Although recalls generally have very little effect on resale values, they do present dealers with an opportunity to build relationships and earn the customer’s trust.
Doesn’t it seem that rarely a week goes by without news of another major vehicle recall? It’s not your imagination at all. In fact, the frequency of recalls in 2014 for Canada averaged more than a dozen per week!
In 2015, in Canada, approximately 5 million vehicles were recalled by manufacturers. This roughly equates to around 1 in 5 of all vehicles on the road. A staggering number by any measure! Recalls are indeed experiencing an unprecedented boom.
Until recently, recalls were an uncommon occurrence for the manufacturers, the dealers, and consumers alike. Reasons for the increased frequency of vehicle recalls are plenty. Moreover, the effect a recall has on a car’s market value seems like a mystery for many people and is often perceived as a cause for concern.
Now vs. then
From my formative years, I recall the most high tech feature on my father’s car was probably the AM/FM radio, which was the case for just about every car on the road at the time. Vehicles of yesteryear, compared to today’s typical car, were very low-tech machines with systems mostly mechanical in nature.
Today’s vehicles typically contain between 25- 50 computers (or control modules) of various sizes, each controlling some portion of the vehicle’s operation. Every time a new system or component is added to a vehicle, it creates another possible point of failure down the road. Hereby creating a possible source of recall, if there is a design or manufacturing flaw with that newly added part or system that impacts the safe operation of the vehicle.
Component sharing within an OEM’s vehicle line up and even between competing OEM’s has compounded the issue further. Currently there are so many shared parts and shared parts suppliers, that a problem with one part could spawn multiple recalls, by multiple brands globally.
The Takata airbag recall is an extreme example of this. The recall now involves tens of millions of cars across fourteen OEM’s and multiple nations. As manufacturers work with suppliers to reduce costs through greater economies of scale, a byproduct is this recall ripple effect that can impact every vehicle that uses a shared part.
Given the growth of class action litigation and other types of product liability legal actions, manufacturers are now more sensitive than ever to any issue that could affect the safe operation of a vehicle. Today, easily accessible public reporting mechanisms exist for safety defects, as well as social media outlets that provide unhappy owners with a means to share their concerns in a very public fashion. Transport Canada is currently looking for greater powers to police and mandate recalls. This legal, technological and legislative environment has created a perfect storm for the recall soup the industry now finds itself in.
Questions and concerns
So how do vehicle values relate? As you may know, Canadian Black Book has been tracking the Canadian market since the 1960s, publishing used vehicle values for the industry. Often we’re contacted by the media and anxious car owners regarding a recall. The conversations usually go something like this…‘Hi, I am really upset that my car is being recalled due to its highly flammable plasma-ion muffler bearings. Won’t that destroy my car’s value?”
We reply, “No, that typically does not happen. Usually it has no effect on the value whatsoever.” Then the caller says, “What? Are you sure?” We are sure. Every recall is a little different in terms of the vehicle, parts affected and the resolution process. However, the outcome, as far as the value goes, is largely the same. The vehicle tends to keep depreciating in a very normal fashion pre and post recall. This holds true even with very large scale recalls such as the Ford Explorer Firestone Wilderness tire recall and the GM ignition lock cylinder recalls, which did not result negatively on values.
What is somewhat troubling about recalls is how the owners respond, or in many cases, how they do not respond. Some recent U.S. research by the NHTSA found that 21-25% of recalls remained outstanding and the vehicles were not repaired.
To check for outstanding recalls access Transport Canada’s database here: gc.tc.ca/iwazx. Consumers should check regularly in case of missed recall notices. OEM’s track completed recalls, so a quick phone call to a brand’s customer service number will inform if all previous required recalls are complete.
Recalls can be a golden opportunity for dealers. The customer is not likely thrilled to be coming in, so consider treating them like gold, particularly if they are a service customer you may have lost over the years.
Perhaps return their car back after a quick complementary trip through the car wash, or consider a discounted oil change offer that could spark renewed customer loyalty.
Recalls, it would seem, have become an accepted aspect of vehicle ownership. Based on the historical data, Canadian Black Book has seen little reason to be concerned how recalls will affect the value of a vehicle. As a dealer, think positive, if handled correctly, recalls can be a terrific ongoing opportunity for the service bay!