Peloton’s stock value is spiraling downward, it recently laid off 20% of its workforce and replaced its CEO, and demand for its products has dropped off a cliff. As if things couldn’t get worse, we’re now learning that as Peloton’s business was corroding, so were its bikes.
Executives at the exercise equipment company reportedly concealed built-up rust on non-visible parts of its spin bikes and then sold them to customers as new for more than $2,000. This so-called “Project Tinman” plan reportedly involved using a chemical solution called “rust converter” to hide corrosion that was causing paint to flake off a batch of bikes received from a supplier in Taiwan.
As revealed in FT Magazine, the project was described by eight current and former Peloton employees as a way to prevent another expensive recall after the company issued two voluntary recalls, of its treadmills. The pricier Tread+ was recalled following the death of a 6-year-old child who was pulled under one of the machines, and the more affordable Tread was recalled due to a faulty screen.
Documents seen by the Financial Times reveal the Tinman project made it a “standard operating procedure” to conceal corrosion by using a solution that would form a black layer over rusted bike parts. Warehouse workers were told to spot rust and define the level of corrosion so they could decide whether a bike was sellable or non-sellable, according to unnamed sources cited in the report. However, making that determination was subjective, and one worker told FT that he felt pressured to mark bikes with medium rust as “light rust” when Peloton was struggling to keep up with pandemic-fueled demand.
Peloton told FT that making this determination wasn’t part of its policy: “There was no direction by Peloton to reclassify or deem this inventory unsaleable and it is against Peloton’s policy and practices for Peloton to put in the market unsaleable inventory. If anyone did so, they were acting against the company’s policies and practices.”
Several warehouse workers tasked with inspecting the bikes told FT that some were sold with “severe rust,” and one person sent a photo of a rusted bike to the new outlet as recently as last week.
“Even for Bike-Pluses [products that cost $2,495] that were rusted internally, they were still delivering them,” a current employee said. “Sometimes bikes had stuff on the outside, so we couldn’t deliver them, but . . . [there were] a lot of bikes that were rusted on the inside that they still sold.”
Peloton even came up with a term that makes it sound like a feature: “cosmetic oxidation.” The company claimed it had “no impact on a bike’s performance, quality, durability, reliability, or the overall member experience.” Project Tinman, reportedly named such to avoid terms like “rust,” was criticized by employees who felt it put profit over the customer experience, FT reported.
“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 told FT.
Peloton admitted that at least 6,000 bikes were affected and inspected by 120 staffers to ensure they operated properly. The US Consumer Product Safety Commission wouldn’t say whether it was aware of the problems but stated that companies must notify the entity if there are defects in a product which “could create a substantial product hazard or . . . an unreasonable risk of serious injury or death.”
In response to the report, Peloton claims its customers haven’t reported problems with the rusted bikes, and promised replacements should problems arise.
“We have not found evidence or received Member complaints that this specific issue has presented a problem. 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,” Peloton told the Financial Times.
Peloton should have plenty of replacements ready as it was recently reported that thousands of spin bikes and treadmills are sitting in warehouses and cargo ships—a result of poorly managed supply in the wake of sinking demand. The company’s stock has plummeted since the start of the year but has seen a small uptick in recent weeks as Amazon, Nike, and others are being floated as potential suitors.