Do periodic headlines about car recalls catch your eye?
You're not alone. Lately there's been quite a bit of noise in the automobile world about the National Highway Traffic Safety Administration (NHTSA) of the U.S Department of Transportation.
In particular, the NHTSA asked the Chrysler Group
to recall about 2.7 million Jeeps, which are considered to be dangerous due to gas tank-related issues. The NHTSA considers that Chrysler should recall Jeep Grand Cherokee produced between 1993 and 2004, and Jeep Liberty models produced during the 2002-2007 period, because these cars' gas tanks (situated in the rear) could be exposed to leakage and subsequent fire in the case of a rear accident.
Photo Credit: Randall Chancellor
The NHTSA reported that in 2012 alone, automakers recalled almost 18 million vehicles, equipment and child seats. The agency has influenced the recalls of about 9 million of these vehicles, indicating that it's worth it for investors to pay attention to.
Generally speaking, a carmaker may recall its products on its own initiative, or it can be imposed by a regulator; in the latter case, the company usually complies with the regulator, however Chrysler took another road, refusing to recall the cars and considering the possibility of taking the case to the court.
Aside from damaging an automaker's brand loyalty within its own customer base, competitors might use recalls to undermine the company in question. In this way, by standing its ground, Chrysler demonstrates its confidence, which could establish a legal precedence in future occurances.
Even though 2.7 million cars is a big number, it is far behind some other major recalls in the history of the automotive industry. Companies like General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F)
have suffered from significant recalls, along with other players in this space.
Learn more about the ten largest car recalls in U.S. history: