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Study Confirms Sharp Rise in Auto Recalls

Wednesday, March 14, 2018By Nina Shapirshteyn

The year 2016 was a noteworthy year for the auto industry but automakers were not celebrating. Record numbers of recall notices and cars included in recalls made headlines. A new study shows that in 2016 automakers paid approximately $11.8 billion in claims and $10.3 billion in warranty accruals for recalls in the United States. In 2015, that combined number was $17.5 billion, representing over a 25% increase in the following year. Experts say that automakers have increasingly focused on technological advancement and cost-cutting measures while quality has suffered. These shortfalls show few signs of improving and auto experts warn that failure to make aggressive and drastic changes could lead to long term problems for manufacturers and consumers.

Recalls Dominated by GM and Takata

In 2016, two specific recalls dominated the auto world. General Motors (GM) recalled 23 million cars in the United States due to faulty ignition switch problems. The cost of these recalls to GM was approximately $4.1 billion. Similarly, recalls related to Takata’s defective airbags resulted in a $1 billion loss and a bankruptcy filing in 2017. In addition, automakers that installed Takata airbags, such as Honda, suffered hundreds of millions of dollars in losses. Aside from these highly publicized recalls, U.S. auto manufacturers still experienced a shocking number of auto recalls -almost 300 total recalls affecting 30 million cars.  

Recall-Related Issues

Recalls in 2016 mostly related to electronic systems, which control many of today’s car security and luxury features. In the past few years, errors that involve defective components or lapses in system integration grew almost 30%. Recalls that relate to electrical systems typically involve millions of vehicles at a single time, unlike manufacturing errors, which tend to occur in a specific region or plant. The modern use of common systems means that local disparities are minimal and recall sizes reflect this trend.

Reactions from Manufacturers and Suppliers

The study made a sobering conclusion: despite the high costs of recalls, repairs and reputational damage, automakers and suppliers still fail to make the proper adjustments to ensure quality products. One case illustrates this point. In October, 2017, Nissan was forced to halt a line of production after government regulators determined that safety inspection operators were not qualified to perform inspections. Nissan failed to rectify the error in a subsequent investigation. Now the car giant must re-inspect 34,000 cars manufactured between September 20 and October 18, 2017. The recall that will follow could affect up to 1.2 million cars sold in Japan.

There are many factors that contribute to an insufficient focus on safety. Experts say that investments made in quality control have been reduced by 30% to 50% since the financial crisis. Even as economic conditions have normalized, the auto industry has failed to put more resources into quality functions.

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