How the Recent Car Recalls Change Government Intervention

In 2013, there were over 20 million vehicles recalled in the United States -- a 25% increase from the previous year. Within the past two weeks, Nissan and General Motors  have announced large recalls and the U.S. government levied an enormous fine against Toyota. The continuous rise in recalls has created a stir in the public media, which has translated to increased government intervention over the last several years.

Rise in recalls 
The Centre for Automotive Management suggests a key explanation for the rise in recalls is the increasing complexity of cars. A large portion of the defects were caused by electrical malfunctions within the vehicles. In an effort to simplify the manufacturing process, many companies build multiple car models based on a single platform. A problem with the base would cause any minor defects to be multiplied across the company's offerings. 

In a Popular Mechanicsarticle, Kevin Wilson suggests another cause of the increase in recalls is that car manufacturers err on the side of caution when deciding to announce recalls. In 2012, almost two-thirds of the recalls were incurred by car companies without outside influence. This number has been on a steady rise since 2000, when the TREAD Act stated that companies must notify the NHTSA of any potential defects.

The auto industry may be making more recalls in an effort to avoid public relations disasters. In 2013 alone, 6 million vehicles were recalled due to potential issues related to airbag deployment. When a car is recalled due to safety defects, consumers and the media tend to create more pressure on the manufacturers. However, the pressure does not compare to the media attention if these defects lead to multiple consumer injuries.

Nissan's recall
Nissan was forced to recall over 1 million cars in the U.S. on March 26. The company found that multiple vehicles contained faulty electronics that might not recognize if someone was in the passenger seat, effectively disabling the airbag in the event of a crash. Nissan recalled 1.6 million vehicles in February 2013 for a similar problem. Of those, 82,000 vehicles were recalled for a second time after the company failed to fully fix all of the problems. While there was confusion on Nissan's part, many are commending the company for quickly acting on the defects it discovered.

Toyota's slap on the wrist
Due to Toyota's  mishandling of a 10-million vehicle recall in 2009 and 2010, the company was fined $1.2 billion by the United States government on March 19. The company is accused of misleading customers in announcements about the defects. It is believed the company initially downplayed the dangers of the defect in an effort to place public relations as a priority over safety. The recalled cars had accelerator malfunctions, which could cause them to unwillingly accelerate and become difficult to stop. The fine will certainly be used as a precedent for government intervention and the accountability of the car industry.

General Motors attracts the government's attention 
The recent media frenzy around General Motors' recall of 2.2 million vehicles has intensified once it was made known that the company recognized but ignored the defects in 2004. Multiple models had a faulty ignition switch, which could deactivate the airbag, steering, and breaking systems while being driven. Twelve deaths have been linked directly to the defective switch. The recall was initiated after the Center for Auto Safety discovered the issue. The group used data from the NHTSA to identify a trend in the accidents and blew the whistle on the company's problems.

The Center for Auto Safety asserts that the NHTSA is no longer doing its job to protect the public. One big criticism is that the organization will not question the car industry about what is known regarding current safety problems. Another is that when it does reach out, it does not adequately share any findings with the public unless an official recall is announced.

These criticisms have been heard by U.S. Transportation Secretary Anthony Foxx, who is calling for a review of the events surrounding the GM recall. The review is in line with ongoing congressional hearings in which both General Motors and the NHTSA will face difficult questions about the timeline of the recall, from the initial discovery of the defects to the announcement. The current government intervention may be a sign of a further crackdown on auto companies to overhaul the recall process.

New legislation
Sens. Edward Markey and Richard Blumenthal have submitted new legislation that would force auto companies to supply more information related to accidents to the government and the public. The information would be easily accessed by the public in a searchable database and is hoped to help spur more timely action about car defects.

If the legislation gains traction it could force further scrutiny on the auto industry. Consumer advocacy groups would have access to more information about auto accidents, which could lead to an increase in public pressure on auto companies. Regardless of the resulting congressional decision, public pressure itself may lead to a safer environment for all consumers with more accountability on the auto industry. 

3 stocks to own for the rest of your life
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal "The Motley Fool's 3 Stocks to Own Forever." These picks are free today! Just click here now to uncover the three companies we love. 

The article How the Recent Car Recalls Change Government Intervention originally appeared on

Matthew Pelletier has no position in any stocks mentioned. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story