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Thursday, October 19, 2017

Dealer Musings (I): Ruggles on Recalls

David Ruggles

I wish I had something pleasant to say about things affecting dealerships. I'll try to come up with something before the end of this series. But if a person long on the sales side of the industry can't think up an optimistic story, maybe there isn't one. After all, how many perennially downbeat sales people have you met?I start though with safety recalls, and follow with gap insurance and then the latest twist in branding that pits the Factory against dealers.

Ah, those of Takata airbags! – one wonders how many potential lawsuits there are driving around with unrepentant airbags. There's the normal problem of owners who never got the word or just never took their cars to a dealer for a fix. Then there's the problem that the initial replacements were done with the same inflators that caused the problem. It hasn't helped that there are more than 100 million such airbags globally, and that there have been long waits for replacement parts. Of course Takata is the extreme as recalls go, but the issues are general.

This places dealers in a precarious position, especially if they are looking to take one of these dangerous vehicles in on trade or if they already have them in inventory. The National Highway Traffic Safety Administration has stated that automakers have the ultimate responsibility for the costs of making this right. In the meantime, what happens when a dealer “knowingly” sell a vehicle with one of the suspect airbags? And in this day and age of data, how could a dealer not know? Answer: by failing to check! That doesn’t seem to be a good excuse in today’s legal environment.

But it gets worse. It is now obvious that Kobe Steel, Ltd, a Japanese company that has subsidiaries around the globe, and supplies the automotive and aircraft industries with critical structural parts, has been falsifying inspection reports. A few days ago Kobe admitted selling potentially substandard (or suspected substandard) materials to scores of manufactures, including Ford, Volvo, Toyota, Honda, Nissan, Mitsubishi, Mercedes-Benz, Tesla, General Motors, Hyundai, and Renault and possibly Mazda. People are nervous, and they should be. Kobe materials are used to fasten the wheels onto 200 mph bullet trains. Fortunately for Ford, it appears the only vehicle impacted by this is a single Chinese model. So far, no manufacturer has flagged a specific use of their steel as a potential issue. Maybe the industry will be lucky and no bad steel is in a bad place. But if records were routinely falsified, there's no data trail to point to whether a specific batch of steel was way out of spec, much less which customer got bad material when. Car companies may have no idea where to start looking. If there were enough problems with a specific part in a specific model to cause a recall, then engineers doing teardowns would surely spot an issue with the steel. But if it's one part here and another part there, or scattered small-volume defects, then there are a few dots and no ready way to connect them.

Time will tell as the investigation plods forward. If there's any news it may come from aerospace. After all, planes get inspected regularly for premature aging in their structural parts, and the average aircraft goes through a lot of stress. The average car does not, but then there are a lot more cars out there than there are airplanes – the global "park" including construction and farm equipment is near enough 1.25 billion vehicles. Anyway, every day I pick up new information in the Japan Times. How do you replace a structural part in a vehicle under a safety recall? Takata has already taken bankruptcy protection. Can Kobe Steel Ltd. be far behind?

Even if such issues get settled in the long run, in the short run the dealer can be left holding the bag. At least one German car company got stuck with Takata airbags. Fortunately they were willing to pay dealers to hold the cars until they could be fixed. Can CarMax risk selling a car that turns out to have a recall outstanding? How about a smaller used car operation? – and remember, every new car dealership has one. A dealer who wants to close a deal today may feel they can't wait until they've checked the recall history on a trade-in. "Come back tomorrow" isn't an option, and that places the dealer at risk.