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Auto recall bill grew 26% to $22bn in 2016, study says

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A new study highlighting the flurry of U.S. automotive recalls asserts that automakers and suppliers remain focused on innovation and cost cuts while vehicle quality takes a hit.
The study, “The Auto Industry’s Growing Recall Problem — and How to Fix It,” shows that automakers and suppliers paid almost $11.8 billion in claims and recorded $10.3 billion in warranty accruals for U.S. recalls in 2016. That $22.1 billion total is an estimated 26 percent increase over the previous year.
Michael Held, enterprise improvement director at the global consulting firm AlixPartners, which led the study, told Automotive News that automakers and suppliers totaled an estimated $17.5 billion on claims and warranty accruals in 2015. The number of vehicles recalled in the U.S. in 2016 rose 4.5 per cent to 53.1 million, from 50.8 million in 2015 –making 2016 the highest year on record, the study says. Nearly half of those recalled vehicles were attributed to Takata Corp.’s defective airbag inflators or General Motors’ faulty ignition switches, which combined for 23 million.
In addition, suppliers’ share of total recall costs has tripled from 5 to 7 percent from 2007 to 2013, to 15 to 20 per cent since 2013, according to the study, while “the frequency that suppliers are named in recall notices has doubled.”
Infotainment
According to the study, the number of recalls related to electronic and electrical systems has risen nearly 30 per cent per year since 2013, compared with 5 per cent annual increases from 2007 to 2013. This signals a growing interest in more sophisticated infotainment and safety systems, the study says.
Recalls related to system integration can affect greater numbers of vehicles than can manufacturing problems, which are often restricted to one plant or region and a limited time frame, the study says. “Because most automotive OEMs have adopted global platforms, there is now far less local variation in vehicle content,” the study says. “As the number of vehicles using similar systems increases, so do the number of issues detected since the larger production volumes attract closer observation. As a result, recall notices are increasingly likely to involve not thousands but millions of vehicles.”
Total cost of quality
As automakers focus on profit and cutting costs, the study estimates that automakers and suppliers have slashed spending on quality functions by 30 to 50 percent since the start of the Great Recession. “There’s little evidence that OEMs are moving aggressively to address these issues,” the study says. “In fact, most of them can’t (or at least don’t) quantify for investors how much quality shortfalls are costing them.”

The study recommends that companies calculate the total cost of quality by measuring the costs associated with finding defects before the vehicles hit the market, as well as warranty and recall costs.

“As they undertake these transformations, many companies are learning that they don’t have a handle on the cost of quality,” the study says. “As a result, have difficulty prioritizing emerging issues before vehicles or components reach the marketplace.”

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AutoBeat / Auto Trends

Audi ordered to recall 127,000 vehicles over emissions

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Audi has been ordered to recall 127,000 vehicles after Germany’s KBA motor transport authority detected illicit emissioncontrol software in the automaker’s latest Euro 6 diesel models, German press reports said The recall involves A4, A5, A6, A7 and A8 sedans and Q5 and Q7 SUVs, the German transport ministry told the DPA news agency, confirming a report in Bild am Sonntag.

 

The recall affects 77,600 vehicles in Germany, Bild am Sonntag reported. The KBA has found that the affected cars’ engine  management systems turn off emissions-reducing measures in real-world traffic while allowing them to work on a test bench, the paper said The KBA is threatening to withdraw type approval for the latest generation of Audi’s A8 range-topping sedan, Bild am Sonntag said. Audi said the models had been included in a voluntary recall of 850,000 diesel vehicles with V-6 and V-8  TDI engines announced in July.

 

“The engine control software for the vehicles in question will be completely revised, tested and submitted to the KBA for approval,” Audi said in a statement. Audi said it has been examining its diesel cars for potential irregularities for months in close cooperation with the KBA.

 

“As part of this systematic and detailed assessment, the KBA has now also issued a notice regarding Audi models with V-6 TDI engines,” it said. In November, Audi announced a recall of 5,000 cars in Europe for a software fix after discovering they emitted too much nitrogen oxide. Parent Volkswagen Group concealed high NOx emissions from U.S. regulators in its 2015 diesel emissions-rigging scandal.

 

VW was found to have illegally manipulated engine software so that vehicles would meet NOx emissions standards in laboratory testing but not in real-world conditions, where they could emit up to 40 times the permitted levels. Several Audi models were affected and Audi has been accused in media reports of having devised the so-called defeat devices years earlier but not to have installed them in its vehicles at that time. Audi and Volkswagen have never commented on the matter.

 

Last month, Audi dissolved the task force it set up to investigate how many of its diesel cars have manipulated software.

