The Risks of Recalls

The recent and ongoing story of recalls by General Motors provides an example of the impact that recall events can have on a company. According to figures posted on the company’s website, GM issued 60 North American recall notices in the first seven months of 2014, covering more than 28 million vehicles. Recall-related costs were reported at $1.3 billion in the first quarter and another $1.2 billion in the second quarter, reducing GM’s net earnings by over 56% across the two quarters combined. In addition to these figures, the company was also anticipating claims for compensation from injured consumers. Longer-term impacts, such as indirect costs, remain to be seen.