With all the hype surrounding Toyota's (NYSE:TM) quality problems, you'd think a recall notice in your mailbox is the equivalent of a pink slip or IRS audit. Hardly. Toyota is certainly reeling from recalls of nearly 5 million U.S. cars, including top sellers like the Camry, Corolla, RAV4, and Prius. But recalls are a fact of life in the auto business, usually generating little news or heartache for car owners. With Toyota's woes mushrooming into a media and political feeding frenzy, here are some of the mounting misconceptions about recalls:
They're rare. On the contrary, millions of vehicles are recalled every year. So far this year, Toyota's recalls have obviously dominated the news, but they haven't been the only ones. Chrysler has recalled about 20,000 vehicles to fix a clip on the brakes. And Honda (NYSE:HMC) has had two major recalls. One is to fix a power window switch on 141,000 Fit subcompacts that could melt or catch fire if water leaks in. Another, affecting 129,000 Ridgeline pickup trucks, is to place a protective cover around the wires for an A/C blower motor, to prevent damage that can occur if a passenger kicks the motor. In December 2009 alone, there were at least eight separate recalls that each involved thousands of passenger cars.
They reflect an urgent safety problem. By their nature, recalls involve flaws that could affect safety, but most of the time, there's no immediate risk. Recalls often involve problems that are rare but could cause a serious problem if they occur. So the risk to any given driver is often remote, even though there may be a few high-profile incidents traced to the problem. That seems to be the case with Toyota's gas-pedal problems: The likelihood of sudden acceleration is extremely low, but with more than 4 million vehicles potentially affected, even a tiny rate of occurrence would make it a big problem. Even Transportation Secretary Ray LaHood is confused about how pressing the danger is. He said recently that anybody with a recalled model should stop driving it—then he corrected himself to say owners should simply bring their cars to a dealer to get them fixed, whenever possible.
They're handled by the government. Regulators certainly have a role, but the majority of recalls are carried out by manufacturers without government involvement. Automakers sometimes resist a full-blown recall, since it means they have to foot the bill for every repair. And occasionally, they'll argue that a problem affects convenience or reliability but not safety and therefore doesn't require a recall. If regulators at the Department of Transportation disagree, they can persuade an automaker to order a recall or order one themselves. The Toyota recalls are "voluntary," which means they were issued by the automaker—but LaHood has said that the government forced Toyota to take the drastic action.
Automakers usually know in advance about problems that lead to recalls. Sometimes they do, but many problems are discovered only after years of use under real-world conditions. The notorious August 2000 recall of 14.4 million Firestone tires used on Ford (NYSE:F) Explorers, for example, occurred after 4,300 complaints about tread separation piled up for nine years and Ford and Firestone fought a bitter duel over which of them was at fault. Even government investigators had a hard time figuring out if certain Explorer crashes were due to faulty tires, the vehicle's high center of gravity, or other factors. It's also worth noting that a huge controversy in the 1980s over sudden acceleration in the Audi 5000 was ultimately attributed to driver error, with a simple fix being to space the gas and brake pedals a bit farther apart. But Audi sales plunged nonetheless, partly because the company was perceived as arrogant.
Recalls are ruinous. Usually not. For owners, it typically means a trip to the dealer and a free repair. Big recalls can cost automakers a lot of money—which is one of the strongest incentives for them to avoid problems in the first place. But most recalls amount to the cost of doing business, and automakers tend to bounce back from safety controversies. The faulty Firestone tires on Ford Explorers, for example, were linked to 148 deaths and 500 injuries, causing both companies deep financial and reputational damage. But the Explorer remained popular, and Firestone continued to sell tires. Ford is still dealing with another huge recall—involving faulty cruise control switches on 9 million vehicles—yet that hasn't pre-empted a recent surge in Ford's reputation or the popularity of its vehicles.
They indicate poor quality. Excessive recalls might, but virtually every manufacturer has to occasionally fix problems that slip through the manufacturing process. Automobiles are complicated machines with dozens of computers and thousands of moving parts, subject to bad roads, extreme temperatures, lousy drivers, and outright abuse. An automaker that never issued recalls, in fact, might be hiding problems instead of fixing them. Toyota's challenge now is to convince customers that it's committed to making them whole and permanently solving problems, not just dodging blame, evading lawsuits, or taking the cheap way out. Others have done it.
Disclosure: no positions