General Motors hopes to shift the cost of parts recalls to its suppliers. This summer, the company adopted new language in its purchasing contracts that would allow it to recoup safety recall costs from the supplier base. The new terms went into effect for all contracts signed after July 15, although at that time no major suppliers had agreed to the new terms.
The GM news came just as the National Highway Traffic Safety Administration (NHTSA) announced new rules requiring automotive OEMs to provide online VIN look-ups to help consumers determine if their vehicles were affected by any outstanding recall notices.
Under the terms of the new contracts, suppliers will be held responsible for parts if GM has to later recall those parts for safety reasons. They will bear financial responsibility for the recall, even if they built the part to GM's specifications. The new contracts state that the supplier's products "will not, at any time (including after expiration or termination of this contract), pose an unreasonable risk to consumer or vehicle safety."
The potential cost to suppliers could be substantial. For example, earlier this year when Chrysler agreed to install trailer hitches on more than 1.5 million vehicles to better protect the fuel tanks, the company estimated the tab would be as much as $151 million.
GM has launched a number of initiatives to improve both supplier relationships and quality over the past several years. For example, the company has hired 200 supplier-quality engineers as part of that effort. In a 2012 opinion survey of North American suppliers, GM ranked ninth out of 10 major automakers.
In addition to the new recall terms, suppliers have also been asked to ensure an uninterrupted 30-day supply of parts during any foreseeable or anticipated event (such as labor disruptions or financial difficulties); however, GM will not hold them liable for that level of supply during natural disasters.
The Original Equipment Suppliers Association (OESA) regularly reviews new supplier contracts for its membership, and is currently evaluating the GM terms.
"We do a comparative analysis of all the vehicle manufacturers' terms and conditions," says David Andrea, OESA's senior vice president, industry analysis and economics. "We're not making a judgment call about whose conditions might be better or worse. What we're doing is providing a comparative analysis across all provisions in a typical terms and conditions document, providing one place where a supplier can find out how GM would deal with a provision versus Ford or Chrysler."
Andrea added that the contracts with the most changes typically receive the most attention during this analysis, "and this year, without a doubt, we will focus on GM," Andrea says. "They have the largest number of changes."
The organization planned to specifically discuss the GM terms and conditions at its "Commercial Trends and Legal Strategy" conference on Sept. 17.
The recall issue also ties into an ongoing discussion between suppliers and OEMs about warranty claims. "Our basic tenant here is always going to be that if a supplier is design-responsible, from the standpoint of developing a product to a certain product specification for a customer, then the supplier would be liable for the warranty as it was designed," Andrea says. "But if the material specifications or design is the customer's responsibility, then that customer is liable for the warranty."
NHTSA requires weekly recall data
Right now, only about 70 percent of recalled vehicles are actually taken to a dealership for repairs. Starting next year, NHTSA will require major auto and motorcycle OEMs to provide online access to recall data, so they can search for vehicles by VIN to determine if all recall work has been completed for a given vehicle. The data will be updated weekly, and will be available at the NHTS website, SaferCar.gov.
"Safety is our highest priority, and an informed consumer is one of our strongest allies in that effort," said U.S. Transportation Secretary Anthony Foxx. "Owners and potential buyers alike will soon be able to identify whether a safety recall for their specific vehicle is incomplete."
The new rules could potentially boost the number of vehicle owners that bring their cars to dealerships for recall work. The new GM supplier contracts, however, will likely have little or no effect on handling recalls at the dealer level, according to a spokesperson for the National Automobile Dealers Association (NADA).
This final NHTSA rule requires large volume car, light truck and motorcycle manufacturers to provide search capability for uncompleted safety recalls on their websites. Manufacturers also must provide vehicle owners with direct recall notices within 60 days of notifying NHTSA about a recall.
In addition, the rule will require manufacturers to inform NHTSA about exactly what type of propulsion system and crash avoidance technologies vehicles have. That data should help NHTSA identify defect trends related to those systems and components.
OEMs that don't already provide recall data online will have until next summer to launch their own solutions. The same week NHTSA announced the new requirement, GM issued a recall affecting nearly 300,000 Chevy Cruze vehicles because of a brake issue. That recall was the eighth related to the Cruze.
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