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Recalls are a common occurrence in the world of consumer goods; nearly everything, from antacids to zucchinis, has faced a recall at some point. This year alone, I received notifications about two items: laundry detergent, which had packaging issues that made it difficult to open (I chose to keep it), and chicken wraps that were recalled due to potential listeria contamination (I had already consumed them).
Fortunately, my laundry turned out clean, and I avoided hospitalization. However, when a company like Ford faces an unusually high number of recalls, especially with new products, it raises questions. Ford is so determined to minimize recalls and associated costs that it’s prepared to forfeit immediate profits by holding shipments for weeks. Yet, this isn’t just an ethically driven decision; it’s a strategic business move, as Ford has held the title of the most recalled automaker since 2020. (Surprised? You’re not alone!)
A recent Bloomberg article indicates that Ford’s issues with recalls have cost the company $4.8 billion last year alone. This figure represents about 4% of its automotive revenue and is nearly three times the average industry rate. Since 2019, the costs for warranty repairs have soared from $591 to $1,203 per vehicle. Overall, the automotive sector is seeing an uptick in recalls, with National Highway Traffic Safety Administration (NHTSA) data showing a 42% rise from 2013 to 2023, primarily due to advancements in technology introduced by manufacturers.
To combat this issue, Ford plans to postpone the shipment of new and redesigned vehicles to dealerships for as long as six weeks to conduct thorough quality checks at their factories. While this approach may impact short-term earnings, it will also affect executive compensation. If quality benchmarks are not achieved, bonuses will be forfeited.
“Our earnings may fluctuate a bit,” stated Ford CEO Jim Farley. “However, in the long run, we anticipate fewer recalls and reduced warranty costs from this revised process.”
Earlier this year, Ford launched its “build-and-hold” strategy, starting with the new F-150 pickup. Over 60,000 newly constructed trucks were kept on factory grounds for weeks so engineers could conduct thorough inspections. The F-150 holds the title of best-selling vehicle in the U.S., making it crucial to ensure quality.
Ford reported that this additional inspection period led to a significant 65% decline in earnings from the internal combustion engine (ICE) variant, its most profitable model, but it also helped avoid 12 recalls linked to assembly issues and software errors. This approach will be replicated for the new Explorer and updated Bronco Sport and Maverick models. If only this strategy had been implemented earlier with the introduction of the Bronco Sport, F-150 Lightning, Maverick, and Mustang Mach-E.
In conclusion, this strategy offers a triple benefit: Ford can save money while restoring consumer trust; dealerships will avoid dealing with unhappy returning customers (though their service technicians may find less work); and buyers can take comfort in knowing they won’t end up with a defective vehicle.
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