33:3 - McDonald, Recall the Recall
The system governing automotive recalls in the United States has
run amok. If “secret” recalls were part of the concern expressed in 1966 when Congress created what would later become the National Highway Traffic Safety Administration (NHTSA) to oversee the auto industry, by 2006 the pendulum has swung the other direction to over-recalling. The legal standard requiring automakers and others to conduct a recall in cases where a defect presents an unreasonable risk to motor vehicle safety is now essentially meaningless because the agency, backed by the courts, has stripped out the unreasonable element.
As a result, now, automakers routinely have more annual recalls than annual sales. In 2004, for example, automakers conducted nearly 600 recalls covering more than 30 million vehicles, an increase of 57% from 2003. Compared to the 17 million vehicles sold, that equates to nearly 1.75 recalled vehicles for every new vehicle sold. Fourteen percent of all vehicles on the road have been recalled at least once to correct a safety-related defect or failure to comply with an applicable safety standard. Another compelling fact is, not even 25% of those vehicles are brought in by owners for repair. Thus, over 750,000 vehicles that should have been repaired in 2004 are still on the roads – with an unfixed safety defect.
Lest one think that 2004 was an anomaly, the overall recall trend in the industry is increasing. In 1967, the first full year the government began tracking safety recalls, manufacturers conducted a total of fifty-seven recalls. By 2000, the number of safety recalls had increased to 663. The number of potentially affected vehicles has also increased. Leaving out 2004, between 1998 and 2005, recalls averaged more than 18 million vehicles per year, far more than the average new sales during that timeframe.
The volume of recalls is not improving motor vehicle safety. In fact, when one considers the risks of crash posed by otherwise unnecessary trips to car dealerships to repair ‘safety defects,’ NHTSA’s recall program is probably exposing motorists to more hazards than it is correcting. The problematic effect of recalls on vehicle safety is highlighted by NHTSA’s consistent refusal to study the issue. Thirty years ago NHTSA’s own Advisory council concluded that: “The question naturally arises – do the safety benefits of the [recall] program justify its cost? Curiously, no one knows. Indeed, the scarcity of hard facts and the abundance of unknown factors make any definitive evaluation of the defect-recall program very difficult.” Driven by dogma, NHTSA has nonetheless charged forward each year with its recall program. Driven by fear, reluctant auto companies have continually acquiesced. And so the viscous circle is complete: vehicles must constantly be recalled to fix the most inane ‘safety risks,’ such as a recent General Motors recall, strong-armed by NHTSA, of model year 1996-99 Chevrolet and GMC vans to ‘“fix”’ the audible seat belt warning signal, which failed by a fraction to chime for the mandated 4-8 seconds when the seat belt wasn’t properly buckled.
Although the benefits of NHTSA’s recall program remain elusive, its costs are not. NHTSA estimates (rather conservatively) that safety recalls cost automakers about $100 per vehicle per recall. Not including the indirect costs caused by recalls (e.g., brand damage), that would mean that automakers spent around $3 billion in 2004 to fix safety defects. That number does not take into account the numerous other field actions manufacturers undertake to correct ‘non-safety’ defects, such as emissions-related recalls, non-safety or non-emissions service actions, customer satisfaction campaigns, or extended warranties.
If one considers total warranty costs that fund all these actions, automakers spend nearly $12 billion a year in the United States to fix vehicles, which can cut between 1 to 3% off revenues. Broken down by company, General Motors Corp.’s warranty costs worldwide are about 3.2% of automotive sales as of March 31, 2005; Ford’s are about 2.5%; DaimlerChrysler’s are about 5.2%; and Toyota’s are about 1.2%. Aside from automakers, consumers are the main losers here, because automakers must divert resources away from developing better and safer vehicles that can prevent crashes from occurring at all.
In his 1965 bestseller, Unsafe at Any Speed, Ralph Nader
wrote: “The regulation of the automobile must go through three stages – the stage of public awareness and demand for action, the stage of legislation, and the stage of continuing administration.” Forty years later, the regulation of the automobile has traveled many times through each of these three stages.
My thesis is straightforward: the system governing automotive recalls is stuck in park and must be changed. The current system leads to the paradox of too many vehicle recalls with not enough owner participation. It is a failure on at least five levels.
