The Department of the Treasury and the Internal Revenue Service released new guidance that is “designed to expand the use of income annuities in 401(k) plans.”
April 04--Another recall?
Recalls have become as much a part of the automotive industry as engines. Recalls are up 4 percent from the previous decade while auto sales have decreased by 10 percent. Despite an unparalleled level of mechanical and electric sophistication in modern cars, we're buying fewer cars and holding onto them longer.
The U.S. is mired in another recall that has reached the highest levels of scrutiny. In March of 2014, General Motors issued a wave of expanding recalls for its fatal ignition switch defect at the same time Toyota Motors was settling its record-setting fee of $1.2 billion to the U.S. government for its fatal sudden acceleration recalls from late 2009 and early 2010.
In 2013, more cars were recalled than were sold by nearly 45 percent. For 2014, the automotive industry is on pace to surpass the historic high of 30 million vehicles recalled in 2004. So far this year, GM has recalled over 6.3 million vehicles, Fiat Chrysler Automobiles, Nissan, Toyota and Honda have recalled nearly 1 million each.
"The only thing worse than a big recall is a missed recall that causes injuries or fatalities and proves to be a fatal mistake," says Karl Brauer, senior analyst for Kelley Blue Book.
There have been three major recalls, marked by highly-publicized and horrific fatalities, that have defined the era of total recall in the United States:
In 2000, Firestone tire treads separated on the Ford Explorer SUV and caused it to roll over;
Toyota's sudden acceleration recall of 2009-2010 was protracted by Toyota misidentifying why its cars were accelerating for no reason, leading to suspicions of corporate malfeasance that ended with 15 million vehicles recalled worldwide and the aforementioned record penalty;
The current GM ignition-switch recall has totaled 2.6 million vehicles with ignition switches that unexpectedly turn off engines while driving, leaving airbags, power steering and power brakes inoperable.
119 deaths were attributed to the Ford-Firestone recall in the U.S.; 89 in Toyota; 13 in GM, though in each case the number of fatalities has been estimated higher by 3rd parties.
It's hard to pin down an exact number because reconstructing a fatal wreck to determine what worked and didn't work is an intricate and complex process complicated by the number of parts and the operational and circumstantial conditions.
Automakers are under as much scrutiny as the National Highway Traffic Safety Administration, who has come under fire for not acting quicker in connecting the dots between consumer complaints and fatal defects.
As Acting NHTSA Administrator David Friedman and GM CEO Mary Barra testify before Congress this week, it is evident there is still a chasm between automakers reporting consumer issues with the agency charged with ensuring consumer safety.
The agency reviews more than 40,000 consumer complaints a year, which it codes by automotive part, make and model year. Based on these complaints, NHTSA will probe or investigate an automaker. These are categorized as "influenced" recalls.
"Uninfluenced" recalls are initiated by an automaker. If a defect has been found internally by an automaker and not reported to NHTSA within 5 days, they'll be subjected to steep fines. Automakers have paid more than $85 million in fines since 2009, excluding Toyota's record settlement.
Uninfluenced recalls are part of NHTSA's strategy of encouraging good corporate governance and responsible vehicle safety.
68.2 percent of recalls were uninfluenced in 2013, and there have been more uninfluenced recalls than influenced recalls in all but one year since 2009, suggesting that the threat of fines are positively affecting the profit equation when it comes to recalls.
But when things go wrong, the reporting process still seems subject to inconsistency and vagaries. Congress addressed this with the Tread Act, passed in the wake of the Ford-Firestone fiasco, which obligates automakers to share warranty claims, and death and injury data every quarter.
It wasn't enough.
"A massive information breakdown at NHTSA has led to deadly vehicle breakdowns on our roads," said Sen, Edward Markey, D-Mass., who along with Sen. Richard Blumenthal, D-Conn., introduced legislation in late March 2014 to make more defect data available to the public in a searchable, user-friendly format so that watchdog groups, competing car companies, lawyers for accident victims and anyone else can help the agency collect dots.
In essence, the proposed legislation encourages the public to regulate the regulators.
While the Toyota and GM problems were manifesting in the mid-2000s, NHTSA's Office of Defect Investigations (ODI) had its staff cut by 20 percent from an all-time high following the Ford-Firestone recall, according to Jeff Plungis for Bloomberg.
NHTSA's investigative arm has received just $10 million annually since 2005, which is little more than 1 percent of the $851 million it has requested for 2015.
