JUNE 2023: Should the current rate of recalls continue, there would be a 14% smaller drop across the industry … [+]
In early 2018, AlixPartners published a study showing that in 2017, costs exceeded $20 billion per year in North America alone. After that, only 2019 and 2020 saw an upward trend with 24% and 32% more recalls, respectively; Some are extremely expensive per vehicle (eg, Hyundai’s 2021 recall of 82,000 EVs cost a whopping $11,000 per vehicle, which is 22 times the average recall cost ($500) over the past decade). To put that likely $25 billion to $30 billion in perspective, the combined 12-month operating budget of Rivian, Lucid Motors, and Mullen Automotive is only $14 billion. That means three entire automotive companies could be run with only half the waste from recalls in North America alone.
Conversely, the first half of 2023 is a much improved story. Recalls are on track to drop 51% from the peak in 2020 (when there were a whopping 56,228,522 potentially affected vehicles) and down 14% compared to last year alone. Add to that the fact that over the past 55 years from January to June, 32% more recalls were announced than in the second half of the year, suggesting the industry is on track for 25% fewer recalls this year.
The next and obvious question is who were the leaders and laggards of the big brands and what is behind the success or successes of the leaders. The top three in percentage improvement were: Tesla (-81% potentially affected vehicles compared to 2022), Porsche Cars North America, Inc. (-80%) and Mercedes-Benz USA, LLC (-75%). On average, these reduced quality issues would translate into nearly $200 million in additional profit.
“Through continuous product monitoring, supported by advanced digitalization, we are able to detect the smallest deviations at a very early stage of the production process,” explains Jason Hoff, Head of Quality Management at Mercedes-Benz Cars and Vans after the significant improvement in the year 2023 in demand. “We recognize that each recall can often result in our customers having to make an unexpected visit to the service center.” We strive to avoid any such resulting inconvenience – but still consider it our duty to deliver on our brand promise consistently and resolutely to comply.”
FEBRUARY 2023: Despite the 362,758 vehicles in the US, Tesla is calling back because it is full … [+]
The three laggards are all from different continents: Honda (1109% increase in potentially affected vehicles compared to 2022), Navistar, Inc. (355% increase) and Jaguar Land Rover (JLR) North America, Inc. (239% increase). Sometimes such increases can be attributed in part to associated increases in sales volume (e.g., Tesla’s recalls are up over 1,700% since 2017, but sales are up almost 1,000), but that’s not necessarily the reason that several companies are in the red For example, Nissan North America saw a decline in sales (e.g. 25.4% fewer vehicles in 2022 than in 2021) but an increase in recalls (e.g. projected increase of 66% in the year 2023).
Overall, CEOs recognize the need to reduce such unproductive spending in an uncertain economy, and not just because it’s inversely proportional to CEO compensation. Speaking to investors in 2021, former Jaguar Land Rover CEO Thierry Bolloré acknowledged that “…our customer dissatisfaction was really detrimental to our natural volume…” [and] The missed opportunities are enormous. That’s more than 100,000 healthy sales that we’ve been able to make.” And then Land Rover landed last in JD Power’s 2022 Vehicle Reliability StudySM for the third consecutive year (with 244 problems per 100 vehicles) and Jaguar just a few spots higher. Surprisingly, Bolloré resigned in November after two years (due to personal reasons) and major financial losses, and his interim successor subsequently admitted the same losses actively reduced recall costs by £489m ($680m).
Author’s note
Let’s face it: product differentiation within the industry is minimal. Tesla has arguably and temporarily held the reins in premium pricing through design and technology, but both are short-lived as incumbents scramble to follow suit. Ultimately, the competitiveness of a manufacturer’s profit and loss account will be reflected doubly in the reliability of the vehicles: the customers actively strive for quality (also “accounts receivable” or “sales”) and the company bears the costs for rework (also “accounts payable”) called)? or costs).
But I’m probably preaching to the CEOs who kept their jobs.