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Ford caps ‘challenging year’ with 19% decline in Q4 pretax profit

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Ford Motor Co.’s fourth-quarter adjusted pretax profits fell 19 percent to $1.7 billion due to higher steel and aluminum prices, as well as adverse currency rates, the automaker said Wednesday.
Ford’s fourth-quarter operating margin was 3.7 per cent, down 2 percentage points from a year earlier.
Net income swung to a gain of $2.4 billion from a year-earlier loss of $800 million, reflecting a lower effective tax rate and pension re-measurement. The year-earlier loss had been due mainly to accounting changes.
Revenue rose 6.7 per cent to $41.3 billion.
For the full year, Ford’s 2017 pretax profits fell 19 per cent to $8.4 billion, slicing its operating profit margin to 5 per cent from 6.7 per cent in 2016. Those declines were caused by a $1.2 billion hit in raw materials costs and a $600 million negative impact from Brexit.
Net income soared 65 percent to $7.6 billion, as revenue rose 3.3 percent to $156.8 billion.
“It was a very challenging year, but also a year of progress,” CFO Bob Shanks told reporters. “It’s very, very clear we have to improve the fitness of the business.”
Ford shares fell 4 percent to close at $11.57 on Thursday.
Ford’s earnings were driven by its North American region, where pretax profits fell 16 per cent to $1.6 billion in the fourth quarter, due to rising commodities and warranty costs plus expenses related to the launch of the Ford Expedition and Lincoln Navigator that Ford attributed to a supplier-related parts shortage that has since been fixed.
The warranty costs include an October recall of 1.3 million F-150 and Super Duty pickups to fix faulty side-door latches that cost the automaker $267 million.
Revenue in North America rose 4.3 per cent to $24.1 billion. For the full year, pretax profits fell 16 per cent to $7.5 billion in North America, even as revenue edged up 1 per cent to $93.5 billion.
As a result, Ford’s roughly 54,000 UAW-represented employees will get profit sharing checks of $7,500 on average. That’s down from the $9,000 they received last year.
In Europe, Ford’s pretax profit slid 66 percent to $56 million in the fourth quarter and tumbled 81 per cent to $234 million for 2017. Most of the full-year drop was attributed to Brexit-related charges, as well as higher commodity and warranty costs.
In South America, Ford’s pretax loss narrowed to $197 million in the fourth quarter, from a loss of $293 million a year earlier. For 2017, its pretax loss in the region narrowed to $784 million, from a loss of $1.11 billion in 2016.
In the Middle East and Africa, pretax losses narrowed slightly to $70 million in the fourth quarter from $71 million a year earlier, and to $263 million for the full year from $299 million a year earlier.
Pretax profits at Ford’s Asia Pacific business unit collapsed 98 percent, to $5 million in the fourth quarter from $284 million a year earlier, largely due to a sales drop in China. For the full year, pretax profits there slipped 11 percent to $561 million.
Ford Motor Credit Corp.’s fourth-quarter pretax profit jumped 53 percent to $610 million, and its full-year pretax earnings rose 23 percent to $2.3 billion.
‘Bad year’
Ford last week lowered its 2018 forecast for what CEO Jim Hackett characterized as a “bad year.” Its per-share guidance for 2018 translates to earnings of $8 billion to $9.2 billion, according to investment firm Barclays Capital, down from an initial forecast of $9.9 billion.
Shanks, speaking last week, said the company will face about $1.6 billion in increased commodities costs, including steel and aluminum.
Shanks said most of that impact will come from rising steel costs, and that aluminum represents just 25 percent of that negative impact. Ford’s crosstown rivals, including General Motors and Fiat Chrysler, have not highlighted commodities as a financial concern.
Adding to the financial woes are the company’s mobility investments, which were about a $300 million drag on earnings in 2017, the first year in which they’ve been broken out separately. Executives said mobility losses would be larger in 2018.
Shanks said that Ford isn’t as fit as its peers, and that is stopping it from achieving its desired profit margins of around 8 percent.
“We’re not able to get the same level of margins others may be able to,” Shanks said. “That shows the gap we need to address.”
Executives have said that Ford has started to implement business practices that should begin to bear fruit in 2019 and beyond, focused around Hackett’s mantra of “smart vehicles for a smart world.”
Those include $14 billion in costs cuts, simplifying orderable products, and tailoring its model lineup to higher-margin segments for different parts of the world.

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AutoBeat / Auto Trends

European sales of greener cars jumped 39% in 2017

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European sales of cars powered by alternative powertrains rose 39 per cent last year as Toyota pushed hybrid models and Renault extended the driving range on the latest version of its battery-powered Zoe.
Customers in European Union and EFTA markets bought 953,355 autos that run on systems including batteries, electric-gasoline or electric-diesel motors, fuel cells or natural gas in 2017, the Brussels-based European Automobile Manufacturers’ Association, or ACEA, said Thursday in a statement.
Combined demand for plug-in hybrids, which can operate on either conventional fuel or self-charged battery power, and so-called mild hybrids, which use an electric motor to help the combustion engine run more efficiently, surged 52 per cent to 460,418. Sales of full-electric models jumped 49 per cent to 135,369.

The growth far outpaced the European car market’s 3.3 per cent gain last year, suggesting consumers are warming to the models added by Toyota, Renault and competitors. Still, the alternative systems powered only 6.1 per cent of the 15.6 million autos sold across the region last year, an increase from 4.5 per cent in 2016. Battery-powered cars had a 0.9 per cent market share in 2017.

EU regulators are requiring the auto industry to reduce CO2 emissions from vehicle exhausts to limit greenhouse gases. Customers have been reluctant to buy full-electric autos because of concerns about how long battery recharging takes and the short distances the cars can travel compared with gasoline or diesel models.

Renault improved the Zoe’s range on a full charge by 67 per cent to 400km (250 miles). Toyota has up to now focused on hybrid technology, and it said in January that sales of the models jumped 38 per cent in Europe last year to account for 41 per cent of its deliveries in the region.

Sales of full-electric cars in Europe are set to surge to 200,000 this year, LMC Automotive predicts, with demand for battery-powered vehicles forecast to reach 600,000 by 2020 and rise to nearly a million by 2022

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