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Published: Sunday, 7/13/2014 - Updated: 2 months ago

General Motors' woes drive 2014 record pullback numbers

Analysis points to new era of caution, better enforcement

BY TYREL LINKHORN
BLADE BUSINESS WRITER

Already this year, auto manufacturers have issued nearly 40 million recalls in the United States, a loathsome record for an industry that finally seemed back on track.

General Motors Co. has been the primary offender, accounting for 26 million recalls alone — more than the entire industry issued all of last year. First plagued by faulty ignition switches, GM has issued a string of recalls going as far back as cars made in 1998.

“GM is cleaning the decks,” said Michelle Krebs, a veteran analyst with AutoTrader.com. “They're looking at every nook and cranny of the company and seeing if there are any issues whatsoever and recalling.”

Among other things, GM has recalled cars and trucks over transmissions shifting into neutral by themselves, power steering failures, airbags that might not deploy, and malfunctioning brake lights.

Though GM’s recall nightmare is unprecedented, the industry has been trending toward this for years. In the 1980s — hardly a benchmark decade for automotive quality — 73 million units were recalled. Through the first four years of this decade, 63 million units were affected. And that doesn’t include the 40 million so far this year.

Still, most experts agree that cars have never been built or performed better. So what’s going on?

Experts agree recalls have increased for a variety of reasons, from heightened scrutiny from regulators to more complicated and technology-laden cars to better diagnostic tools that can catch problems early and offer a simple fix.

Early this year, Neil Steinkamp went before a group of automotive analysts in Southfield, Mich., and presented a first-of-its-kind report from advisory firm Stout Risius Ross Inc. that sought to give the industry better metrics by which to look at recalls and understand their impact.

The timing, though coincidental, couldn’t have been better. Within a week of his presentation, GM was in full-blown recall crisis.

The year of the recall was here, but experts say it’s been a long time coming.

Mr. Steinkamp, a managing director with Stout Risius Ross, said the study found a clear increase in the number of safety-related recalls over the years, both in the number of unique recalls and overall units affected.

“Some of that is driven just by the increase in the number of vehicles on the road,” he said, “but even isolating for that, there has been greater enforcement of recalls, certainly recently.”

Stout Risius Ross’ analysis of the data suggested a number of reasons contributing to that. In particular the study focused on the increase in vehicle technology content.

The group found that recalls related to engine components has risen slowly the last few decades, while the number of recalls for nonengine components has increased rapidly since the early 1990s, accounting for nearly two-thirds of all recalls last year.

The report also suggests that the pace of production and new product introductions may play a role. According to data from Wards, vehicle production in North America nearly doubled from 2009 to 2013. Last year’s production was the highest in more than a decade.

Meanwhile, the supplier base is much smaller than it was prerecession.

“What we’re seeing from automakers is they’re doing fewer platforms and building more vehicles from those,” Ms. Krebs, the analyst, said. “At the same time, everybody’s narrowing the number of suppliers they deal with and in the case of airbags, there aren’t that many to begin with. So when something goes wrong, it goes wrong on a lot of vehicles.”

BMW, Chrysler, Ford, Honda, Mazda, Nissan, and Toyota all have issued recalls over concerns that airbags from Japanese supplier Takata could rupture and fail.

There’s also an issue because of increase of new models. While new models are generally good for buyers, new product launches often include the latest and sometimes unproven processes or technology, something the group SRR found often leads to recalls. The group identified 220 models and found that 64 percent have a recall from their first year of production.

Because of all that, Mr. Steinkamp doesn’t see recall activity decreasing over the next several years.

Recall trend?

“Based on the way the trend has gone, the influences in the industry, I do think we’ll continue to see a relatively elevated level of recalls. This year we’re on pace for a record number of units being affected by recalls. I don’t know that we’ll see that again next year, but do I think we’ll continue to see something like we did last year,” he said. “I think that’s very possible if not more.”

There’s also some evidence that manufacturers are being more cautious, which can lead to more recalls.

“There seems to be an increasing number of manufacturer influenced or initiated recalls, which suggests a more provocative approach by the manufacturers,” Mr. Steinkamp said.

Partially, that could be because better diagnostic tools and reporting methods allow companies to quickly identify and address issues. Chrysler, for example, recently recalled almost 11,000 sport utility vehicles for a cruise-control issue after an internal quality audit found an issue. Few of those vehicles, the company said, had even been sold to consumers.

But many industry observers also feel that the game changed in 2010 with Toyota’s unintended acceleration issues, and that it has changed again with GM’s ignition switch crisis.

“I think Toyota ushered in a new area of safety and people were like ‘Wow, that can happen to anyone,’ ” said Jessica Caldwell, an analyst with Edmunds.com. She believes many automakers have become more cautious since then.

Still, some crisis communications experts say companies are often so insulated in their own culture that other firm’s troubles have little impact on them.

"Even though these corporations are managed by people with very similar mind-sets, they’re not really competitive in that sense. I don't think the people at Ford think the people at Toyota have any experiences that are salient to them,” said Dirk Gibson, a University of New Mexico professor who has studied product recalls for years.

Mr. Gibson said the GM situation may have a short-term impact on the industry but no long term changes. “It will happen again down the road because corporate decisions aren’t always made with the public interest in mind, they’re made with the corporate interests in mind,” he said.

Internal culture

W. Timothy Coombs, a professor at the University of Central Florida who specializes in crisis communication, agrees that similar companies tend to act very independently. Most of it, he said, comes down to their internal culture.

Companies that are cautious tend to do so for social reasons, he said. Other companies put more emphasis on the numbers.

“It sounds fairly simplistic, but that’s what it breaks down to,” Mr. Coombs said. “Am I going with the numbers or am I going with the people? Smart companies go with the people.”

Though some have theorized that other automakers are issuing recalls now because GM is in a headline-grabbing crisis, that’s disputed by some industry insiders.

A person familiar with recall discussions at one automaker believes those claims are overblown, saying there either is a problem or there isn't.

So what do all these recalls mean to the auto industry?

Potentially very little. Though there are costs associated with recalls, the Stout Risius Ross study found that costs tend to be higher with warranty repairs. And consumers are not shying away from GM. The company reported an excellent first quarter in spite of negative publicity.

Perhaps customers believe vehicles being recalled are older and not representative of GM’s current vehicles. Perhaps they are indifferent because recalls are common.

Mr. Gibson said when he followed recalls closely several years ago, there were, on average, seven different recalls daily. So many recalls in such a cluttered media environment tends to push people away from an issue, he said.

Though companies would prefer they not occur, recalls are a normal cost of doing business.

“If you make consumer products, you know you’re going to be recalling products,” Mr. Coombs said. “Usually they’re fairly minor. It’s the ones like with GM where there’s deaths associated with it — there‘s potential it could damage your company in the long run.”

Contact Tyrel Linkhorn at tlinkhorn@theblade.com or 419-724-6134 or on Twitter @BladeAutoWriter.



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