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Carsales Staff14 Dec 2016
NEWS

Study shows recalls undermine reputations

New research draws link between mass recalls and the reputation of car-makers – with a twist

In what might not come as a shock to many, a new US study has found a direct correlation between mass automotive recalls and the reputations of the companies that manufactured the vehicles involved.

However, it found that recalls impact the reputations of companies differently, as evidenced by the world's three biggest mass recalls -- Volkswagen's 'dieselgate' recall, General Motors' faulty ignition switch recall and Toyota's unintended acceleration recall.

According to the Reputation Institute, its RepTrak data shows that Volkswagen’s reputation dropped significantly from 69.7 points in 2015 to 63.4 in 2016 – the first full year after its emissions-cheating scandal broke, in September 2015.

The dieselgate fiasco led to a global recall of 11 million vehicles, including 90,000 VW, Audi and Skoda vehicles in Australia.

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Breaking down the figures, RI says the German car-maker's reputation took the biggest hit in terms of governance, which its figures show dropped by 10 points, "indicating that consumers view the company as significantly less ethical and transparent than before".

Apart from costing Volkswagen $US14.7 billion to settle with the US government, the company's citizenship reputation also dropped by 10 points, says RI, which claims "the scandal damaged Volkswagen’s reputation as the environmentally friendly company and as the champion of good causes".

"The third dimension that took a hit from the emission debacle was leadership -- the score dropped by more than seven points over the last year as the management and CEO failed in addressing the issue early and effectively," the study found.

"The total cost to the company in form of lost sales, criminal charges and tarnished reputation among all their stakeholders will certainly be much higher."

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On the other hand, the researcher found that General Motors' reputation did not take a significant dive after ignition switches in 30 million cars worldwide were confirmed as being potentially defective in 2014.

GM management was later accused of being aware of and concealing the defect from regulators, safety agencies and customers, before it settled with the victims of accidents resulting in 124 deaths and 274 injuries, costing the company a total of $US4.1 billion.

"According to RI’s data, GM’s reputation did not change in any profound way between 2015 and 2016.

"Although one would expect to see the scandal affecting the reputation severely, the fact is that GM already had the lowest reputation score among car manufacturers in the US in 2015, and if not for the emission scandal that engulfed Volkswagen, GM would still be at the bottom of the list.

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"Its weakest dimension is Governance, on which GM has a weak score of 59.8 – that is even lower than its German rival."

Toyota, meantime, was fined $US1.2 billion by North American regulators in 2014 to settle a criminal probe into the unintended acceleration of more than 10 million cars worldwide, after failing to recall the vehicles earlier and continuing to produce them with defects despite reportedly knowing about them.

"Interestingly, the troubles associated with the unintended acceleration of Toyota’s vehicles did not have any meaningful impact on its reputation in the US: the company’s reputation in 2015 remained strong with the score of 71.2," said RI.

"Similarly, the rational dimensions of Toyota’s reputation did not change significantly, although directionally, Products, Performance and Citizenship were lower relative to 2015.

Toyota figures

"Compared to GM and Volkswagen, Toyota is viewed by consumers as more ethical and transparent as they rate the company’s dimension of Governance significantly higher."

The Reputation Institute says Toyota managed to avoid the negative effects of the scandal on its reputation because people trust its products.

"RI’s Rep-Trak data shows that Toyota is significantly ahead of GM and Volkswagen in the dimension of Products -- the most important driver of reputation in the US -- as it receives a very respectable score of 78.8 in 2016.

"The data also reveals that consumers continue to view Toyota as more reliable and trustworthy relative to GM and Volkswagen. What is even more interesting is the fact that significantly more consumers in the US trust Toyota to do the right thing this year when compared to 2015.

"Over the last years Toyota has heavily invested in its corporate brand, particularly in the areas of corporate social responsibility. The company has build a strong reputational equity that is based not only on the quality of its products and its ability to innovate, but also on how well it performs in the areas of Leadership, Workplace, Governance, Citizenship, Leader-ship and Financial Health.

"As a result, Toyota is perceived today by US consumers as a good citizen that is doing the right things even when nobody is looking.

"Thanks to Toyota’s strong corporate brand it could leverage customers’ and consumers’ trust during the recent crisis. It gave Toyota a clear advantage over Volkswagen and GM and helped to maintain strong reputation in the US."

For that reason, RI said Toyota's reputation fared better than that of GM's when it came to the largest recall in recent history, the Takata airbag debacle that affects more than 40 million cars globally, including more than 1.5 million in Australia.

GM recalled 3.6 million US cars last September due to potentially faulty airbag inflators that could fire shrapnel at vehicle occupants, killing 11 people and injuring a further 184 in the US across more than 20 vehicle brands.

Insiders allegedly knew about the problem for a decade before investigations began in late 2014, and US automotive safety regulator NHTSA this week said repairs won't be completed until at least 2020, by which time 42 million vehicles and at least 64 million inflators will be involved.

Honda – the brand most affected by the Takata airbag recall in Australia – last week said it has replaced about half of the 600,000 faulty inflators in a total of about 425,000 cars here.

A lack of replacement airbags also affects Nissan, which has at least 270,000 cars involved Down Under.

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