We already know that 2014 has set a new record for the number of recalls in America, and that was with 6 months to go in the year. The assumption is that car recalls are bad for dealers and bad for the automakers.
The truth is, it is bad for the automaker for sure, and we know it is very expensive for them. General Motors alone spent 1.2 billion dollars in the second quarter of this year. For the dealerships, the opposite is actually true and although you’ll never hear a dealer say that recalls are good, secretly they don’t mind them.
I realize this sounds strange to most, but I was part of one of the biggest recalls of the last decade, which was the Ford Explorer/Firestone tire issue. At the height of this recall, I had the single largest profit month of my career as a dealership owner. First and foremost, we wanted to make sure people were safe, so we extended service hours, hired extra personnel, and even made a special lane on our service drive just for the people who had recalled Explorers. I readily admit that the profit opportunity was a motivator too.
Manufacturers vs Dealers
You see, the automakers pay the dealers handsomely to perform recalls. It is a flat fee per operation and includes parts and labor. Let’s say the current GM recall pays the dealership two hours of labor at $100 per hour, GM pays the dealer $200 in labor costs, plus parts-which the dealer makes money on too. After a few times switching out the ignition, the technician can probably do the job in an hour, yet the dealership is getting paid for two hours. Are you beginning to see the picture now?
That’s just the tip of the iceberg, however. America is suffering from what I call “recall apathy” which means they are desensitized to recalls. It’s sort of a “ho-hum” issue for most. Because recalls are so widespread in the past few years, most people don’t think any less of their car because it has been recalled. Toyota proved this a few years ago with a record number of recalls, however, their sales did not suffer and today, they are one of largest volume automakers in America.
Also, many of the recalled cars are older, and those people have not visited a dealership in years. Smart dealers use this as an opportunity to reunite with customers and impress them with great service.
I have spoken to a number of GM dealers who say they are selling a lot of new cars to people who have a recalled vehicle. Many are purchasing the car that was loaned to them…they notice how much cars have changed since they bought their old car, they notice all the safety features, and most notice a significant increase in fuel economy. Many GM dealers are putting as many as several hundred of their cars in their rental fleet for this reason. GM has matched sales information to their recall list and can confirm 6600 sales on the ignition switch recall alone. In some cases, there are additional rebates for those who have a recalled call if they buy a new one.
Do car dealers sit around and wish for more recalls? That is doubtful, but since it is out of their control, the smart ones figure out a way to make the most of a bad situation. For the dealers who don’t prioritize customer service, the opposite is true, they will actually lose customers and lose business.
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