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Recalls May Hurt GM's Reputation, But Drivers Still Buy The Cars

New car buyers seem to be ignoring General Motors’ recall woes. But industry analysts question just how much of a hit the Detroit maker can take.
Despite General Motors' spate of recalls, its Chevrolet Corvette was voted North American Car of the Year.
The 2015 Corvette Z06 at the New York International Auto Show in April. Despite General Motors' spate of recalls, the Corvette was voted North American Car of the Year.JASON SZENES / EPA
/ Source: The Detroit Bureau

It’s already run up a record number of recalls, paid an all-time-high fine and faces possible criminal charges and even bigger penalties from the U.S. Justice Department. And that doesn’t even take into account the legal claims that could push to $10 billion or more.

Surprisingly, new car buyers seem to be ignoring General Motors’ recall woes. But as the maker’s problems mount, industry analysts question just how much of a hit the Detroit maker can take.

“These are unprecedented times,” says Mike Rozembajgier, a vice president of Stericycle, a firm specializing in working with manufacturers on recall-related issues.

With four new callbacks this week and four more just days earlier, GM has so far recalled 13.8 million vehicles in the U.S., by its own count, more than during any other time during its more than 100-year history. And it’s not even June.

During a meeting with senior GM officials last week, analysts from Barclays were advised that the fast pace of safety-related actions could continue through at least mid-summer. And along with more near-term recalls, GM is taking steps at a senior management level that could lead to longer-term changes in its safety operations.

But the troubled giant isn’t alone. On Thursday, Toyota announced three service actions of its own for problems ranging from excess corrosion to faulty brakes and software glitches that could cause airbags in its new Highlander SUV to fail during a crash. Toyota is, in fact, second only to GM in terms of the number of vehicles it has recalled so far this year – and it led the industry during five of the last six years.

But with more than 23 million vehicles now targeted for repairs due to safety-related problems, the industry, as a whole, has seen its reputation tarnished after years of reported improvements in quality and reliability. The odds are that the industry will blow right through the previous record -- 30 million vehicles recalled -- set a decade ago, perhaps by mid-year if the current pace continues.

Clarence Ditlow, the outspoken consumer advocate, and director of the Washington-based Center for Auto Safety, says the sudden burst of activity is an obvious reaction to the events of recent years that have made consumers, regulators and lawmakers less willing to overlook safety problems. Federal safety guidelines have been significantly tightened since the Ford Explorer/Firestone fiasco of a decade back. And the industry faced even tougher scrutiny following Toyota’s unintended acceleration scandal in 2009 and 2010.

The Japanese maker was forced to pay a $1.2 billion fine earlier this year and accept three years of probation as a result of delaying its response to safety problems. But it also shelled out billions more in legal fees and verdicts. General Motors is expected to face a similar financial burden after revealing it faces 79 separate claims -- for a total of $10 billion – just for economic losses filed by those who feel the ongoing ignition switch recall has reduced the value of their GM vehicles.

Surprisingly, a study by ALG, the former Automotive Leasing Guide and an arbiter of residual values, predicted that most owners will lose little, if anything, due to the maker’s recall woes. And while there is little doubt that GM’s image has been damaged, April sales numbers and preliminary May forecasts suggest buyers are still visiting the maker’s showrooms.

Why hasn’t it been hurt worse? It helps that a number of GM products have been getting rave reviews, the Chevrolet Corvette and Chevy Silverado being named North American Car and Truck of the Year in January, and the influential Consumer Reports declaring the big Chevrolet Impala the best mainstream sedan it ever tested.

Then, says Rozembajgier, there’s the issue of “consumer fatigue.” The reality is that “across all industries,” including autos, food, consumer products and pharmaceutical, among others, he notes “there are anywhere from five to 10 recalls being launched every day.” They may make headlines, but then they tend to be forgotten.

Unfortunately, that shows in data the National Highway Traffic Safety Administration has released, showing that 30 percent of vehicle owners never get around to fixing a recalled vehicle. The vehicle data tracking service CarFacx estimated that 3.5 million vehicles were sold last year on the used market with safety problems that weren’t repaired, adding that with the average vehicle now on the road for more than 11 years, there are about 36 million that have an unresolved recall problem.

Recent studies, such as the J.D. Power Initial Quality Survey, have shown a steady improvement in vehicle quality, so why are there more recalls now? Industry-watchers point to several possible factors. For one thing, there’s the increased scrutiny the industry faces. But the bigger problem, contends Rozembajgier, is that today’s cars are just more complicated.

“Every new car has more gadgets and more functionality, and each layer added adds another level of complexity,” he contends, adding that we’re only likely to see even more recalls in the future.

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