Despite the fact that vehicles are safer and more reliable than ever, over 60 million were recalled as part of more than 500 separate and distinct recalls in 2014. Three times as many vehicles were recalled as were sold in 2014.
And what do these recalls cover? Virtually everything: ignition switches, transmission cables, electrical systems, seat belts, air bags, headlights, gaskets, power steering, wiring, faulty systems, even floor mats that can slide out of position. The list goes on and on.
As vehicles become more complex and new models are introduced in compressed time frames, defects happen. Everyone in the auto industry understands this, and knows that recalls do occur from time to time. But recalls have now taken on an added dimension—one that poses great risk to unwary auto suppliers. The focus is now on whether OEMs, and their suppliers, engaged in wrongdoing, cover-ups or intentionally ignored safety issues.
GM and Takata have had to face the damaging contention that they knew about safety-related product defects for many years and did nothing until very recently. GM’s independent internal investigation revealed, among other damaging missteps, that the ignition switch issue was passed around from committee to committee for years, without anyone taking ownership of – and resolving – the issue. Likewise, public reports indicate that Takata tested its air bags many years ago, but the results of those tests were destroyed and Takata took no action to remedy the issue until last year. To paraphrase the timeless Watergate questions, these auto companies have been forced to answer what they knew about their faulty products and when they knew it?
By not acting promptly, both GM and Takata are dealing with civil and criminal investigations by NHTSA, the Department of Justice and Congress, not to mention a plethora of civil class action lawsuits. Moreover, the companies are facing an avalanche of bad publicity and lost customer goodwill.
In what may be best described as over-correcting, other OEMs have been issuing recalls on an almost daily basis to avoid the GM/Takata problem. This has resulted in a record number of recalls in 2014, with 2015 promising to be the year the recalls are carried out. What should suppliers do? How can they protect themselves from the collateral damage of an OEM recall and how should they manage their own responsibilities?
The lesson that this recall mess teaches auto suppliers is clear: after receiving notice of a potential problem, be sure to fully and promptly investigate the issue with the assistance of in-house or outside counsel. Once a potential claim is raised, corporate management should conduct a robust internal investigation to determine what (if any) problem occurred, how wide ranging the problem is, and what should be done to correct it and ensure it doesn’t happen again. Suppliers need to: