The Effects Of Issuing An Auto Recall - 1967 Words

Current Situation As Americans, the value of using automobiles is almost unquantifiable in the convenience and mobility it contributes to our daily lives. For those of us that already own cars, the experience of being notified of a recall affecting this most prized of possessions can be a familiar one. In the case of even small defects, issuing an auto recall can have serious consequences for the companies that issue them. The purpose of my research this semester is to observe the economic fallout of issuing an auto recall, in the cases of both life-threatening defects and mere convenience issues. Furthermore, I would like to use this foundation of research to observe how customer loyalty to auto makers who have issued these recalls†¦show more content†¦Indirect costs, in this case, include quantifiable brand damage, effects on stock prices, and customer loyalty. Auto makers who possess a good reputation enjoy a number of benefits, such as the ability to charge higher prices, growth in sales , increased return to actual quality, and protection against market entrants [Rhee and Haunschild, 2006]. However, when an auto recall is issued, that good reputation can work against the auto maker in question. For example, a companies that are rated with the highest financial stability, as rated by Moody s Bond Record, tend to suffer the most following an auto recall, experiencing a loss of between -0.26%- -0.28% in their stock prices the day following the issuing of a recall. This translates to an average loss of $42.8 million in shareholder value following a recall announcement [McDonald, 2009]. Moreover, it is an observable phenomenon that the indirect costs of issuing an auto recall actually outweigh the direct costs as listed above [Rupp, 2004]. Purpose of the Research As stated above, it is worth observing the phenomena of auto recalls in both small convenience issues and in major safety defects. One of the factors that showed to have the most bearing on the economic effects and subsequent customer loyalty was which component the recall was being issued for. According to Rupp, the three components that cause the greatest drop in stock value and sales of their vehicles were airShow MoreRelatedTechnology And Its Impact On Society1614 Words   |  7 PagesIndustry members need to be able to keep up with technological advances as they develop. In today’s society technology is advancing at a rapid rate. Technological factors are defined into products and processes and effect both internal and external environments. Technological processes like updated information systems, automated equipment and business processes have the ability to increase profit margins, reduces cost, increase efficiency and sustainability. 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