Record Number of Auto Recalls Start to Initiate Changes in the Industry | DENENA | POINTS

Record Number of Auto Recalls Start to Initiate Changes in the Industry

The well-publicized auto recall record in 2014 has many people wondering what is happening with the car industry. During an age where both federal regulations and class action liability suits are increasing, it would seem that automakers should be taking notice of the financial cost of poor design and manufacturing practices. Despite the record number of recalls, traffic accident statistics show that traffic deaths have declined over 25% the past 10 years, although much of that decline could be attributed to strict seat belt laws and drunk driving awareness campaigns.

Financial Costs for Automakers

Some of the costs of selling defective autos are starting to mount for automakers. Federal regulations allow for a $35 million fine for each violation of failing to report a defect (which the NHTSA is trying to raise to $300 million), and there have been recent criminal fraud and personal liability suits against major automakers. Toyota Motor Company paid a $1.2 billion settlement for criminal fraud last year for concealing defects in its vehicles. This was following a $1.6 billion class action settlement to compensate vehicle owners for loss of value due to defects. These two cases don’t even include any claims for personal injury or death from victims of defective autos, and those types of cases are sure to eclipse anything seen so far.

When Will Liability Suits Begin to Change Corporate Behavior?

The threat of liability suits still carry the greatest threats to automakers who believe that profit carries a higher value than customer safety. One of the seminal auto defect cases in history is the now famous Ford “Pinto” lawsuit, where it was revealed that the maker of that vehicle engaged in a statistical analysis of the cost of making a safe car versus the cost of potential liability. The accountants won the day, and it was decided to keep the gas tank in the rear of the vehicle even though the company knew that explosions and death would result from a rear end collision. The case served to raise public awareness of auto defects and put automakers on notice that damage awards for concealed defects could easily exceed their statistical analysis.

Product liability law and personal injury suits have evolved in the past 30 years to become the chief means of protecting victims from unknown dangers in autos. Without the threat of a lawsuit, automakers would have no incentive to make safer cars. It will be interesting to see how far the class action and wrongful deaths suits will go for GM, Toyota and Honda, based on the consistent and egregious concealment of life-threatening defects in their vehicles. Perhaps someday consumer safety will overcome the allure of shareholder return and executive bonuses, and it may have to reach a point of actually putting executives in prison for their role in causing innocent loss of life. That may seem like an extreme remedy, but for family members of victims killed by decisions made by corporate leaders, the punishment might just fit.