How recalls can affect a company’s bottom line — and future sales
How recalls can affect a company’s bottom line — and future sales
Toyota recently recalled more than 280,000 SUVs and pickup trucks over a software issue that can cause “unexpected movement” when cars are in neutral. In the last month, other makes of Toyota, Honda and Ford vehicles have also been recalled for issues with airbags, seatbelt locking and rear axles. (It’s worth checking the National Highway Traffic Safety Administration database to see if your car’s one of them.)
Recalls are pretty common with cars. Just in 2022, there were nearly 1,000 different recalls of more than 30 million cars, according to the National Highway Traffic Safety Administration.
Recalls for minor issues are not likely to be a big deal for carmakers, according to Forrester’s Sucharita Kodali.
“Most companies have some type of recall insurance, and they have quite a bit of liability insurance,” she said. “So, usually it’s not that bad from a near-term standpoint, financially.”
But some recalls can have another kind of effect: “For the most part, it’s more of a brand hit, and a reputational hit,” Kodali said.
How much of a hit a brand takes depends on a few factors.
“All recalls are not created equal,” said Mark Schirmer at Cox Automotive.
Something that doesn’t affect safety is very different than a recall over a life-and-death problem.
“An example of that, you have to go back a number of years, when Ford had a major recall when it was an issue with tires. And that was millions of vehicles,” he said. “Those were headline news stories about wrecks and, you know, people getting hurt.”
Those flaws, and recalls, cost both Ford — and Firestone, which made the tires for the Explorer — hundreds of millions of dollars and damaged both companies’ reputations.
GM and Toyota also had recalls in the mid-2000s for deadly flaws, noted Arun Kumar at AlixPartners. GM’s recalls were over a faulty ignition switch; Toyota’s were over unintended acceleration.
“That had an impact on GM sales immediately and same thing with Toyota,” he said.
Serious safety recalls, he added, can have a multi-year impact.
“Because if that reputational risk is stuck in people’s minds, then they may altogether avoid that particular brand. And you might lose a generation of customers,” he said. “It all depends on how the manufacturer responds to those recalls.”
If a company can show it’s done everything it can to fix the problem, Kumar said that customers eventually tend to come back.
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