To put it in another perspective, the auto industry's 2013 estimated sales revenue was $483.6 trillion (based on 15.6 million light-duty vehicles sold at an average transaction price of $32,000). And the U.S. allocates $10 million to investigate that industry?
This is simplistic math, but it illustrates the disparity between a mega industry and an undermatched investigative regulatory body.
Some recalls don't seem threatening and may leave people shaking their heads, like the quarter million Lexus recalled in 2013 for a loose nut on front wipers, or Honda, Nissan, Volvo and Kia models being recalled for having an incorrect tire pressure label. But it's clear that automakers are erring on the side of caution.
Consumers seem to be accepting it.
Automakers that were once lauded for their quality have been afflicted by recalls in the past decade. Toyota has led the nation in recalls in 4 of the past 5 years, with Honda earning the dubious distinction in 2011. In early 2014, luxury automaker Aston Martin recalled about 75 percent of the cars it had hand crafted since 2007.
These brands were not typically associated with recalls.
"What the Toyota case showed was that anyone can have a recall and that's OK," says Brauer of Kelley Blue Book. "If it's a long overdue one that looks like corporate irresponsibility then that is so destructive to a company's image."
Toyota's U.S. market share suffered temporarily, according to data supplied by Wards Auto. It peaked at 16.72 percent in 2009, at the onset of the sudden acceleration debacle, then dipped to 12.65 percent in 2011; in the past two years its market share has gone back up to 14.13 percent.
"It's not so much the number of recalls but the quality of the recall experience, especially since brand loyalty does not have the cachet of the past," Brauer says.
Ford's market share slid 7 percent in the years following the 2000 Ford-Firestone fiasco but has been on the uptick since the recession. Market share appears to be affected less by major recalls than from more automakers competing in so many more segments. Customers have the opportunity to be fickle and every automaker has recalls.
Accustomed to software updates on high-end technological devices, consumers may be more accepting, or tolerant of recalls than in past generations.
Recalls have become so commonplace that auto dealers can use them as a demonstration to build brand loyalty and show that they care about the customers buying their products.
"What a great opportunity for dealerships to say 'I'm taking care of you, this is where you should take your car to be serviced even after the warranty expires,'" says Dave Sloan, President and General Manager of the Chicago Automobile Trade Association.
Considering today's global automotive landscape, where the same part can be used not just across model lines but by several different automakers, it makes sense that one recall would affect so many more vehicles.
Consider the case of the faulty Takata airbag issue, which culminated in 2013. After 5 years of rolling recalls over faulty airbags that deployed unnecessarily or shot shrapnel into the victim, over 6.5 million vehicles were recalled worldwide by Honda, Nissan, Toyota and BMW.
All of these recalls tend to blur the positive fact arising from them: Vehicle-related fatalities are at historic lows.
"Even though recalls may be up, vehicles have never been safer," says Russ Rader, spokesperson for the nonprofit Insurance Institute for Highway Safety, which issues the most rigorous and independent safety tests in the nation. "The fatality rate per mile traveled is at a historic low, and that's mainly because people are walking away from serious crashes that would have injured or killed them 20 years ago."
According to Fatality Analysis Reporting System (FARS) data provided by the National Highway Traffic Safety Administration (NHTSA), the average number of annual motor vehicle fatalities has dropped 8 percent in the past decade from the previous decade. From 1994-2003 the annual average was 37,489; over the next nine years, from 2004-2012 (2013 numbers have not been finalized), the average was 34,412. In the past 5 years, however, the average has dipped below 30,000 fatalities.
More rigorous safety standards and more sophisticated safety features are the primary reason motor vehicle fatalities are at their lowest since 1950.
The era of mass recalls is also helping improve safety, if after the fact.
In the wake of the Toyota recall, NHTSA recommended a brake-throttle override system in all new cars so that a car can't be accelerating at the same time a driver is braking, essentially. It's being adopted by all automakers, according to NHTSA. Backup cameras will be required in all 2019 models, thanks to NHTSA estimating that about 65 lives will be saved and thousands of backover accidents prevented.
NHTSA has also proposed for all keyless systems to operate the same so that in the case of a sudden acceleration emergency, drivers can hold down the start button for a half-second instead of 3 seconds to shut down the car.
In this new era of technologically advanced cars, the car-buying public must inform itself to ensure its safety, as well.
Despite the improvements in safety and self-regulation, recalls are still occurring after the fact of fatalities. That's what stinks at the highest levels.
(c)2014 the Chicago Tribune
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