Takata Recall Forces Auto Supply Chains To Shift Gears | Elementum

Takata Recall Forces Auto Supply Chains To Shift Gears

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“The Most Complex Consumer Safety Recall In U.S. History”

On Tuesday, National Highway Traffic Safety Administration announced it was doubling the size of the recall of automobiles equipped with Takata airbags, bringing the total number of vehicles recalled to 34 million—the largest product recall in US history. The initial recall of 17 million vehicles was isolated to Southern states where hot temperatures and humidity were blamed for airbag defects; now the recall has expanded nationwide. Takata is the largest airbag manufacturer in the world, responsible for 25% of the market. The vehicles affected by the airbag recall span eleven automakers leading NHTSA Administrators to call it likely “the most complex consumer safety recall in U.S. history,” affecting about one in seven vehicles on the road in America today.

The expansion of the recall comes after years of on-and off-investigations; the first NHTSA inquiry into faulty Takata airbags started in 2009.  Months of mounting government and manufacturer pressures finally pushed the auto parts manufacturer to capitulate and voluntarily declare its airbag deployment mechanism faulty. Prior to the announcement, the NHTSA had been fining the auto supplier $14,000 a day since the middle of February for its lack of cooperation with the administration’s investigation. Takata’s move to voluntarily declare its airbags faulty signals the supplier’s wish to move past the controversy and begin repairing its relationships with regulators and downstream auto manufacturers. Despite this willingness to cooperate, the supplier’s actions may have come too late: the company is currently facing billions of dollars in fines and damages pending the outcome of a Department of Justice investigation and several class action lawsuits.

Largest Automotive Recalls In US History

Dude, Where’s my Car? In the Shop, Because it got Recalled.

If you feel like you’ve been hearing about auto recalls a lot recently, it’s because you’ve been paying attention. The automotive supply chain has been in turmoil—in 2014 the industry shattered the record for number of vehicles recalled in a single year, with 64 million cars sent back to the shop. Auto news was dominated by the proceedings surrounding GM’s faulty ignition switches, which resulted in the recall of almost 30 million vehicles across North America and, as of yesterday, have officially been held responsible for 104 deaths. In February of last year, the Justice Department completed its probe of Toyota’s deception of the public about its faulty accelerators, resulting in a $1.4 billion fine. In 2014 more cars were recalled than sold in the United States; 2015 is well on its way to repeating those results by the end of the year.

In a machine comprised of over 70,000 unique parts from thousands of different OEMs, it’s difficult to imagine everything going right 100% of the time. Multiply that by the more than 250 million cars on the road in the Uunited Sstates alone and you’re left with 200 trillion opportunities for a parts failure. Looking at it that way, auto recalls don’t seem unlikely. However, recalls are becoming more common than ever.

The rapid increase in vehicle recalls over the last several years highlights the issues that come with the prevalence of more diversified and global automotive supply chain. When General Motors announced its top suppliers in 2009, 76 different companies from sixteen different countries across five continents were represented. All in all the umbrella of GM suppliers spans across all continents except Antarctica.

In the late 90’s, automakers went from producing the majority of components going into a vehicle to spinning off their parts-making divisions, which ultimately created a communications gap in the manufacturing process. The result? A lack of visibility throughout multiple tiers of the automotive supply chain—now the average vehicle uses parts from over 4,000 different suppliers. Just over a quarter of recalls over the past four years were caused by the top 10 assemblers; the majority of recalls involved small companies and makers of add-on parts. Extended supply chains and juggling multiple partners necessarily increases the chances of error.

Automotive Supply Chain Complexity

Supplier Visibility Can Offset Sourcing Gridlock

Takada’s record breaking recall gives credence to the notion that the number of automotive recalls will continue to rise. As the automotive supply chains continue to fragment, part defects will inevitably become more prevalent and manufacturers will be under even greater increased scrutiny from the NHTSA. As this scrutiny increases, automakers will be more likely to voluntarily recall their vehicles, even for minor defects, to stave off costly government investigations. This practice of preemptive recalls is already gaining traction: 60% of the over 600 recalls in 2014 were issued voluntarily.

As the number of recalls each year continues to grow, suppliers will be seeing added pressure to improve not only the quality of their parts, but increase their response time when automakers declare a part ineffective. Takata’s ultimate willingness to cooperate with federal investigators may signal a new trend towards transparency from suppliers, something that automakers will ultimately consider table stakes. While globalization makes diversification of manufacturers easy, car companies and federal regulators will not take the same approach to safety, especially when billions of dollars and human lives, are on the line.

Brooks Ryan

Brooks Ryan


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