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The automotive industry has been up against challenging episodes in the outgoing year of 2014, and not only with vulnerable sales and production woes. What has tainted its rosy prospects is the number of recalls, which bear unwanted consequences for manufacturers, says Angelica Buan in this report.
Like a phoenix rising from the ashes, the automotive sector is on its way to recovery from the wide-scale financial crisis that razed it nearly to immobility, as several industry studies predicted.
The Boston Consulting Group (BCG) says in its latest report that the sector’s rebound is seen benefitting the OEMs and component makers. Putting a figure to the forecast, another consultant Ernst & Young says that global car sales are set to increase to 116 million units in 2020 from 81 million in 2012.
Amidst the optimism, and ruling out certain common variables such as poor road infrastructure and government regulations that inhibit the sector’s revenue growth, one issue that has inadvertently burst the sector’s optimistic bubble is the number of safety recalls in the recent years, peaking at record high this year.
Safety on the roads
Globally, road safety is a major concern, so much so that 2010-2020 has been declared as the Decade of Action for Road Safety.
The World Health Organisation (WHO) in its 2013 report covering road safety in 182 countries (or 99% of the world’s population) finds that about 1.24 million road traffic deaths occur a year. It said that road traffic injuries are the eighth leading cause of death globally.
Thus, agencies like the National Highway Traffic Safety Administration (NHTSA) a known vehicle safety watchdog in the US, ensures that manufacturers adhere to safety issues like recalling vehicles with safety defects or which fail to meet federal safety standards.
According to NHTSA, recalls are not unusual. It says that since 1966, more than 390 million vehicles, 46 million tyres, 66 million pieces of motor vehicle equipment, and 42 million child safety seats have been recalled by manufacturers.
Another country that sets high standards is Australia. It has a safety rating (on a scale of 1-5 stars) programme through its multi-agency supported Australasian New Car Assessment Programme (ANCAP). Vehicles that demonstrate structural integrity and best safety systems merit high ratings in ANCAP’s crash tests.
Tyres and parts attribute to recalls
Vehicles are complex structures that are made up of different parts. Many automotive parts are made from natural or synthetic rubber materials, being non-conductive to heat as well as resistant to corrosion and most chemicals used in the car, thus adding to the safety of cars. However, these polymers are also prone to wear and tear, especially if exposed to extreme temperatures, as they are not infallible to defects.
Rubber tyres, hoses (air and radiator hoses), gaskets, electrical wiring covers, and shields for electrical parts and spark plugs are all critical components of vehicles, and if damaged or defective may cause injurious or fatal road mishaps.
In a recent tyre recall in September, NHTSA listed Wild Country Radial XTX Sport tyres made by Cooper Tire and Rubber Company being recalled by Florida-headquartered tyre supplier TBC Corporation (TBC). The reason for the recall was that the affected tyres could experience cracking or broken ply cords in the lower sidewall on the white sidewall side, which could lead to a sudden loss of air pressure and increase the risk of tyre failure and a crash.
Likewise, in May, losing the spare tyre was the reason for a recall by Japanese automotive maker Toyota. The firm, which recalled 450,000 vehicles sold in states that use road salt to melt snow and ice, said that the road salt can corrode the cable which holds the spare tyre carrier and let the tyre roll off.
Recently, Swedish car maker Koenigsegg Automotive recalled one unit of its 2013 Agera sold in the US, also due to a tyre problem. According to NHTSA, the car’s tyre pressure monitoring system may not illuminate the malfunction indicator light when the vehicle is restarted, and may not alert the driver that there is a problem with the tyre.
Early this year, South Korea’s Kia Motors recalled its 2014 Kia Sportage vehicles over issues on tyres, rims and equipment that likely affected some 11,961 units. The vehicles, which were manufactured from September 2013 to January this year, did not conform to the Federal Motor Vehicle Safety Standard (FMVSS) 110. The affected vehicles bore certification labels with incorrect tyre pressure information printed on the labels, listing a specification that is 1 or 2 psi below the correct information. Maintaining tyre pressure below the recommended specification could result in premature tyre wear, increasing the risk of a crash.
In the US, Honda Motor also recalled 9,817 2014 Honda Civic LX cars due to possible tyre damage, which could cause the tyre to lose air, increasing the risk of a crash.
Meanwhile, Toyota recently in October recalled 1.75 million cars over faulty brake installations and fuel components. The Japanese car maker said that approximately 802,000 vehicles globally had a faulty brake system, which could crack and result in leaks of the brake fluid.
Thus, Toyota will replace a rubber seal ring in the brake master cylinder to prevent the brake fluid from leaking. If brake fluid has already leaked, the brake booster will be replaced. Another set of recalls affecting 759,000 vehicles globally was due to a faulty fuel delivery pipe system, which could result in a leak and increase the risk of the vehicle catching fire.
