Automakers Face Reputation Crisis After Recalls, Or Do They?

It seems like not a week goes by that one automaker or another faces a recall or even worse, a scandal.

Volkswagen continues to face negative headlines related to its “Dieselgate” emissions-cheating disaster. Just this week, a former engineer revealed that the conspiracy dates back roughly a decade and has roots in the entire team that designed the engines, which contradicts the automaker’s statements that the use of a defeat device to artificially limit emissions during tests was the work of a "couple of software engineers.” Yikes. It will be interesting to see how VW tries to spin this.

The automaker could face ramifications from the scandal for years to come. A friend, who is shopping for a new vehicle, says even though she owned VWs for years, “VW would need to make some serious and major mea culpeas to get me back in their good graces.” She says she was really impacted by the scandal because of her former loyalty to the brand. “I do believe that when I drive a car I'm sanctioning the brand,” she says. In order to get back on her prospect list, VW will have to do more than “just pay a huge fine and hope it will all go away.”

Jack Nerad, executive editorial director for Kelley Blue Book, says my friend is not the norm. 

“Recalls, product failures and, in Volkswagen’s case, a scandal have garnered a significant number of headlines that one might expect would negatively influence sales, but after examining long-term sales results of automakers who have been involved in these miscues it’s difficult to see a negative effect,” he says. 

Toyota and Lexus have experienced major recalls and an unintended acceleration flurry that involved lawsuits, injuries and deaths, but the brands have made a strong recovery, and the issue seems at most a dim memory in the mind of the consumer, he says. The same could be said about the General Motors ignition lock issue.  

“Again, GM sales are doing just fine these days after taking a relatively minor hit even as the scandal unfolded,” Nerad tells me. “The tactic automakers should make in countering the negativity from an issue is to find a solution that is agreeable to vehicle owners and the regulators, put it in place as quickly as possible and let time heal the remaining wounds.”

Speaking of recalls, last Friday, General Motors issued a new one for 4.3 million 2014-17 model year vehicles for an airbag issue. In the affected cars, the sensing and diagnostic module might prevent the deployment of front airbags. The software bug may also prevent the seat belts from locking properly. The flaw has already been linked to one death and three injuries. This is the second major recall GM has faced in two years. In 2014, the company recalled 2.6 million vehicles to repair faulty ignition switches that were responsible for 124 deaths and 275 injuries.

No automaker ever wants to issue a recall, but the industry has learned that it’s better to be safe than sorry, executive director of industry analysis Jessica Caldwell tells me.

“That's why it feels like you can't go one week without a new automotive recall,” she says. “The sheer volume has created a ‘new normal’ for car shoppers who have almost come to expect that their vehicles will be recalled at some point.”

Contrary to my auto-shopping friend’s opinion, Caldwell says most recalls don't affect the consumer's perception of the brand in the long haul.

“For some of the more highly publicized recalls, though, there can be a short-term impact both in sales and shopper consideration,” she says. “But even in those cases, we have yet to see a brand sustain long-term impact. Historically, automakers with their backs against the wall have found ways to win back customers by stepping up incentives and pressing forward with new products that better meet market demands.”

A small but still significant recall was announced this week by Nissan. The automaker has recalled  134,000 2016-17 Maxima sedans, 2015-17 Murano crossovers, and 2015-16 Murano Hybrids due to the potential of a fire because of leaking brake fluid. Owners are being advised to park outside (not in a garage) until they can get their vehicles in to be serviced, which is kind of scary. 

Brian Moody, executive editor for Autotrader, differentiates the recalls from the scandals.

“Recalls are one thing, lying and cover-ups are another thing altogether,” Moody says.  “I think people accept recalls as an unfortunate part of manufacturing and selling complex things where safety might be an issue; things like cars, food, phones and baby equipment. The truth is, a recall means the system is working – checks and balances to insure public safety.”

However,  if a recall is big enough — such as the Ford Explorer or recent GM recalls —  it hurts consumer confidence for sure, he says. 

“How a company handles the recall is often more important than the recall itself,” Moody says. “I think the average consumer can understand how a mistake can be made in a complex manufacturing process, but have far less tolerance for a huge company lying or misleading the public just to avoid responsibility and restitution to a loyal customer.”

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