First, automakers themselves bear part of the blame because they over-recall. Instead of protecting their shareholders’ property interest, employees’ reputations, brand image, and vehicles’ integrity, automakers have acquiesced. Sure, they may have been brow-beaten into submission by trial lawyers, the self-appointed “consumer” lobby (funded by trial lawyers), government officials, and sensation-seeking journalists into appeasing bureaucrats, even when no objective safety defect exists, but it is time automakers defend themselves in a meaningful manner.
Second, NHTSA’s hands-off approach to protecting its jurisdiction as the sole authority for overseeing recalls has actually encouraged trial lawyers to ask judges and juries to order recalls themselves, thereby creating the potential for a Balkanized recall system. Unfortunately, some myopic judges have failed to properly or sensibly interpret the statute governing recalls (the National Traffic & Motor Vehicle Safety Vehicle Act (“Safety Act”)) and are happy to oblige such requests. The judiciary should, however, apply the doctrine of preemption to matters involving automotive recalls to ensure that NHTSA continues as the sole authority empowered to investigate defects and oversee automotive recalls.
Third, NHTSA continues to insist on outdated recall letters. Any recipient of a formal “RECALL LETTER” will tell you that the letter is riddled with incomprehensible legal jargon. Far from just esoteric nit-picking, the content of this letter, together with the flood of recalls, can be causally linked to a low owner response rate.
Fourth, the legislatures have imposed no responsibility on owners to ensure that their vehicles are repaired. As a result, assuming that all affected vehicles pose a safety hazard, not only are those vehicles at risk, but the entire public is put at risk. Legislative changes could include requiring annual registrations of vehicles and denials to those who haven’t tendered their vehicle for repair as well as sharing recall data with insurance companies so increased premiums can be charged to those who don’t have their vehicles repaired. If recalls are to be taken seriously and should be effective, then the burden cannot be placed solely on the manufacturers. Other changes could include criminal or civil penalties to those drivers involved in a crash where the underlying causal factors are attributed to a failure to tender the vehicle for recall repair.
Fifth, large-scale changes to the Safety Act include reducing the burdens of TREAD and tackling the controversial issue of cost-benefit of recalls. NHTSA also needs to prioritize hazard levels and investigate only those defects that legitimately constitute “unreasonable” risks.
run amok. If “secret” recalls were part of the concern expressed in 1966 when Congress created what would later become the National Highway Traffic Safety Administration (NHTSA) to oversee the auto industry, by 2006 the pendulum has swung the other direction to over-recalling. The legal standard requiring automakers and others to conduct a recall in cases where a defect presents an unreasonable risk to motor vehicle safety is now essentially meaningless because the agency, backed by the courts, has stripped out the unreasonable element.As a result, now, automakers routinely have more annual recalls than annual sales. In 2004, for example, automakers conducted nearly 600 recalls covering more than 30 million vehicles, an increase of 57% from 2003. Compared to the 17 million vehicles sold, that equates to nearly 1.75 recalled vehicles for every new vehicle sold. Fourteen percent of all vehicles on the road have been recalled at least once to correct a safety-related defect or failure to comply with an applicable safety standard. Another compelling fact is, not even 25% of those vehicles are brought in by owners for repair. Thus, over 750,000 vehicles that should have been repaired in 2004 are still on the roads – with an unfixed safety defect.
Lest one think that 2004 was an anomaly, the overall recall trend in the industry is increasing. In 1967, the first full year the government began tracking safety recalls, manufacturers conducted a total of fifty-seven recalls. By 2000, the number of safety recalls had increased to 663. The number of potentially affected vehicles has also increased. Leaving out 2004, between 1998 and 2005, recalls averaged more than 18 million vehicles per year, far more than the average new sales during that timeframe.
The volume of recalls is not improving motor vehicle safety. In fact, when one considers the risks of crash posed by otherwise unnecessary trips to car dealerships to repair ‘safety defects,’ NHTSA’s recall program is probably exposing motorists to more hazards than it is correcting. The problematic effect of recalls on vehicle safety is highlighted by NHTSA’s consistent refusal to study the issue. Thirty years ago NHTSA’s own Advisory council concluded that: “The question naturally arises – do the safety benefits of the [recall] program justify its cost? Curiously, no one knows. Indeed, the scarcity of hard facts and the abundance of unknown factors make any definitive evaluation of the defect-recall program very difficult.” Driven by dogma, NHTSA has nonetheless charged forward each year with its recall program. Driven by fear, reluctant auto companies have continually acquiesced. And so the viscous circle is complete: vehicles must constantly be recalled to fix the most inane ‘safety risks,’ such as a recent General Motors recall, strong-armed by NHTSA, of model year 1996-99 Chevrolet and GMC vans to ‘“fix”’ the audible seat belt warning signal, which failed by a fraction to chime for the mandated 4-8 seconds when the seat belt wasn’t properly buckled.
