Auto Recall Clustering: What is It?
Doesn’t it seem like auto recalls all happen in clusters? For those of us who follow auto recalls in the news, the phenomenon of auto recall clustering is something we have eyes on. Essentially, the phenomenon involves auto companies and their suppliers all filing recalls together so that it doesn’t hurt any one company individually.
In the past, auto recalls have resulted in huge stock losses for investors and others once word broke that their customers were driving unsafe vehicles. One way to soften the blow of the news is to ensure that your announcement comes at the same time other auto companies are announcing their recalls.
Auto recall clustering is essentially like your brother telling your parents that he broke their lamp after you told your parents you were failing math.
48 Years Worth of Data
Research published by Manufacturing and Service Operations Management studied auto recalls issued from 1966 to 2013. What does the data say? Essentially, the data corroborates the researchers’ belief that auto recall clustering is in fact a legitimate thing. It also tells us a bit about the likely results of stock prices once a recall is initiated.
The research indicates that the first OEM (original equipment manufacturer) to initiate the recall takes the biggest stock hit. This is largely because not all OEMs are car manufacturers but manufacture parts for cars. Once a problem is detected, it sets off a chain reaction that puts several other companies on notice that parts supplied to them to manufacture their vehicles are faulty and need to be replaced. So one defective auto part manufactured by one company will lead to a chain reaction that naturally forces other companies to issue recalls. The data suggests that the first company to issue the recall takes the largest stock hit. The last company to issue a recall also takes a hit to their stocks.
This is a Problem
Essentially, companies are being punished in the market for issuing recalls. This sets up a situation where the company can either protect investors from capital losses or issue a recall that could potentially prevent injuries or death. This is just one of the reasons why companies who need to issue recalls don’t initiate them until they are forced to by the NHTSA. The companies will fight the recall all the way to court and then begrudgingly initiate one once the court has ruled against them. Meanwhile, consumers are driving around potentially dangerous vehicles while the auto companies play chicken hoping that someone else will make the first move.
Talk to a Florida Defective Car Attorney Lawyer
If a defective auto part contributed to your accident or injury, the Coral Gables tire defect attorneys at Halpern, Santos & Pinkert have the experience and technical know-how you need to ensure that your claim is litigated properly. Call today to set up a free consultation and we can begin building your case immediately.