Cut no corners: Taking the right call on a recall

In the large — and growing — Indian car market, manufacturers strive hard to grab their piece of road. Many new car models, small and big, hatchbacks and SUVs find their way into showrooms regularly and then into customer garages. Everyone with purchasing power aspires for a car, goading the market into booming mode.

In a burgeoning car market like India, even a minor fault with a key component in a particular vehicle will most likely push the company into panic mode, and most often than not, hit sales. But when a manufacturer carries out what is called a “recall” of a car model, he is not only reassuring customers of the company’s adherence to high safety standards, but also offering a glimpse into the company’s transparency, accountability and integrity.

India has had the chance to see its share of recalls. For a country, where safety comes at a premium, a car recall serves as a wake-up call for customers as well, to keep track of their vehicle’s safety record. Unlike, other countries, recalls in India are still at a nascent stage, yet to get ingrained into market culture.

Introducing the concept of a recall, a spokesperson from India’s largest car manufacturer Maruti Suzuki India (MSI) tells Deccan Herald, “Recall is not a negative word. It is a global practice. We feel that it is the duty of the original equipment manufacturers (OEMs) to educate masses that a recall exhibits maturity of the OEM and of the industry. While in India, it is still voluntary, it is gradually evolving into normal business practice. It is good to see OEMs taking a lead in this customer-centric activity.”

As mentioned, in India, a car recall is still voluntary, unlike abroad. But customers are becoming more aware and the government is looking to make recalls mandatory in India as concerns grow over safety of passengers.

Ever since auto industry body Society of Indian Automobile Manufacturers (SIAM), started voluntary vehicle recalls in India for safety-related issues as early as July 2012, over 7 lakh vehicles have been recalled by various manufacturers, including those from big players like Maruti Suzuki, Mahindra & Mahindra, Ford, Honda, General Motors, Audi and Nissan. Now, the government is in the process of framing a mandatory recall policy that will entail penalties as part of the new Central Motor Vehicle Rules (CMVR).

The anatomy of a recall
So what exactly does a recall mean from an auto industry standpoint? “A recall is a process by which the products sold to customers are taken back by the manufacturers to fix a defect, which could primarily raise health and safety issues to the customers and public in general,” says Grant Thornton Partner Sridhar Venkatachari.

According to SIAM, motor vehicles are designed and manufactured as per notified CMVR standards in such a way as to be safe for road use. However, sometimes, after release in the market, it may come to the knowledge of the manufacturer that some of these vehicles may have safety defects due to faulty manufacturing either at the end of the component supplier or faulty assembly at the end of the OEM. In such cases, the manufacturer recalls such vehicles for inspection and rectifies the defect free of cost. Recalls are a result of similar potential safety defects observed in the same vehicle model, and is different from a warranty which is applicable on defects observed in any single vehicle.

“During a recall,” says a spokesperson from Honda Cars India, “Vehicle manufacturers internally analyse the defect related to safety, based on owner feedback, and can bring in modern techniques of risk analysis which would include risk assessment, risk management and risk communication, and decide whether a recall is necessary for such defects, based on the nature of the potential defect.”

SIAM explains a recall more technically: “The vehicles are manufactured after they have been type approved/homologated by a third party testing agency notified by the government. After the manufacturer becomes aware of a potential safety defect, it carries out a technical analysis of the reported defect/potential defect. If proven, the manufacturer announces a recall. Such recalls are made even if customers have not reported faults/defects in their vehicles.”

The information thus collected by a manufacturer is also sent to the Union Ministry of Road Transport and Union Ministry of Heavy Industry for their records. A specific format involving details of the vehicle’s inspection is to be followed, including nature of the defect and estimated number of vehicles involved, nature of the potential safety hazard and action planned to remedy the defect.

A formal notification is sent by the OEM to the vehicle owner as per the records available with the dealer regarding the recall, requesting him to bring the vehicle for inspection and rectification free of cost.

This information is also posted on the manufacturer’s website, indicating the vehicle models or variants along with instructions on further course of action to be taken by the owner of the vehicle. Every effort is made through the dealerships to inform the owner through mails and telephone.

During a regular recall activity, vehicles are rechecked if they have been designed and manufactured as per applicable standards in such a way as to be sufficiently safe for road use.

