Auto supplier lawyers say automakers are aggressively seeking reimbursement for the massive recall costs, blaming them for defective parts.
Auto suppliers, which make most of the parts that go into today’s cars and trucks, could end up being the big losers as automakers recall vehicles at a blistering pace.
Automakers have recalled a record 56 million vehicles so far this year, eclipsing 1999’s record of 55.6 million cars and trucks.
Just last week, the National Highway Traffic Safety Administration expanded a recall of faulty airbags made by Japanese supplier Takata to 7.8 million vehicles manufactured by 10 automakers.
Supplier lawyers say automakers are aggressively seeking reimbursement for the massive recall costs, blaming them for defective parts.
“The suppliers are not happy. They are very worried,” said Thomas Manganello, who heads the automotive practice at Warner Norcross & Judd in Southfield.
Some suppliers could go out of business as a result of having to reimburse automakers for the cost of recalls.
“These are bet-the-company cases,” said Manganello, who is legal counsel to the CEO Council of the 450-member Original Equipment Suppliers Association in Troy.
Manganello says suppliers are often unfairly blamed for parts that fail in larger components over which the supplier has no control.
“I take the position that more often than not, recalls occur as a result of system issues involving improper integration or system validation,” he said. “It’s difficult for suppliers to validate a part in a system that doesn’t yet exist.”
Whether a supplier can protect itself from bearing the cost of a recall largely depends on the language in its contract with an automaker or upstream supplier.
In many cases, automakers insist on being indemnified against the cost of recalls caused by failed parts.
Manganello says automakers have “recall-itis,” caused by growing pressure on them by federal safety regulators and fears over repeating disasters such as General Motors’ ignition switch crisis and Toyota’s costly sudden acceleration problem.
Nearly 70 percent of recalls last year were voluntary.
“Automakers are very cautious about anything that could potentially cause a safety problem,” said Renee Stephens, vice president of U.S. automotive quality at J.D. Power and Associates in Troy.
Ironically, the flood of recalls has not hurt consumers’ perceptions of vehicle quality in the much-watched J.D. Power surveys, Stephens said.
“We don’t see a big impact at all,” she said. “Even at GM there was no impact on its scores (by consumers) from all the recalls.”
While automakers don’t like recalls, brand loyalty rises if customers have a good repair experience at dealerships, Stephens said.
“Our data shows that when people take their vehicles in for the recall repairs, they leave more satisfied with their vehicles than before they came in,” she said.
But that’s little comfort to suppliers, whose financial health is at risk in the era of “recall-itis.”
Email Rick Haglund at haglund.rick@gmail.com