Study of auto recalls shows carmakers delay announcements until they 'hide in the herd'

February 22, 2021

BLOOMINGTON, Ind. - Automotive recalls are occurring at record levels, but seem to be announced after inexplicable delays. A research study of 48 years of auto recalls announced in the United States finds carmakers frequently wait to make their announcements until after a competitor issues a recall - even if it is unrelated to similar defects.

This suggests that recall announcements may not be triggered solely by individual firms' product quality defect awareness or concern for the public interest, but may also be influenced by competitor recalls, a phenomenon that no prior research had investigated.

Researchers analyzed 3,117 auto recalls over a 48-year period -- from 1966 to 2013 -- using a model to investigate recall clustering and categorized recalls as leading or following within a cluster. They found that 73 percent of recalls occurred in clusters that lasted 34 days and had 7.6 following recalls on average.

On average, a cluster formed after a 16-day gap in which no recalls were announced. They found 266 such clusters over the period studied.

"The implication is that auto firms are either consciously or unconsciously delaying recall announcements until they are able to hide in the herd," said George Ball, assistant professor of operations and decision technologies and Weimer Faculty Fellow at the Indiana University Kelley School of Business. "By doing this, they experience a significantly reduced stock penalty from their recall."

Ball is co-author of the study, "Hiding in the Herd: The Product Recall Clustering Phenomenon," recently published online in Manufacturing and Service Operations Management, along with faculty at the University of Illinois, the University of Notre Dame, the University of Minnesota and Michigan State University.

Researchers found as much as a 67 percent stock market penalty difference between leading recalls, which initiate the cluster, and following recalls, who follow recalls and hide in the herd to experience a lower stock penalty.

This indicates a "meaningful financial incentive for auto firms to cluster following recalls behind a leading recall announcement," researchers said. "This stock market penalty difference dissipates over time within a cluster. Additionally, across clusters, the stock market penalty faced by the leading recall amplifies as the time since the last cluster increases."

The authors also found that firms with the highest quality reputation, in particular Toyota, triggered the most recall followers.

"Even though Toyota announces some of the fewest recalls, when they do announce a recall, 31 percent of their recalls trigger a cluster and leads to many other following recalls," Ball said. "This number is between 5 and 9 percent for all other firms. This means that firms are likely to hide in the herd when the leading recall is announced by a firm with a stellar quality reputation such as Toyota.

"A key recommendation of the study is for the National Highway Traffic Safety Administration (NHTSA) to require auto firms to report the specific defect awareness date for each recall, and to make this defect awareness date a searchable and publicly available data field in the auto recall dataset NHTSA provides online," Ball added. "This defect awareness date is required and made available by other federal regulators that oversee recalls in the U.S., such as the Food and Drug Administration. Making this defect awareness date a transparent, searchable and publicly available data field may discourage firms from hiding in the herd and prompt them to make more timely and transparent recall decisions."
-end-
Co-authors of the study were Ujjal Mukherjee, assistant professor of business administration at the Gies College of Business at the University of Illinois who was the lead author; Kaitlin Wowak, assistant professor of IT, analytics, and operations at the Mendoza College of Business at the University of Notre Dame; Karthik Natarajan, assistant professor of supply chain and operations at the Carlson School of Management at the University of Minnesota; and Jason Miller, associate professor of supply chain management at the Broad College of Business at Michigan State University.

Indiana University

Related Cluster Articles from Brightsurf:

Image release: Galaxies in the Perseus Cluster
New VLA images show how the crowded environment of a cluster of galaxies affects the individual galaxies, helping astronomers better understand some of the complex details of such an environment.

Is it one or two species? The case of the cluster anemones
Their scientific name is ''Parazoanthus axinellae'' and they are among the most fascinating corals of the Mediterranean Sea.

Discovered: Remnant of ancient globular cluster that's "the last of its kind"
A team of astronomers discovered a stellar stream composed of the remnants of an ancient globular cluster that was torn apart by the Milky Way's gravity 2 billion years ago, when Earth's most-complex lifeforms were single-celled organisms.

Stellar fireworks celebrate birth of giant cluster
Astronomers created a stunning new image showing celestial fireworks in star cluster G286.21+0.17.

Resistance to immunosurveillance favors cluster cancer metastasis
Researchers at Baylor College of Medicine show that circulating cancer cell clusters are more resistant to NK-cell mediated destruction than single cancer cells, leading to more cluster metastasis.

Age of NGC 6652 globular cluster specified
Senior Research Associate Margarita Sharina (Special Astrophysical Observatory) and Associate Professor Vladislav Shimansky (Kazan Federal University) studied the globular cluster NGC 6652.4.05957 and found out that its age is close to 13.6 billion years, which makes it one of the oldest objects in the Milky Way.

Rhythmicity of cluster headache
Although it is known that CH patients exhibit circadian rhythmicity of attacks, new data add a new feature with regard to the rhythmicity of attacks throughout the disease course.

Hubble snaps a crowded cluster
This sparkling burst of stars is Messier 75. It is a globular cluster: a spherical collection of stars bound together by gravity.

Ushering in ultrafast cluster electronics
A new computational method can help fast track the development of tiny, ultrafast electronic devices made from small clusters of molecules.

Aging a flock of stars in the Wild Duck Cluster
The way they move belies the true ages of the almost 3,000 stars populating one of the richest star clusters known.

Read More: Cluster News and Cluster Current Events
Brightsurf.com is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.