Sometimes, however, after release to the market, if in the opinion of the manufacturers, some vehicles have issues which pose ‘safety concerns’, such vehicles are voluntarily inspected and rectified by the manufacturers/importers (distributors) free of cost.

The automobile industry in India, which is the sixth largest in the world, has experienced a rather challenging phase with several recalls over the past few months. Fiscal 2014 saw a rise in voluntary recalls by leading auto manufactures owing to defective airbags or failure of NCAP’s crash test. This sudden rise in product recalls has left the industry in a state of incertitude.

Venkatachari says that there are several operational issues to be dealt with while planning a recall. A specific part/operation in the manufacturing process that might have introduced a defect must be located.

Among the several operational issues involved in a recall, cost is an important aspect, which could be significant. A recall hits cost of manufacturing and it must be ascertained as to who will bear the cost and how much would be borne by component manufacturers.

“A recall is mostly likely to affect a manufacturer’s image. Damage limitation, goodwill, brand value, lawsuits, impact on stakeholders and market ratings are just a few of the concerns facing manufacturers,” he says.

According to Toyota Kirloskar Motor (TKM) Director and Senior Vice-President (Sales and Marketing) N Raja, “The prime challenge in a recall is to cover all customers for a particular recall. By the time a particular recall is announced, some customers sell their cars, change locations or stop taking services from the authorised service workshops.”
Recall challenges

A practical difficulty while looking at a recall lies in locating owners of vehicles, which might have changed hands and new contact details which may not have been updated in RTO or dealer records.

Further as most of the recalls pertain to a “potential” defect, many owners, especially commercial operators, are rather blase about taking action when their vehicles are called back for inspection and rectification because they do not face a problem from a potential defect. This makes it challenging for companies to fully rectify defects in affected vehicles.
Also, apart from sales, recalls are likely to alter customer sentiment and buying behaviour.

Though there is a sense of transparency on the part of a company, the resulting spurt in the waiting period for the recalled model would mean that there would be sizeable migration to other models, or worse, other stables itself.

But car manufacturers beg to disagree, stating that it is their duty to ensure customer safety. “As a manufacturer, it is important to be transparent to customers and provide them with good quality vehicles. Manufacturers need to demonstrate a high level of commitment to their customers. This would only enhance loyalty to the brand,” Toyota’s Raja says.

Maruti Suzuki says that communication is very critical to a recall. Before a formal announcement, typically the OEM has to spruce up its back-end to meet the demand to attend to customer cars, as a way of making customers feel secure. Such communication and action is seen positively by the customer and helps reinforce brand faith.
Recall legislation

One must note that India does not even have a legislation for recall, which is more of a voluntary decision, unlike in countries like the UK, the US and Europe. “In most developed markets, such as Europe, Japan and the US, governments have a policy on automotive recalls. In India, the Ministry of Road Transport is now working on evolving a regulation on automotive recalls,” SIAM says.

In the absence of a government policy, SIAM has implemented a Voluntary Recall Policy in July 2012, which is being strictly followed by all vehicle manufacturers. SIAM has also stood for and supported voluntary recall in a bid to encourage passenger safety, which is different from the way recalls are conducted in foreign markets.

“The voluntary recall followed by SIAM is in line with international practice. In developed economies, the RTO records and dealership records are more updated and accurate. However, as per information available even in developed countries, recall covers only about 80-90 per cent of affected vehicles,” the auto industry body adds.

“It is important to note that even before the government comes out with the Recall Code, the Indian auto industry under the guidance of SIAM and relevant ministries has drawn up a Voluntary Recall Code which all automobile manufacturers are following...TKM also follows the existing Voluntary Recall Code and has taken voluntary ownership of providing customers with quality vehicles while they are already using such vehicles... this initiative is another step taken by the industry to portray its commitment to society and ensure vehicle safety for the occupants as well as others,” says Raja.

“Car manufacturers have been voluntarily following this (SIAM’s) approach whenever they have detected that there can be potential safety hazards. Safety of our customers is our topmost concern and this approach has not impacted the company’s or model’s image negatively,” the Honda spokesperson says.

At the end of the day, a recall ensures a safe approach to car production by manufacturers.

Making it less guilt edged for the manufacturer and rewarding for the customer will be the next paradigm shift for the industry.