Although the benefits of NHTSA’s recall program remain elusive, its costs are not. NHTSA estimates (rather conservatively) that safety recalls cost automakers about $100 per vehicle per recall. Not including the indirect costs caused by recalls (e.g., brand damage), that would mean that automakers spent around $3 billion in 2004 to fix safety defects. That number does not take into account the numerous other field actions manufacturers undertake to correct ‘non-safety’ defects, such as emissions-related recalls, non-safety or non-emissions service actions, customer satisfaction campaigns, or extended warranties.
If one considers total warranty costs that fund all these actions, automakers spend nearly $12 billion a year in the United States to fix vehicles, which can cut between 1 to 3% off revenues. Broken down by company, General Motors Corp.’s warranty costs worldwide are about 3.2% of automotive sales as of March 31, 2005; Ford’s are about 2.5%; DaimlerChrysler’s are about 5.2%; and Toyota’s are about 1.2%. Aside from automakers, consumers are the main losers here, because automakers must divert resources away from developing better and safer vehicles that can prevent crashes from occurring at all.
In his 1965 bestseller, Unsafe at Any Speed, Ralph Nader
wrote: “The regulation of the automobile must go through three stages – the stage of public awareness and demand for action, the stage of legislation, and the stage of continuing administration.” Forty years later, the regulation of the automobile has traveled many times through each of these three stages.My thesis is straightforward: the system governing automotive recalls is stuck in park and must be changed. The current system leads to the paradox of too many vehicle recalls with not enough owner participation. It is a failure on at least five levels.
First, automakers themselves bear part of the blame because they over-recall. Instead of protecting their shareholders’ property interest, employees’ reputations, brand image, and vehicles’ integrity, automakers have acquiesced. Sure, they may have been brow-beaten into submission by trial lawyers, the self-appointed “consumer” lobby (funded by trial lawyers), government officials, and sensation-seeking journalists into appeasing bureaucrats, even when no objective safety defect exists, but it is time automakers defend themselves in a meaningful manner.
Second, NHTSA’s hands-off approach to protecting its jurisdiction as the sole authority for overseeing recalls has actually encouraged trial lawyers to ask judges and juries to order recalls themselves, thereby creating the potential for a Balkanized recall system. Unfortunately, some myopic judges have failed to properly or sensibly interpret the statute governing recalls (the National Traffic & Motor Vehicle Safety Vehicle Act (“Safety Act”)) and are happy to oblige such requests. The judiciary should, however, apply the doctrine of preemption to matters involving automotive recalls to ensure that NHTSA continues as the sole authority empowered to investigate defects and oversee automotive recalls.
Third, NHTSA continues to insist on outdated recall letters. Any recipient of a formal “RECALL LETTER” will tell you that the letter is riddled with incomprehensible legal jargon. Far from just esoteric nit-picking, the content of this letter, together with the flood of recalls, can be causally linked to a low owner response rate.
Fourth, the legislatures have imposed no responsibility on owners to ensure that their vehicles are repaired. As a result, assuming that all affected vehicles pose a safety hazard, not only are those vehicles at risk, but the entire public is put at risk. Legislative changes could include requiring annual registrations of vehicles and denials to those who haven’t tendered their vehicle for repair as well as sharing recall data with insurance companies so increased premiums can be charged to those who don’t have their vehicles repaired. If recalls are to be taken seriously and should be effective, then the burden cannot be placed solely on the manufacturers. Other changes could include criminal or civil penalties to those drivers involved in a crash where the underlying causal factors are attributed to a failure to tender the vehicle for recall repair.
Fifth, large-scale changes to the Safety Act include reducing the burdens of TREAD and tackling the controversial issue of cost-benefit of recalls. NHTSA also needs to prioritize hazard levels and investigate only those defects that legitimately constitute “unreasonable” risks.
No comments:
Post a Comment