April 6, 2014—Automakers and their suppliers will need to consider new financial and risk assessment models in coming years to plan for an elevated number of vehicle recalls, according to the 2015 Automotive Warranty & Recall Report released by Stout Risius Ross Inc. (SRR), a global financial advisory firm.
The report, titled “Road Map for a New Era,” will be discussed Monday at an Automotive Symposium in New York City hosted by SRR, a national leader in auto industry warranty and recall analysis. The panel discussion at the New York International Arbitration Center will feature report authors managing director Neil Steinkamp and manager Jake Reed.
“After a watershed year for recalls in 2014, regulators and legislators will continue to focus on the auto industry in 2015 and beyond,” Steinkamp said. “GM’s decision last year to proactively accrue funds toward future recalls is a sign of things to come. As automakers and suppliers assess the potential costs of more frequent national and international recalls we may see more robust and explicit financial disclosures regarding recall costs and risks.”
The report serves as an integrated assessment of metrics behind recall risks, trends, and costs. It includes an examination of several trends that emerged during a record-breaking year of vehicle recalls and will continue to influence the auto industry for years to come, including:
- Elevated recall numbers, including proactive recalls by the automakers themselves;
- Higher recall completion rates and the challenges automakers face trying to reach owners of older vehicles;
- Component groups that are at highest risk for recalls, such as service brakes, steering and air bags; and
- How automakers and suppliers can assess the risk of recalls and plan for them financially.
The report combines qualitative and quantitative analysis by SRR, including sources such as National Highway Traffic Safety Administration (NHTSA) data for historical recalls dating to 1966, Early Warning Reporting data, 573 Letters and Quarterly Progress Reports from automakers.
“As completion rates increase, recall size increases and the number of recall campaigns remain elevated, the cost of recall campaigns will rise. When combined with greater supplier involvement in product design and engineering, and having greater disclosure in Section 573 letters, suppliers may be facing a greater degree of recall costs than ever before. This can be particularly concerning with respect to Tier 2, Tier 3 and other downstream suppliers that may not be able to bear this financial burden,” Steinkamp said. “The cost of a recall can be significantly more than the profits a supplier earns on the recalled component, especially in large recalls that could cost hundreds of millions of dollars."
