Auto Recalls on the Rise

In 2010, Toyota Motor Corporation was hit with the largest fine ever levied against an automaker for failing to inform the National Highway Traffic Safety Administration of sudden acceleration problems with some of its vehicles.  In January of that year, Toyota recalled 2.3 million vehicles in the U.S. , but the automaker had allegedly known about the safety defect since September 2009.  Federal law requires that automakers notify the NHTSA of safety issues within five days of their discovery.

The $16.4 million fine paid by Toyota sent a shockwave through the automotive industry, and now barely a week goes by without an automaker announcing a voluntary recall.

Last month alone, GM, Toyota, Mercedes-Benz, Land Rover, Honda, BMW, Ford, Nissan and Volvo announced voluntary safety recalls to address a wide range of concerns. Additionally, this month Chrysler Group LLC joined the list due to reports of malfunctioning airbags in some Jeep Grand Cherokee and Jeep Liberty models.

Toyota recently announced that it is recalling 2.7 million vehicles to address potential steering and water pump problems.  And that announcement came on the heels of a separate recall of 7.4 million vehicles Toyota made the previous month to repair faulty power window switches.

The steering and water pump recall could cost the automaker as much as a half-billion dollars, but Toyota’s reputation for safety and reliability is worth the cost. Deutsche Securities autos analyst Kurt Sanger says “They seem to continue to be obsessively monitoring these things and looking for potential problems before they arise. That’s a decent range of financial impact, we assume. There doesn’t seem to be much brand risk around this, given that there haven’t been injuries and excessive complaining leading up to the product action and recall.”

Although the rise in the number of recalls in recent years may create the perception that automakers are producing inferior products that present more danger to consumers, the opposite is, in fact, true. Of the 20.3 million vehicles recalled in 2010, 14.9 million were recalled voluntarily for defects that weren’t serious enough to warrant a mandatory NHTSA intervention.

Automakers have become more proactive about addressing potential safety issues and about protecting themselves from the financial costs and bad publicity caused by potential safety hazards, and that’s a good thing for consumers and for the auto industry as a whole.

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