and their families.”
He also apologized for not working with the safety committee earlier and acknowledged that he had work to restore the company’s image.
A Peloton spokesman told MailOnline: “In September 2021, as part of the pre-delivery inspection process we have had since 2016, one of our inspectors at the Wesseling (Cologne) operational site in Germany noticed the appearance of flakes. from paint in the bike’s packaging, which is an accident we haven’t seen before.
“After further inspection, it was found that the residue was associated with surface rust, which appears in the inner tube of the seat frame, as well as the inner tube of the handlebar frame.
“Further investigation and rigorous tests have revealed that cosmetic oxidation in these invisible parts has affected approximately 6,000 bicycles that are already in distribution channels.
“Our internal testing, based on industry standards, has confirmed that the problem of cosmetic oxidation will not affect the productivity, quality, durability, reliability or overall experience of members.
“In addition, for the products in the inventory, we have applied a standard processing process to solve this cosmetic problem in the aforementioned invisible parts. We found no evidence or complaints from members that this particular problem was a problem.
“If we find out that this particular problem has caused a problem in any bike, we will work with the member to resolve it, including replacing the bike.”
Launched for the first time in 2012, Peloton has become a popular option in recent years for those who want to train at home.
Prices range from $ 2,107 (£ 1,550) for the Peloton Bike to $ 3,119 (£ 2,295) for the Peloton Bike +.
This month, it was revealed that Peloton was cutting 2,800 jobs in a desperate attempt to cut costs and revive the troubled exercise company.
It is alleged that the company’s bosses decided to cover up the rust in an attempt to avoid costly seizures before sending them to customers. (Stock image)
Some Peloton employees reportedly learned that they were among the 20 percent of global staff who were fired when they found that their access to the company’s Slack channel was shut down earlier this month.
In a note, former CEO and co-founder John Foley said the fired employees would receive 12 months of free fitness classes as part of their compensation packages, according to the New York Post.
Although the benefit packages will also include extended health benefits and other undisclosed benefits, the inclusion of the free class has been repulsed by some employees.
Who is the new CEO of Peloton Barry McCarthy
McCarthy, 69, has experience as CFO of Spotify and Netflix
Barry McCarthy will have a big job as soon as he enters Peloton’s offices, but insiders say he may be the man to overturn the shelling company.
The new CEO, 69, was CFO at Spotify for several years and was the architect of the technology company’s innovative direct registration in 2018, before retiring a year later.
Direct listing, which McCarthy pioneered, means the company goes public without selling new shares to allow the market to set a price for itself on the first day of training.
This move is considered revolutionary on Wall Street and is seen as a more democratic and transparent listing, even if it makes things difficult for investors.
McCarthy was also CFO of Netflix and has been a board member of startup Instacart for a year.
A source told Yahoo Finance that McCarthy has extensive knowledge of subscription-based models such as Peloton.
The company expects to spend about $ 130 million in cash on compensation packages as part of the restructuring, as well as $ 80 million in non-monetary costs.
The cuts are aimed only at corporate staff and will not affect Peloton’s fitness instructors, some of whom have become quasi-celebrities with many followers.
The job loss came when Foley, the company’s co-founder who has run the company for nearly a decade, stepped down as chief executive this month to become chief executive.
Barry McCarthy, former CFO of Spotify and Netflix, will now take the helm as Peloton’s new CEO.
Outgoing CEO Foley has angered anger investor Blackwells Capital in recent months as the company struggled to maintain the staggering growth that led to its $ 52 billion estimate in early 2021. Since then, shares have fallen nearly 80 percent.
The investment firm called for its removal and even called for the company to be sold.
Jason Intaby, Blackwells’ chief investment officer, accused Foley of “repeated failures,” including hiring his wife as vice president of apparel.
“Foley has proven that he is not suitable to lead Peloton, whether as CEO or CEO, and he should not elect directors as he seems to have done (Tuesday),” Intabi said.
This month, Peloton cut its year-over-year revenue expectations after reporting a larger-than-expected quarterly loss.
“They came out this morning with lower directions, the CEO is leaving, but obviously there is still potential that we can make a deal … That’s why [the stock] it’s not going to be such a hit, “said Dennis Dick, head of market structure, a trader at Bright Trading LLC.
Peloton will halt the development of its planned plant in Ohio, where it was planned to invest about $ 400 million and create more than 2,000 jobs over the next few years.
Overall, the company said its restructuring changes would save it about $ 800 million a year in reduced costs.
In January, Peloton said it had seen a “significant drop” in demand for products that had once retailed for at least $ 1,900 and that it planned to halt bicycle production in February and March, according to a leaked confidential presentation seen by CNBC.