By Dennis DesRosiers
In the past few weeks public outrage has been growing over major recalls at Toyota, followed by recalls last week by General Motors and Nissan. When will this stop? The short answer is that it won't. What the public needs to understand is that vehicles have become so complex that it's inevitable that every original equipment manufacturer (OEM) will eventually be hit with a serious recall.
As regulators push the envelope on a myriad of social-policy agenda items like safety, the environment and fuel efficiency, while consumers continue to demand better and better performance, these companies will have no choice but to make their vehicles even more sophisticated. This is a recipe for more huge recall situations, and no auto maker will be immune.
While the recalls won't stop, maybe our perspectives will have to change. In fact, it's already past time to put the brakes on the recall madness and the current media frenzy. To that end, I offer DesRosiers' 12-point All-Season Brake-the-Recall Madness Check List.
- The U.S. is a legal-driven society and the lawyers see very deep pockets in these OEMs. In the case of Toyota there are over 40 class-action lawsuits and dozens of individual lawsuits. And almost all of the talking heads in the media who are blasting Toyota have been lawyers involved in litigation. Since Toyota still has billions in the bank these lawyers are extremely motivated - and they themselves have deep pockets to keep this going a very long time.
Closely related to this are some misperceptions about the impact of recalls. One is that a recall lowers the resale value of the affected products. I've been involved in legal cases as an expert witness and have found the opposite is true. I won't get into why, but in the cases I've studied the resale value of recalled vehicles goes up, not down. However, the public and trial lawyers believe the opposite.
- Government in the United States is badly broken. This is problematic because politicians are elected to do something. Since they are in a partisan stalemate on most issues they need to send a message back home that they are working hard for their elected base. Why not beat up on an OEM?
With Toyota, all the right buttons are there ... safety, Japanese, the appearance of backroom deals, etc. So hold public hearings to spread the perception that the legislators are protecting the consumer. The Republicans also want to show that the National Highway Traffic Safety Administration failed, hoping to pin this on Barack Obama although the NHTSA has been malfunctioning for decades
- All of society is entangled in a growing net of government regulations. Regulations are extremely expensive for the automotive sector so all vehicle companies get into a cat-and-mouse game - hiring brigades of lobbyists, finding and exploiting cracks in the system, etc. Of course every automaker works the system, because the system imposes huge costs. But when a problem occurs, the target is the automaker - not the system itself.
- Most don't realize it but there are literally thousands of complaints filed with regulators each year on issues involving vehicles. The vast percentage turn out to be not repeatable, leaving open the question whether there was a problem with the car or the driver. Many motorists just can't admit or plain don't know that they were at fault. Pedal misapplication - frantically pressing the accelerator pedal, thinking it's the brake - is a recurring issue on most brands. I would add that poor emergency response by motorists is an even bigger problem. But elections aren't won by telling voters that they are bad drivers.
- Consumers will not compromise on their desire to own the vehicles of their dreams - and at an ever lower cost. Toyota is the low-cost producer but a critical part of this success lay in moving to common components across its product range. Commonality of components means that when trouble occurs it affects millions of vehicles across many platforms. Thus the size of the current recalls.
- The consumer who owns a vehicle that has been recalled sees this as an opportunity to right all wrongs. No vehicle is bulletproof. Virtually all OEMs are guilty of over-promising and under-delivering and when consumers realize this many of them seek revenge. So when there is a recall they pounce.
- The American economy is still in a shambles, with very high unemployment. In this type of economy, the natural tendency is to go protectionist. Blame someone else, close the borders, look inwards. Toyota in particular is caught in this isolationist sentiment.
- The Number One player is always a target. For generations it was General Motors ... today it is Toyota, joining McDonald's, Wal-Mart and the New York Yankees among highly successful enterprises that many Americans love to hate. Toyota executives made some mistakes here as well. They steadfastly denied trying to be the biggest, when in fact everything they did was to become Number One. Including, it appears, getting away from their core manufacturing philosophy.
- Toyota and other offshore OEMs have caused a lot of pain in North America, where 1.3 million unionized auto manufacturing workers and about a million employees at car dealers have lost their livelihoods as overseas automakers beat up on the Detroit Three. So there is a lot of pent-up hate toward foreign nameplates.
- Don't forget the unions. They have huge equity positions in GM and Chrysler, and all of Ford is unionized. These companies could benefit from Toyota's woes. Unions are likely rabble-rousing behind the scenes on Toyota and any other import-nameplate issue.
- People die in vehicle crashes. Nothing is more stark than this. The vast majority of road deaths are caused by driver error, but that point is lost in the media. It's human nature to want to blame the machine. Death is dramatic and the media always seem to spotlight the one out of a thousand situations where the problem was definitely with the vehicle.
- Finally, the United States government is a partial owner of two of Toyota's biggest competitors, GM and Chrysler, so the politicians have skin in the game and are inherently biased. No one wants to touch this issue but it is the absolute most frequent question I've been getting. Everyone who talks to me believes this feeding frenzy is politically motivated, and it is hard to argue against this suspicion. Toyota executives have not used this as an excuse and indeed have publicly said they do not believe this is the case. But it will be interesting to see if there are hearings in Washington on the current GM recall.
All of this is not meant to let any OEM off the hook when it comes to vehicle safety, or attempt to be an apologist for the industry. There is blame to be distributed and indeed any OEM that launches a formal recall is in essence accepting blame. However, the most important issue in any recall is how it is handled with the customer base, and all the OEMs have demonstrated over the years that they take these problems very seriously.
Some have been accused of taking too much time to resolve specific situations, but none of us know exactly what is involved in identifying a recall issue and then fixing it. There is a lot of "hair" around this whole matter of recalls, and understanding some of this might help paint the picture a little differently than some might suspect.
Financial Post Dennis DesRosiers is the president and founder, in 1985, of DesRosiers Automotive Consultants, Canada's leading auto market research firm.