Recall and Vehicle Characteristics Associated with Vehicle Repair Rates

Abstract

Carfax (2018) estimates that 20% of U.S. vehicles that are on the road have outstanding recalls: they have a known defective part or design. Recalled vehicles represent future costs to manufacturers and pose safety risks to the public. Only two prior studies examine the determinants of recall completion rates—the percent of recalled vehicles that are repaired—and both use cross-sectional data from the 1980s. This paper uses panel data on 677 U.S. vehicle recall campaigns from 2006 to 2015 to identify the correlates of completion rates for the Detroit 3 and the three largest foreign vehicle manufacturers. In addition to using more recent data, we include variables that were not previously examined: multiple recalls, vehicle type, and reporting period. The analysis confirms the earlier finding that domestic manufacturers’ completion rates exceed those of the foreign producers. We also observe higher completion rates on recalls for severe defects, on vehicles under multiple recalls, and on luxury vehicles. In contrast, older vehicles and trucks exhibit lower recall completion rates. The observed patterns in recall completion rates suggest that refinements in how manufacturers estimate recall costs in the litigation process and in strategies to improve completion rates are possible.

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Notes

  1. 1.

    The Detroit 3 are Ford Motor Company (Ford), Fiat Chrysler Automobiles N.V. (FCA), and General Motors Company (GM).

  2. 2.

    The Foreign 3 are the largest foreign manufacturers ranked by total U.S. sales for the year ended December 31, 2016: Toyota Motor Corporation (Toyota), Honda Motor Company (Honda), and Nissan Motor Company, Ltd. (Nissan).

  3. 3.

    The data include 10 recalls that achieved a 100% completion rate prior to reaching the sixth quarter.

  4. 4.

    Commercial trucks are trucks with a gross vehicle weight rating above 10,000 lb. Commercial trucks include, for example, the Ford F350 and the Chevrolet Silverado 3500.

  5. 5.

    Non-commercial, or consumer, trucks are trucks with gross vehicle weight ratings of 10,000 lb or less. Examples of non-commercial trucks include the Ford F150 and F250 and the Chevrolet Silverado 1500 and 2500.

  6. 6.

    Specifications using ln(Size) produced similar results.

  7. 7.

    We explored regressions that use a dummy variable to indicate the years during the Great Contraction. This required dropping the year dummy variables and using a discrete variable to track year in order to avoid multicollinearity. This also forced the relationship between year and the mean completion rate to be linear. The Great Contraction dummy variable failed to achieve statistical significance in any reporting quarter in any specification. Because we found no evidence that the recall completion rate differed during this period we do not report the specific results for these regressions.

  8. 8.

    Results for AGE, SIZE, SEVERITY, MULTIPLE, and vehicle type are the same in the regressions that control for individual manufacturer as they were in the regressions that control for domestic versus foreign manufacturer.

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Correspondence to Patricia K. Smith.

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Malec, A.M., Smith, P.K. & Smuts, A.E. Recall and Vehicle Characteristics Associated with Vehicle Repair Rates. Rev Ind Organ (2021). https://doi.org/10.1007/s11151-021-09811-4

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Keywords

  • Automotive recall completion rates
  • Safety
  • Litigation

JEL Classification

  • K14 (Litigation Process)
  • D12 (Consumer Economics: Empirical Analysis; Economics)