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Delayed Product Recalls Are Putting Lives at Risk

Automakers delay recall announcement to avoid stock market penalty, so how can you protect yourself while making a purchase?

Delayed Product Recalls Are Putting Lives at Risk
Car crash Pixabay

Just three months into 2021, and already several types of vehicle, car products, bicycles, motorcycles, and even foods, have been recalled in their thousands. And that’s never a good thing for manufacturers.

But, first things first, what is a product recall? By definition, it is an official request made by a manufacturer for the return, exchange, or replacement of products discovered to be of potential harm to consumers, or which have defects that could alter their proper functioning.

Got it? Great!

Now, the truth is… not all product recalls are born equal. While certain recalls are due to minor defects that can reduce the efficiency of a product, others result from malfunctions that constitute a significant risk to the users. And in the latter case, prompt recall announcements are particularly important, as they can mean the difference between life and death.

But here’s the thing – many manufacturers make decisions that aren't necessarily based on the safety of the public. 

Let’s use the automobile industry as a case study. In a recent research study published in Manufacturing and Service Operations Management, where researchers examined automobile recalls over 48 years, the researchers suggested that automakers delay their recall announcements until it has a minimal effect on their stock prices. It’s all about the money… apparently.

Image of money containing $100 bills
Source: Giorgio Trovato/Unsplash

"Money often costs too much." - Ralph Waldo Emerson

In this study, the authors examined 3117 auto recalls from 1966 to 2013. And they found an interesting pattern, which they called “recall clustering.” Here’s what that means – say a company notices a defect in one or more of their vehicles, instead of announcing the issue immediately, they seem to delay it until a competitor leads the way by announcing a recall, even if it is for an unrelated defect.

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Why do they do this? Well, it turns out that the stock market is less forgiving of companies that announce their recalls first. And, on average, these early birds face as much as a 67 percent stock price penalty compared to companies that announce their recalls afterward within the same cluster.

Not fair? Tell me about it.

The study found that 73 percent of automobile recalls within this 48-year period occurred in clusters. Each cluster lasted about 34 days, with about 7.6 recalls following the first recall, on average.  And as the position of each company goes down within a cluster, the stock penalty reduces.

According to the researchers, this phenomenon is due to something called the attribution theory. In this case, the theory implies that the more unique a company’s recall appears to be relative to the competitors, the greater the blame and the associated stock market penalty that is attributed to the company.

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Why product recall delays are so dangerous

Alright, here’s the thing – delayed recalls are dangerous… especially when dealing with automobiles. So, while it’s understandable that manufacturers need to protect their bottom line as much as possible, doing so at the expense of public safety may exceed the scope of morality and responsibility. People actually die because of these kinds of stuff.

German carmaker BMW was forced to extend a product recall after a consumer rights program found that more BMW vehicle types were at risk of stalling than initially discovered. When the information came to light, BMW said it would contact customers to let them know. 

But they didn't.

And on Christmas Day 2016, Narayan Gurung died and his wife was seriously injured after Gurung swerved to avoid a stalled BMW. The coroner in the BMW inquest concluded that the manufacturer was aware of the safety defect ten months prior to the death, but they only got recall information to customers after the fact.

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And speaking of getting recall information to car owners, recall information in the US is still primarily sent out as USPS mailings — although it is also possible to receive alerts by email, text, or phone call, and food recalls, in particular, are also often announced by the press. But for many, your fate can lie in the hand of your postal delivery worker (so be nice to them, okay?). Seriously, though, many car owners are unaware of potentially dangerous recalls on their vehicles either because they moved or it simply got lost in the mail.

So, how do we fix it? 

Well, for starters, automakers must be discouraged from delaying recall announcements based on stock market considerations. How? Well, it’s simple. Unlike the FDA, which requires full disclosure of the defect awareness date of recalled products, the National Highway Traffic Safety Administration (NHTSA), responsible for managing auto recalls, currently doesn’t. So, the authors of the research study cited above recommended that the NHTSA require automakers to declare the exact defect awareness date when making any recalls. They believed that this will discourage delays.

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How can you protect yourself from recalled products?

Here are a few things to keep in mind. First off, before you buy a vehicle or other high-value products, find out if the manufacturer has recalled it. If a product has been recalled, don’t bother going further with the purchase. It is not a risk worth taking.

Secondly, if you have already purchased a product before getting wind of its recall status, don’t use it. It would be a good idea to check the recall notice to know what to do with the item. You can also return the product to the store you bought it from.

Lastly, be wary of making second-hand purchases where you can’t verify the recall status of a product.

So, where can you get information on product recalls?  Well, there are a bunch of useful resources that will help you to stay on top of product recalls. Here are a few of them:

  • Safercar.gov is the National Highway Traffic Safety Administration (NHTSA) website. It’s all about automobiles. You can get information on safety issues and recalls. They also have the Safercar app, a newly-released smartphone application that gives you recall alerts on the go, on your iOS and Android phones.

  • Recalls.gov is an online resource for recalls. Formed by six federal agencies, it alerts consumers about unsafe or defective products. You can get to know of recent recalls on the site. It also allows you to search for recalls. And you can sign for their E-mail.

  • FDA.gov lists recall of contaminated food products for human and pets, cosmetics, medicines, and other medical devices.

  • CSPC.gov has a list of several recalled items ranging from motorcycles, bicycles, furniture, medicines, recreational vehicles, and utility vehicles.

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