GM Recall Crisis Creates Ripple Effect on Industry

General Motors’ recall crisis, which has resulted in nearly 20 million vehicles globally being called back early, may have a long-term effect on the auto industry, although some executives disagree over whether automakers have become overly cautious when it comes to issuing recalls.

Joe Hinrichs, Ford’s president-The Americas, says the automaker has not changed the way it conducts recalls despite the GM scandal, although he admits there is a higher level of scrutiny among automakers on when to issue a recall.

“There are some unique circumstances going on in the industry with the ignition-switch issue at GM,” he says during a recent media event. “We feel confident we have the right processes and checks and balances, but we always look for improvements.”

Ford recently issued a recall for more than 5,000 ’14 F-150 pickups for an improperly placed motor-position sensor in the electronic power-assist steering system, which could result in the loss of power steering, making it more difficult for a driver to control his vehicle. In May, the automaker recalled 1.4 million vehicles for other power steering-related issues.

Hinrichs says recalls may be growing because automakers have more access to data than ever before, making it easier to detect possible problems.

“If you look at how much data we have now from customers, warranty processes and our dealers, there is so much (that) you can act very quickly to protect customers,” he says. “There is a lot more data available to everybody in real-time.”

David E. Johnson, CEO of Strategic Vision, a crisis communications agency, says automakers are choosing to err on the side of caution when it comes to issuing recalls.

“Every automaker right now is drawing lessons from GM being proactive, rather than have a major public-relations crisis like what happened with GM,” he says. “If there is even a hint of a problem it’s better to take the damage now than wait until something more major occurs.”

Depending on the size of the recall, automakers have to take millions, and sometimes billions in charges to cover the cost. Ultimately, some experts say, that cost will be passed along to the consumer.

Fiat Chrysler Automobiles CEO Sergio Marchionne says consumers will absorb the cost of recalls if they continue to be issued at such a rapid pace.

“Given the nature of the events we’ve seen in the last three or four months, I think it is more than likely automotive houses will now shift their attitude and be even more prudent than they would have been under normal circumstances. And probably beyond what is required,” he told Reuters last month.

“If effectively this frequency of recalls becomes a norm, if everybody starts doing this, then I think you will see this cost being shifted to the consumer,” Marchionne adds. “It will transfer itself over onto the selling price of the vehicle.”

Johnson agrees with Marchionne’s assessment, noting automakers likely will tell consumers they are paying more to ensure their safety.

Another problem that could result from increasing recalls is an increase in consumer apathy toward the callbacks. According to NHTSA, only 75% of recalled vehicles are brought in for repairs. That number is expected to drop if consumers become inundated with recalls, some which may seem trivial to them, Johnson says.

“I think the effect of recalls will be diminished,” he says. “It becomes like a billboard you pass every day, after a while you don’t even notice it any more.”

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