August 1, 2016 by Marcos Garcia Norris, Regional Practice Leader, Crisis Management, North America, Allianz Global Corporate & Specialty
When was the last time in insurance that clients were told that if there is anything urgent to communicate, just send a letter? Yet that is precisely how some automotive manufacturers inform their clients of important recalls.
Consumers attempting to self-register for such information face the arduous task of trying to locate the appropriate online forms on a manufacturer’s website. Add to that the fact that automotive companies often leave it to the car dealer to notify clients of such recalls.
WHOSE RESPONSIBILITY IS IT, ANYWAY?
At the end of the day, most customers and government authorities agree it is the car manufacturers that are, ultimately, responsible for the recall announcements. Although car makers might involve car dealers by informing them and pushing for certain replacements when services are carried out, they are separate entities with significantly different targets.
It is concerning for many that in 2016, there still appears to be no overall consistency on the best approach for automotive recalls. Perhaps, it is time that some basic measures were introduced into the car ownership process, and made obligatory.
The irony is that a vast amount of information is already provided to both the authorities and the car manufacturers; there should be a new section that, together with the postal address, would include the email address and phone number. That data should be delivered when buying the car or selling it, and updated with each service.
Until then, most consumers are left to wait for a recall notice to arrive with the post, or must check online with the multiple web pages available (either the car manufacturer or, in Canada, the Transport Canada web page). Few consumers opt to proactively check if their vehicle is on any recall list, even one as ubiquitous as the worldwide airbag recall.
WHAT IS THE RECALL REALITY IN CANADA?
The reality is that, more than ever, car manufacturers are actively communicating vehicle recalls to the point that the impression is there are many more problems going on than there used to be. The digital age allows a recall message to be spread around the world in seconds, and that same message will be replicated and picked up by diverse sources (everything from transport authorities to consumer groups and an endless number of personal blogs).
The Transport Canada database on motor vehicle safety recalls and defects has a whopping 30,271 results of all sorts. It is truly a fantastic source of information for Canadian consumers to check, not only when they are concerned about their vehicles, but also before buying a second-hand one.
The recall notices date from January 14, 1975, when 2,700 units of a vehicle built in 1973 were affected by a steering issue, until recently, when another car brand recalled 26 units, also as a result of a steering problem.
With 43 years of recall notices a mere click away, Canadians are fortunate to have one of the best information services available.
The web page also provides some important recommendations:
Given the speeds at which cars can travel nowadays, one would think that together with the oil check, one’s car repair shop would check for recalls automatically during every service. However, this is rarely the case.
A good reflection of the need to change is the Safe Cars Save Lives public awareness campaign launched in January by the U.S. Department of Transportation’s National Highway Traffic Safety Administration (NHTSA).
The NHTSA estimated that about 25% of the vehicles recalled in the United States remain unrepaired, mostly for lack of knowledge by the owners, or ignoring the recall notice.
WHAT DO THE NUMBERS MEAN?
From the insurance perspective, the question is: Should everyone be concerned about the apparently high number of recalls in Canada recently? What is really behind all the recall noise?
It is important to differentiate between the number of recalls issued, the risk element involved and the volume of vehicles involved when comparing years.
In early 2015, the Canadian Press reported that the number of recall notices rose by 130 from 2013 to 2014. That said, the volume of cars affected increased four times, from two million to eight million vehicles.
Specifically, there was almost 600 recalls in 2014 affecting 8 million vehicles, 466 recalls in 2013 affecting 2 million vehicles and 468 recalls in 2010 affecting 1.5 million vehicles.
There is a simple explanation for the additional six million vehicles listed in 2014: airbags and ignitions switches. So the reality is that less than a handful of issues caused the tremendous surge in cars recalled.
It is important to note that the airbag recall affects cars manufactured during multiple years, and as far back as 10 years ago. Once the most recent faulty airbags are replaced, the numbers of recalls will likely reduce to the pre-2014 figures, although the number of recall notices will continue to occur at the same level.
There is no doubt that car manufacturers are being much more proactive with regards to recalls, in order to avoid criticism from delays and avoid costly lawsuits derived from the liabilities involved in selling cars with defective component parts. Even the car dealers themselves are getting more involved in staying in touch with recalls and delivering the information to consumers.
WHAT IS THE IMPACT ON COST, BRAND?
There is, no doubt, that any recall affecting a vehicle will have a financial impact on the manufacturer (whether or not insured). Costs relating to the recall logistics, remanufacturing, replacement and service are the obvious ones.
Following closely are expenses arising from litigation, settlement and defence costs (either from consumers, the authorities or third-party companies caught up in the recall).
Finally, there is reputational damage to the brand, which automotive manufacturers work very hard to protect and improve. The latter are directly interlinked with the sales of vehicles, and any loss of brand can translate into a loss of potential buyers to competitors.
Sales figures affecting the brands involved in the airbag and ignition switch recalls send a different message than what could be expected: sales have continued to be healthy and, in certain cases, improved slightly. This, however, does not mean that the manufacturer has not suffered negatively.
The question then becomes how many more cars could car makers have sold had they not been involved in such a public recall?
The Japanese airbag manufacturer involved in the recall of 53 million-plus cars worldwide since 2008 would seem to have been over the worst of the financial storm in terms of airbag sales, suggests findings from Valient Automotive Market Research and the company. These have increased significantly during the last two years.
The fact is that not many consumers actually ask for the brand of airbag when purchasing a new car, even though they might very well know the exact brand of music system installed. Perhaps, a need exists to be more aware for these sorts of issues as well.
Marcos Garcia Norris, Regional Practice Leader, Crisis Management, North America, Allianz Global Corporate & Specialty