Now, vehicle recalls set to get a codified route
The Motor Vehicles Amendment Bill has proposed significant changes to issues around vehicles and road safety. A three-part series looks at the impact the new rules will have on insurance claims and taxi aggregators, starting with car recalls
With the Lok Sabha passing the Motor Vehicles Amendment Bill, a significant change is expected in the whole ecosystem around vehicles and road safety. In the first part of a series on the impact of the Motor Vehicles Act, AJAY MODI examines the issue of vehicle recall.
The Motor Vehicles (Amendment) Bill 2016 is set to streamline the vehicle recall process, with the legislation clearly defining the conditions under which the government can order such a recall and penalise the manufacturer concerned.
The Bill, which will revamp the laws governing transportation in the country, was passed by the Lok Sabha last week and is now awaiting ratification by the Rajya Sabha. Among other things, the Bill seeks to introduce measures that would enhance road safety.
The recall of vehicles has been a grey area under the existing laws, and largely practised by manufacturers voluntarily. While most car makers have been doing recalls for the last two decades, the recall of twoand three-wheelers and commercial vehicles is unheard of.
“Some measures may look harsh but they are in the right direction. If there is a case for recall and the company does not initiate one, the government will direct a manufacturer to do it. If it still does not recall, the government will take action and impose penalty on the company. One can expect a formal recall framework,” said Vishnu Mathur, director general at Society for Indian Automobile Manufacturers (Siam), the apex body of automobile makers.
In July 2012, Siam introduced a voluntary recall code for its members. It’s not that recalls were not happening before. Jagdish Khattar, former managing director at Maruti Suzuki, said the company had recalled Omni vans more than 15 years ago. There was also a recall of Zen before Omni.
The Siam code puts the responsibility of initiating recall of a defective vehicle on the manufacturer. The code asks manufacturers to state the recall information on their website and also share it with individual owners. A recall should be made in cases of a manufacturing defect that could compromise the safety of a vehicle, the code says. Vehicles within seven years of manufacture are covered under the recall.
The industry responded well to this code and has recalled more than two million vehicles since the code was introduced. Car makers, big and small, have recalled hundreds of thousands of vehicles and addressed the defects while bearing the cost. However, there has hardly been any recall of two-wheeler and commercial vehicles in the country.
The new legislation states the government can order a recall if there is a defect in a vehicle that could harm the environment, the occupants or those on the road. A recall can also be initiated in case a per cent (to be decided when the rule is notified) of owners or a testing agency approaches the government. In such a case, the manufacturer must either replace the vehicle or reimburse the entire cost of the vehicle or repair it. There will be provisions for imprisonment and penalty in case of failure.
The industry welcomes the move, but insists nothing changes for them. “We already have a proactive and robust system to voluntarily recall vehicles in the interest of customers and their safety,” said a spokesperson at Maruti Suzuki. Last year, the country’s biggest car maker announced a recall of more than 75,000 units of Baleno, manufactured over the previous few months, due to a defect in the airbag controller software.
Experts said all companies will align to the recall system once it gets formalised. “But if you see the trend, companies have not been holding back news of a defect as their bigger worry today is retaining the confidence of buyers. Now, one can expect these processes to be quicker,” said Abdul Majeed, partner at Price Waterhouse.
Some also raise concerns about the efficacy of the regulatory machinery to detect a case of recall. “The first such decision has to come from the company as it will be the first one to discover it. If a company keeps it under the wraps, then discovery only can happen in case of an accident or malfunctioning,” said an industry official.
One can see the scale of recalls going up as the market expands and inconsistency in the quality of inputs shows up, especially at the lower level of the automobile value chain. As makers squeeze lower and lower prices out of component manufacturers to make their price tags as competitive as possible, many vendors look to cut costs by compromising on the quality.
Majeed said the incidence of recall was only expected to go up. “Vehicles are getting more sophisticated and there is use of newer technologies and components. These will take time to settle and in spite of quality checks there could be challenges,” he said.
Indeed, most of the recalls in India have happened due to quality issues from small component vendors. It is these vendors who in most cases have to bear the cost of the free replacement of component during a recall. The dealerships and service stations, too, are burdened when a recall is executed.
A recall can indeed bring death for a component maker by impacting profitability and operations. Take the case of Japanese company Takata, one of the world’s biggest airbag manufacturers. Millions of cars from top car makers like Toyota have been recalled globally in the last couple of years after instances of explosion in air bags (supplied by Takata) and deaths were reported. The consequence: millions of dollars in penalty and loss of top customers like Honda and Nissan who decided against using the company’s air bags.
Still, a recall is something everyone is advocating. “If the problem comes from the customers and then you decide to recall, it looks reactive. It would adversely affect their image. So, doing recall proactively is only in the interest of manufacturers,” said Khattar. Next: Insurance premium might not go down