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Ahead of the Curve Auto Supplier Blog

July 01, 2013

In the Wake of the Jeep Recall, Who's Next?

Chrysler recently made headline news by announcing that it had reached an agreement with the National Highway Transportation Safety Administration (NHTSA) to institute a voluntary campaign to inspect and service 1.56 million 1993-1998 Jeep Grand Cherokee and 2002-2007 Jeep Liberty vehicles in response to gas-tank fires in rear-end collisions. The popular press reported this announcement as a dramatic about-face from Chrysler’s decision, only two weeks earlier, to reject NHTSA’s request for Chrysler to conduct a recall of 2.7 million vehicles based on NHTSA’s assessment, after a three-year investigation, that the vehicles contained defects causing an increased risk of fires. Far from simply rolling over, Chrysler was able not only to reduce the number of implicated vehicles by 1.1 million but also, among other things, to limit the cost of the remedy to an inspection and installation of a trailer hitch for those without one. Chrysler was also able to prevent further investigation by NHTSA, including the prospect of a public hearing, potential fines and the creation of a treasure trove of potential evidence to be used by plaintiffs against Chrysler in civil litigation. Of course, Chrysler still faces potential liability from wrongful-death and personal-injury lawsuits, but those plaintiffs will not have the added advantage of an official finding of defects by a government agency. One aspect that may have escaped notice so far is the potential for litigation by Chrysler against suppliers of component parts and assemblies for recovery of Chrysler’s expenses in responding to NHTSA, conducting an internal investigation and conducting the campaign. It is common for OEM’s and higher-tier suppliers’ terms and conditions to include robust provisions trying to pass through broad liability for recovery of recall expenses. You can expect that Chrysler’s suppliers and their lawyers are reviewing the terms and conditions to assess their exposure. And all automotive suppliers can take this opportunity to similarly review their T&Cs and contracting procedures to make sure they are adequately protected when the OEM decides to conduct a recall.

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