Auto Recalls: A Return to Normalcy in 2015?

When it comes to auto recalls, 2014 set the all-time high water mark — by a long shot. Close to 64 million vehicles were recalled last year in the U.S., more than doubling the previous high of 30.8 million set in 2004. This follows a 10-year average of 16.1 million units recalled annually.

Would the law of averages then dictate that the number of recalls would drop back into this historic pattern? Don’t count on it — for a few good reasons.

“The likelihood that we’d reach the same number of recalled vehicles in a given calendar year is relatively low,” says Neil Steinkamp, a managing director at the financial advisory firm Stout Risius and Ross (SRR). “That said, I don’t think we’ll see numbers in the historical range either. I think we’ll end up between 20 and 60 (million units recalled).”

Today, SRR issued a report based on the firm’s research into the factors influencing recall-related risk. The report cites 2014 as a tipping point in the history of recalls and lays out the factors that would produce a sustained increase in recalls moving forward. “There are so many forces and factors right now that suggest elevated levels — not the least of which is the tone from legislators and regulators,” says Steinkamp, who helmed the report.

In December, Mark Rosekind was sworn in as the new administrator of the National Highway Traffic Safety Administration (NHTSA), after a year in which the agency came under intense scrutiny and criticism in relation to its handling of the General Motors ignition-switch recall.

Inheriting a hot seat, Rosekind has taken a proactive stance on gaining more resources and staff to investigate vehicle defects and hold automakers accountable with greater fines. At the North American International Auto Show in Detroit in January, Rosekind said the number of recalls could increase.

The Obama administration’s transportation bill would triple funding for NHTSA’s defects investigation office and more than double the staffing. It would also increase the civil penalty limits nearly 10 times to $300 million. With bipartisan support, Steinkamp believes this funding “is more likely to occur.”

A separate bill calls for criminal penalties for companies that “knowingly conceal dangers that lead to consumer or worker deaths or injuries.” This heightened scrutiny, along with the potential for much larger fines and even criminal action, puts the automakers’ internal recall committees in an increasingly precarious position. Automakers are responding with an increased willingness to initiate recalls — in 2014, the percentage of OEM-initiated recalls reached 90%.

Today the public has the ability to be much closer to the recall process.

In 2014, NHTSA received 75,000 public complaints (consumers citing potential defects with their cars), dwarfing the 30,000 complaints received in 2013. This is surely due to increased awareness of the issues brought on by the massive Takata air bag and ignition-switch recalls, but it’s also a function of our “instantaneous reaction culture” based on social media and the ease of our ability to make complaints online. “The barriers have come down,” Steinkamp says.

Another factor is automakers’ and regulators’ ability to collect data — massive amounts of data — at an accelerated pace. “The opportunities for big data analysis are there now, and they’re only going to get bigger,” he says.

The trend to globalization and consolidation of vehicle platforms, while beneficial from a production standpoint, is also having an effect on recalls. In the last four years, recalls of more than 100,000 units have spiked. “It’s in part because you’ve got fewer suppliers providing components to more vehicles,” Steinkamp says. “When a component fails, you’ll have a bigger issue to deal with.”

The government is looking for ways to increase completion rates of recalls, which could clog the service center pipelines at dealerships — those tasked with actually fixing the defective part. Even if they wanted to, dealers couldn’t stock parts in anticipation of a recall anyway, Steinkamp says.

If the number and size of recalls remains elevated, it becomes even more important to develop systems to process recall repairs more quickly, including strengthening the parts supply chain as well as working more closely with auto dealerships. We’ll know more this year — but as of right now, the industry has a long way to go.  

Originally posted on Business Fleet