Gasket leak was also the grounds for recalling the 2011 Cadillac AWD CTS in June this year, affecting 18,279 units. The leak could cause the rear propeller shaft to separate or become loose, making contact with the vehicle floor above and causing the rollover sensor to deploy the roof rail air bags, according to its manufacturer General Motors (GM).
South Korean automotive maker Hyundai also recalled some 419,000 vehicles in August this year due to malfunctions of the brakes, electrical and suspension parts.
Safety check on Asian cars
Most of the reports of recalls of vehicles are from developed countries and not much has been heard of in Asia. Nevertheless, findings on Asian road safety do not suggest that vehicles in the region are on safe ground.
Although safety is a concern in the region, regulations to ensure it are still weak and not implemented.
Based on the 2013 road safety report by the WHO, countries in Southeast Asia are without comprehensive laws in the five key risk factors for road traffic injury namely, speeding, drunk-driving, use of head gears, seat belts, and child restraints –the latter two issues also counted among the grounds for recalls, as assessed by NHTSA.
Globally, WHO said that only 28 countries, representing 449 million people or 7% of the world’s population, have adequate laws that address all these five risk factors.
However, the New Car Assessment Programme for Southeast Asia (ASEAN NCAP) has been established to “ elevate vehicle safety standards, raise consumer awareness and thus encourage a market for safer vehicles in the region”. It has provided safety nets for consumers of regionally-produced and available cars. The programme is able to assess the safety of various vehicles, including Malaysia-made Proton and Perodua cars well as Honda, Ford, Tata, and Kia, to name a few.
ASEAN NCAP, which is a part of the UK-based initiative, Global NCAP of the UN Road Safety Collaboration, will see that cars that are allowed to enter the market are not only roadworthy but also crashworthy, or how a car performs in the event of a road crash to protect the occupants.
As for crashworthiness, Tata’s Nano car, India’s low cost counterpart to Volkswagen’s Beetle that was launched in 2009, has failed to merit the Global NCAP rating for adult protection rating, and reportedly fell short of meeting the most basic UN safety requirements.
Along with the Nano, other cars tested for safety by Global NCAP were Suzuki-Maruti Alto 800, Ford Figo, Hyundai i10 and Volkswagen Polo, all of which were not fitted with airbags.
Early last year, China, the world’s largest car market, also implemented a new automotive recall law, which it approved in late 2012, and that supersedes the Provision on Defective Automotive Products Recall Administration of 2004.
The law will ensure strict compliance from both domestic manufacturers, including joint ventures with foreign car manufacturers, foreign car importers
and dealers within China. Automotive recalls will be deemed as a matter of protection of public interest and follow stricter penalties. A three-tier system of penalties could include fines of up to US$1.6 million for a global automotive brand.
Cost of recalls
Recalls of vehicles have consequences to manufacturers, costs being the most obvious. Car makers who pull out units from distributors or recall vehicles that have already been sold are burdened with the repair, legal, and image costs – the latter having an impact on the maker’s brand.
GM has been embroiled in a recall fracas: firstly with safety issues in its cars, and secondly for delaying the recall of its cars previously reported with defective ignition switches that was responsible for some 21 fatality claims. The firm reportedly recalled more than 29.1 million vehicles in August and had US$2.5 billion worth of recall-related repairs in the first half of the year.
Toyota, which also leads in the volume of recalls (an estimated 5.3 million in 2012 and 2013), paid US$1.2 billion in March this year relating to criminal charges over issues on accelerator pedals and floor mats, which led to sudden acceleration and crashes. The following month, the firm instituted another batch of recalls, affecting 6.36 million vehicles globally.
However, motorists will contend that the financial losses the automotive makers incur will be negligible compared to the lives that will be saved, especially if recalling faulty vehicles means ensuring road and driving safety.
Not a dead end
Concern over compliance to safety regulation has become a Damocles sword for manufacturers as well as consumers. Nonetheless, the number of recalls does not necessarily affect how the automotive sector progresses.
Citing latest indicators for growth, IHS Automotive says in its report that the global automotive market will continue to propel; and global annual production will continue to increase by 21 million units by 2021.
For Autofacts, the analyst group of PricewaterhouseCoopers (PWC), it projects a continued sales and production growth, despite the increasing incidences of vehicle recalls, which it anticipated to surpass the 100 million-unit mark by the year end.
This growth will be driven by the EU and the North American markets, along with the ongoing expansion in Asia, it said, adding that a 2.2 million-unit increase in passenger car production is on cue in Southeast Asia by 2020.