When car dealers recall vehicles, it's a loss-win for them. Here's why

Bob Ulrich
Posted on March 24, 2014

How much do automobile recalls really hurt the manufacturers themselves? It may not be as much as you think. And they certainly can hurt your business.

General Motors Corp. recently recalled 1.6 million vehicles because of faulty ignition switches. The company estimates it will cost $300 million in repairs this year alone. There is talk that civil and criminal fines are possible.

In 2009, Toyota Motor Corp. and its Toyota Motor Sales U.S.A. Inc. subsidiary recalled 2.3 million vehicles because the accelerator pedals had the potential to stick, whether mechanically or aided by poorly designed floor mats. Toyota has agreed to pay $1.2 billion to resolve the problem -- and that doesn't include the cost of servicing any of the recalled vehicles over the last five years.

As you can see, recalls can cost vehicle manufacturers a lot of money. Write-offs help offset a little of the cost.

Getting those vehicles into the car dealerships has the potential to offset a great deal more of the costs.

"I know that when John Q. Public goes into one of the car dealers for their “free recall" that very well-trained and paid-on-commission service writers are going to sell them that oil change, wiper blade, cabin filter, drive belt, transmission service and oh, I forgot -- that set of tires," says Barry Steinberg, CEO of Direct Tire and Auto Service.

"That car owner will be sitting in that plush showroom, with a flat screen TV and lattes and cappuccino. Not only will (the car dealer) get that sale, but we, the independent tire dealer, will lose that client or certainly won’t see him for another 40,000 miles."

Steinberg has a solution for all of you: Take out full-page ads in your local newspapers or buy a radio campaign warning the public about this sales process.

"It may come across as sour grapes, but they are stealing those customers they never wanted when the dealers were making a fortune on selling cars," he says. Tell the car owners just to be careful, and be ready for the sales pitch, he adds.

I've never known a tire dealer who didn't advise the customer to take advantage of a free recall or warranty work offered by an OEM. I'm not sure what can be done to prevent add-on sales during the recall process. Steinberg plans to be pro-active.

You would think a recall might sour the relationship between the car owner and the car dealer, but that depends on how it is handled. Just look at the 6.5 million Firestone tire recall from 2000; Bridgestone Firestone executives retained the loyalty of their dealers because they treated them fairly.

And, as we all know, it is the relationship with the tire dealer that customers depend on. Car owners buy their tires based soley on dealer recommendations 70% of the time. (I'm sure many of you would say that number is too low.)

Maybe the same can be said of car dealers and their customers. What do you think? Do you have any solutions to the problem?

Related Topics: Barry Steinberg, Direct Tire, OEMs, recalls

Bob Ulrich Editor
Comments ( 4 )
  • See all comments
  • Marian

     | about 5 years ago

    Car Industry makes car on the basis of customer preference & their demand. Nut in hurry to complete the demand it makes simple mistakes in the cars. As a result cars are recalled to the company. It's a big loss for the car company. The recall should be less as it is a bad effect on the company. Here the article says General Motors Corp. recently recalled 1.6 million vehicles because of faulty ignition switches. This will put impact on production. So Car Company must put attention to this type of issue. http://www.medwayimports.com/

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