Brace Yourself: An Avalanche of Recalls is Coming
I have a prediction: we’re about to see a record number of vehicles recalled. Why? Because recalls tend to “trend” or come in clusters. When a company that rarely issues recalls–such as Tesla–announces one, many automakers follow suit for a surprising reason.
Here’s how recalls happen: Some car owners complain of problems to the vehicle. Then the NHTSA opens an investigation, compiles more complaints, and asks the automaker for more information. If it concludes that vehicles are unsafe–either because of poor engineering or common defects–it tells the automaker that it plans to order a recall. This gives the automaker the chance to voluntarily recall the vehicle itself, save some face, and keep the DOJ from getting involved.
Theoretically, every step of this process should be informed by vehicle safety and nothing else. But the truth is that recalls can cost automakers billions to complete, and even more as they impact stock prices. Recently, Tesla refused to recall autopilot cars killing first responders. While Tesla’s defiance was historic (almost every automaker voluntarily completes recalls before ordered to), many are still strategic about recalls.
George Ball is a business professor at Indiana University who studies the history of automotive recalls. He revealed to CNBC that recall announcement often have an unexpected pattern: they occur in clusters. So after an especially high profile recall hits headlines, other automakers will take the opportunity to announce recalls they have been considering.
“Whether the executives are doing it on purpose or not, they definitely get a stock price benefit by following. And the closer you follow, the better. The longer you wait, the market starts to forget about that leading recall. So if you wait a couple of weeks, you’re not going to get much of a benefit. But if you do it the day or two after, you get the most benefit.”George Ball
What’s more, not all recalls are created equal. When an automaker with a reputation for rarely having to recall vehicles announces one (such as Toyota), more automakers will take the opportunity to cluster behind them. This is why, after a high-profile 2015 Toyota recall, Consumer Reports wrote up a record number of recalls.
Tesla doesn’t have quite the stellar reliability reputation that Toyota enjoys. But it does have a reputation for never issuing recalls. It has fought to earn this reputation through public moves like its earlier recall refusal and Elon Musk’s arguing that the word “recall” is outdated.
Even though Tesla’s December 2023 recall is just an over-the-air software update to make its cars safer, it does affect nearly every Tesla on the road (2 million of them). And it is a major headline. I expect that inside of a week, we’ll see multiple automakers definitively announce recalls that have been in the works. We’ll just have to see if this cluster is limited to other EV startups or if some legacy automakers jump onboard.
Further in the future, I expect we’ll see the NHTSA take firmer control over safety-centered software updates. This may mean that more voluntary over-the-air updates are called recalls and tracked as such. All-told, we’re likely looking at another record-breaking recall year in 2024.
Next, read about the critical difference between a regular software update and the Tesla recall, or see more of George Ball’s interview in the CNBC video below: