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Sunday, 27 April 2014 22:00

Signs of safety in rising recalls

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Melissa Anderson Melissa Anderson COURTESY PHOTO

General Motors’ ignition switch problem is triggering flashbacks to the last major automaker recall debacle: Toyota’s crisis with unintended acceleration four years ago.

Some aspects seem very similar, such as the desire of Congress to rush in with hearings, serious questions about the speed of the company’s response and corresponding questions about whether the government agency responsible for vehicle safety did its job.

However, there are also key differences, the principal one being the lack of clarity in Toyota’s case about what was causing the unintended acceleration, if indeed the problem was caused by equipment at all.

Two questions prompted by these recalls include: Are car owners safe, and are suppliers safe?

It might be a little counterintuitive, but car owners can be comforted by the fact that vehicle recalls are on the rise. That’s because this demonstrates greater diligence and commitment to safety and consumer satisfaction.

Analysis of data from the National Highway Traffic Safety Administration (NHTSA) by the financial advisory firm Stout Risius Ross (SRR) showed that the number of recalls has been rising each decade, from a total of 715 recalls through the 1980s to 1,077 in the 1990s and 1,298 in the 2000s. The rate of increase accelerated in the early 1990s, and is currently being driven by both manufacturer actions and NHTSA requirements.

About one-half of recalls have been for safety-related components, which include airbags, child seat components, seat belts, service brakes, steering, visibility, vehicle speed control and wheels.

The SRR analysis indicated two underlying factors contributing to the recall activity: 1) increased use of technology, e.g. electronics, airbags, and hybrid propulsion, and 2) the number of newly developed vehicles, since there is a greater incidence of recalls during the first year of a new model introduction or platform change.

Car owners are more likely to have other things to be concerned about than safety these days. Customer surveys show that more than half of the quality issues cited by car buyers now are “soft failures,” shortcomings in the areas of features being difficult to use or understand, poor location, a lack of functionality and poor materials. There has been a decline in traditional “Things Gone Wrong,” the mechanical or physical issues such as engine problems that incur warranty cost.

All the evidence indicates that cars are generally getting safer all the time, and the OEMs, whether out of fear or diligence, are watching the finished product very closely — notwithstanding evidence to the contrary in GM’s current case.

The second question about the safety of suppliers arises out of the possibility that one can supply a component to the OEM’s specifications or acceptance level and still be adversely affected in some way later on.
GM is still investigating the events surrounding the installation and continued use of an ignition switch that allows the key to shift to the accessory position, but it is certain that the supplier, Delphi Corp., has been racing to investigate and prepare its own defense as well.

The degree to which a supplier must share in the cost of a warranty claim or recall depends on the language of its contract. GM sparked a brouhaha last year when it revised its standard terms and conditions to include provisions that, among other things, appeared to broaden supplier liability for warranty and safety-recall costs. It later backed off from this stand and eliminated the offending wording.

Sometimes contracts allocate recall or warranty costs above a certain incidence level as being the supplier’s responsibility. Other contracts might allocate the costs between the parties in an 80-20 split or something along those lines. Any specific situation is likely to involve a dispute between at least two levels of the supply chain — whether the OEM and the Tier 1 or the Tier 1 and Tier 2 supplier — to determine culpability and costs.

Analysis reported by the publication Warranty Week on automotive warranty claims shows that the OEMs have been able to shift more of the claim costs to suppliers in recent years (14-15 percent of total warranty claims paid versus 11-12 percent a decade ago).

The situation with Delphi as a supplier is complicated by the fact that, like GM, it went through a Chapter 11 bankruptcy proceeding that it will likely argue should shield it from prior liability obligations.

Years will pass before the end of this particular story, but in general, it appears that car buyers are safer and automotive component suppliers are less safe as a result of the rise in recall and warranty activity.

Read 2652 times Last modified on Friday, 25 April 2014 11:43

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