Examining Vehicle Recalls in an Increasingly Competitive and Complex Automotive Environment

Over the past few years automotive recalls have been on the front page of many publications (e.g. Business Week, 19 July 2006). Toyota, considered a leader in quality and customer satisfaction, now faces the largest recall in the history of the automotive industry. Whether Toyota will face tremendous repercussions to its sales for years to come remains to be seen, but this recall will surely test the loyalty of its customers.

Perhaps the Toyota recall can be considered a result of the rising pressures and ever growing complexity in vehicle production that automotive companies face to become market leaders in today’s economy. For example, to maintain the number one position in the automotive industry now requires that the Original Equipment Manufacturer (OEM) brings to market new vehicles that come with style and advanced technology every 12 to 15 months. This competitive environment has created numerous challenges: shorter development time, rising cost pressures and mounting demands for reliable, high quality products. Furthermore, the increasing electronic content of vehicles, technological innovation and escalating competition amongst OEMs, coupled with strict safety and environmental regulations imposed by governments, has considerably added to this vehicle production complexity.

Today, to counteract the challenges of this complexity, most automotive OEMs conduct intensive digital simulation of their products and processes well ahead of actual manufacturing to control the production from concept, to development and to final assembly of the vehicle. However, controlling this complexity through digital simulation has increasingly become more difficult as vehicle production has become more globalized. For instance, a vehicle may be designed in one country but manufactured in multiple countries, thereby complicating the vehicle’s production as there is no common definition of which parts should be tracked and what process information should be maintained. This includes campaigns and recalls, containment and continuous improvement, sourcing and cost recovery from the supply base through to the customer. The result is that often the lack of part-level tracking and traceability leads to increased warranty costs, low levels of supplier recovery, and larger spills and recalls. Worst of all is the impact on the customer, which may result in an extreme case (as seen in the case of Toyota) in a loss in market share.

A Current Look at Vehicle Recall Numbers

Considering today’s automotive environment, many questions arise. How many recalls does an automotive OEM conduct in a year? How much do the recalls cost per employee per year? Are the safety recalls related to brakes, airbags, etc. or governmental regulations/requirements such as TREAD Reporting/Analysis, NHTSA Investigation Request Analysis, Safety Analysis, Early Warning, Lawsuit Analysis, or Recall/Campaign Analysis?

One doesn’t have to look very far to find examples. For instance, the following are some of the OEMs that have announced recalls just over the past two years:

1. Maruti recalled about 106,000 A-Star cars to fix fuel leaks
2. Nissan recalled about 540,00 vehicles for brake pedal pin, fuel gauge problems
3. Toyota recalled about 8 million vehicles for sudden unintended acceleration
   1. Since 1999 Toyota and Lexus owners have made in excess of 2,000 complaints about sudden acceleration
   2. Since 2005 Toyota has launched six recalls related to accelerator pedals. Floor mats replacement was featured in four of these campaigns, although the October 2009 recall included other adjustments to the targeted vehicles
4. Honda added about 437,000 vehicles to global airbag recalls
5. GM recalled about 1.3 million vehicles for loss of power steering at driving speeds of 15 mph or lower
6. Volkswagen recalled about 170,000 vehicles in Brazil for rear wheel seizing with the possibility of the rear wheel falling off

Best Practices for Addressing Vehicle Recalls

As you can see from the examples above, many OEMs are subjected to recalls, but to avoid the costs and loss of critical market share, what is critical is how quickly an OEM can go from detection to correction. A metric most OEMs use is one that is based on Toyota’s past performance of detection to correction of 100 days or less.

This target can be reached by applying the following principles that best-in-class OEMs commonly use for addressing recalls:

• Short time-frame between detection and correction (100 days or less and in many cases within 24 hours)
• Automatic notification/information readily available to people/groups responsible to fix the issue
• Part-based systems so that engineering/supplier responsibility could be easily determined
• Closed-loop, feedback/feed forward process with quick information back to the field as well as the design process
• Aligned information as the vehicle goes through its life cycle
• Combined structured with unstructured information get to the bottom of the problem in the quickest possible time

Closed loop quality information delivery will allow for a timely turn around from issue identification to resolution. Bringing all quality information into one location is the first step in obtaining global warranty analysis capability. An automotive company’s analysis capabilities must include identification of the top ten issues and emerging issues that must be available in a watch list to ensure focus on impending problems. To manage this, a quality board needs to be set up with clear roles and responsibilities with defined deadlines for issue resolution and data analysis (see Figure 1 for an illustration). (Click on image to enlarge.)

FIgure 1



Conclusion

In today’s fast pace digital world, timely decision making to ensure customer satisfaction and retention is of utmost importance. This is evident by Toyota’s loss of sales and share value since the company’s vehicle recall. While automotive companies may have the resources to mange the process involved in producing ever more complex vehicles, it is clear that their ability to take effective corrective action when this process fails is hampered because the corrective decision making is left at the highest level of the company.

In Toyota’s case, the root cause of the vehicle recall delay seemed to be twofold. One was Toyota's lack of timely communication of the appropriate data required to take corrective action and/or a preventive action. The other was due to Toyota’s management style.

The first root cause can be addressed by implementing the executive information system (as mentioned earlier) that will allow for timely decision making by the appropriate executive body. The second root cause, however, may be difficult to address in the short term as cultural differences in management style can affect timely decision making; Toyota’s management appear to be trying to rectify this matter by stating that it will give the U.S. based management team responsibility to act on future vehicle recalls.

History has shown us that other global organizations in similar situations have regained their customers’ trust by taking hard actions that demonstrate commitment to resolving the issues at hand. Toyota needs to take these hard steps rather than just making apologies and advertising their commitment to vehicle safety.