Honda Motor Company recently revealed in an audit that it had underreported defects through the Early Warning Reporting (EWR) system. EWR is a means for automakers to disclose defect claims that result in injuries or deaths. This system has obvious importance for informing government agencies which vehicles pose the greatest risks, and may be subject to recall.
Over Two-thirds of Vehicle Defects Are Omitted From Reports
For the ten-year period from 2003-2014 Honda reported 900 defects through the EWR, but in actuality they omitted almost 1800 defect reports on their vehicles. By only reporting one-third of the potentially defective cars, Honda placed drivers and passengers of their vehicles at risk in order to avoid populating the EWR reports with the full total of defective cars.
It is easy to see why an auto manufacturer would be motivated to make the EWR reports appear more favorable. Defect recalls are expensive and often entail negative publicity for the automaker depending on the extent of the recall. General Motors had a similar tactic involving their now famous ignition switch case, where they hid the defect from regulators and consumers for 10 years. GM now faces billions of dollars worth of law suits and Honda will pay fines in the millions for the EWR omissions.
The Cost of Underreporting May Be Less Than an Expensive Recall
Although automakers know that they will eventually reveal the full extent of their vehicle defects and pay large fines, the cost savings from avoiding wide spread recalls and repairs may offset those expenses. Of course, lawsuits and settlements have to be figured into the equation, but it is not unprecedented for an automaker to analyze the cost of personal injury and wrongful death suits related to a known defect.
Regulators are attempting to take a more aggressive approach with the fines and audits available, but automakers are largely self-monitoring in this area making compliance difficult. Honda claims the omissions were inadvertent and the result of a computer programming flaw, but an omission of this size over many years reflects more than a tracking problem. There were instances where Honda received defect information from police accident reports, and still failed to notify regulators.
The obvious intent is to avoid regulator scrutiny and decrease the number of investigations into an automaker’s vehicle defects. No business enjoys third party oversight of its products or manufacturing process, but absent the EWR system there is no other way to find defects in a vehicle before they become a widespread safety hazard.
If automakers fail to report the defects, there may be a series of accidents, injuries or deaths before the problem becomes obvious. This is the case of the Takata airbag defect now spurring recalls around the world. Unfortunately, several people had to die before the manufacturer came forward and disclosed that there was a design and manufacturing issue causing the airbag explosions. The only recourse now is for those injured to file lawsuits and attempt to recover compensation.