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Point of View: The Effects Of Recent Massive Auto Recalls

As of early November of this year, automakers have issued more than 550 recalls for over 52 million vehicles, according to the Associated Press. The AP claims the previous record, set in 2004, was 30.8 million recalled automobiles. According to the National Highway Traffic Safety Administration, the number of vehicles recalled in 2014 has hit a record high of over 56 million vehicles and counting.

General Motors alone has recalled a whopping 26 million cars this year, most notably involving the ignition switch problem in many of its models. GM has sold only 14 million in the last five years, and many cars under recalls are still carrying defects.

Now, the government states that there is a potential crisis with over 4.7 million defective air bags. It urged everyone to not ignore this issue and get their cars fixed. When the air bags in question inflate, they can rupture and metal pieces can be propelled out with the air bag, resulting in serious injury. Officials said at least four people have died from the faulty air bags, and there could be as many as 20 million vehicles in the United States that have the faulty air bags.

Whether dealers like to admit it or not — despite some logistical challenges in the process — auto dealerships are benefiting from the recalls, both with new car sales as well as additional service business. First of all, the local dealers do make money on the recalls in the service department, a fact that is seldom discussed. In essence, the car makers pay the local dealers for the work done. More obviously, the recall work gets car owners into the dealerships, giving dealers the opportunity to show their facilities as well as their new car inventory. And, with new car sales soaring right now, it seems to be having a positive sales effect. In October, vehicle sales boomed at an annualized rate of 16.46 million versus 15.38 million a year ago, according to Autodata.

In a Reuters report this summer, one dealer in the Chicago area said recalls lead to more sales. He estimated that 15 percent of new car sales at his Chrysler stores have come via the service department. During the same summer period, GM said that it had sold 6,600 cars in a week to customers who traded in vehicles with defective ignition switches.

As I have discussed in the past, I am not one who believes the car dealership system poses a severely competitive, long-term threat to independent aftermarket shops. Sheer numbers work against the car dealers – a limited number of locations and service bays compared to the vast independent auto care industry. But the recall effect is just another factor that can erode business in our market, especially if it guides consumers back to the dealership at a time when that industry is attempting to illegally convince vehicle owners that only the car maker can repair and service the vehicles. The false claims that work done outside the dealership system could void the warranty, coupled with this situation, can leave too many consumers believing the local auto dealership is the only option.

That’s why it is important for the FTC to take a strong stand against car makers that put forth information that implies that work done outside the dealership will void the car maker warranty.

As an overall automotive industry – both the car dealerships as well as the independent service sector – we all suffer when auto parts are maligned in regard to quality. And the parts procurement system in the automaker market needs to be clearly analyzed to make sure quality is “job one” with every part – something we can be proud to say has always been the quality standard in the aftermarket.

Gary A. Molinaro

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