You may be surprised but one of every four cars sold in the country is being recalled to fix a manufacturing defect.
India, the fifth largest market for passenger vehicles (cars, vans and utility vehicles), does not have a mandatory vehicle recall policy, yet over 2.2 million vehicles were voluntarily recalled in the last four years. To put that number in perspective, 2.78 million passenger vehicles were sold last financial year.
It is not that recalls were not happening before July 2012 when the Society for Indian Automobile Manufacturers, or Siam, introduced a voluntary recall code for its members. But that opened the sluice gates: almost every car maker, big or small, has announced a recall since then.
The current financial year started with German car maker Volkswagen recalling over 3,800 units of the Vento to fix an emission issue on April 1. Since then, recall of another 188,000 vehicles has been announced by companies like Ford and Maruti Suzuki.
What has changed? Why are the recall numbers on the rise? BVR Subbu, former president of Hyundai Motor India, who now runs a strategy consulting company, says automobile companies have faced product related problems and resorted to fixing of the issue in the past as well. “Most such exercises were done through a service campaign. Car dealers would write to customers to visit for such campaigns. Now that the word recall has been tagged, it is getting noticed,” he says.
Even if a company now tries to call it a ‘service campaign’, it gets reported as a recall in the media. Last month, the country’s largest car maker, Maruti Suzuki, had announced a service campaign for over 20,000 units of the S Cross, its first crossover that was launched last year. But it was taken as a recall.
One can see the scale of recalls going up as the market expands and inconsistency in the quality of inputs shows up, especially at the lower level of the automobile value chain. As car makers squeeze lower and lower prices out of component manufacturers, in order to make their price tags as competitive as possible, vendors look to cut costs by compromising on the quality.
Safety at risk
RC Bhargava, chairman of Maruti Suzuki, says a recall is not totally avoidable as thousands of components are used to manufacture a vehicle. “There are possibilities of error as several component makers are involved. There are challenges in ensuring consistent quality supply from the Tier II component makers,” he says. “Because of their small size and limited financial ability, these suppliers struggle to maintain quality in the event of rising production. We need to work towards upgrading the quality standards of small vendors.”
Indeed, most of the recalls in India have happened due to quality issues from small component vendors. It is these vendors which in most cases have to bear the cost of the free replacement of component during a recall. The dealerships and service stations too are burdened when a recall is executed. “It is an unnecessary headache,” says Bhargava.
This is especially true for companies which have a limited sales and service network. There is also a cost involved in executing the recall.
“The auto industry has to gradually move towards zero defects, implying no recall as it inflicts a huge cost on the component sector. Everybody in the value chain has to work towards zero defects and this also goes with the philosophy of making vehicles safer,” says Vinnie Mehta, director general of Automotive Component Manufacturers Association. “The component industry has to be wary of the fact that the cost of recall can be very high. Tier I manufacturers will have to play a key role in handholding Tier II component makers.”
A recall can indeed bring death for a component maker by impacting profitability and operations. Take the case of Japanese company Takata, one of the world’s biggest airbag manufacturers. Millions of cars from top car makers like Toyota have been recalled globally in the last couple of years after instances of explosion in air bags (supplied by Takata) and deaths were reported. The consequence: millions of dollar in penalty and loss of top customers like Honda and Nissan as they decided against using the company’s air bags.
Some see recall as negative publicity for the car maker’s brand. Recalls, however, do not impact future sales of vehicles. Maruti Suzuki’s Swift and Dzire, for example, which were recalled in April 2014, have been the top selling models in the country for the past two years.
Auto makers claim that there are quality issues with products in sectors like electronics and consumer durables in the country but no manufacturer recalls a product. A customer should feel more comfortable that car makers are doing voluntary and free recalls, says an industry official.
What has driven manufacturers to this voluntary compliance even in the absence of a mandatory policy on recall from the government? Recall is not a favour that the industry is doing for customers. Subbu says if a car maker does not take care of its customers, it will lose market. “They do a recall to protect their brand and market. If manufacturing related fatalities happen in a vehicle, the brand will be pushed out.”
Without taking names, Subbu says there have been instances where the management of companies did not respond to serious manufacturing defects and the vehicle eventually got wiped out from the market. He also says that insurance companies should make public the names of vehicles where maximum fatalities related to manufacturing defect take place.
Recalls are a trouble for the car buyers too. Even though the repair or replacement of defective part does not cost the owner, one has to make time to take the vehicle to the company’s service station. This is especially a task for owners in smaller towns where a service station usually does not exist and one may have to travel a long distance to get the defect resolved.
It is very clear that companies have stopped attaching any stigma to the word ‘recall’.
“Currently, product recalls are largely a precautionary step towards ensuring desired stated quality. Customers are aware and take the recalls as corrective process towards ensuring a trouble-free product and thus most of them do not attach a stigma to it, rather many times it works in a positive way and their confidence in the brand goes up,” says Rakesh Srivastava, senior vice-president (sales and marketing),Hyundai.