Automobile recalls are inevitable. As more vehicles flood the market and technology changes, auto manufacturers may miss problems before the cars get on the road. Older vehicles may also need to be recalled for minor fixes.
What distinguishes companies is how they handle these recalls. General Motors is the latest company to issue a massive auto recall that has garnered a wave of media attention and a plunge in profits. As the issue continues to play out, experts point to a number of lessons that other businesses can take away from GM's experience.
General Motors was hit with a recall crisis in February that quickly escalated when it was discovered that the auto manufacturer had waited more than a decade to recall 2.6 million Chevrolet Cobalts and other models that had defective ignition switches. The defective ignition switches, which could shut down the engine power and disable air bags, have been associated with at least 13 deaths and more than 50 crashes.
A company's first move should be to alert customers about the defect and provide a clear strategy for solving the problem, says Dan Smith, CMO of Outsell, a marketing firm for automotive brands, including Chevrolet.
Recovering from a recall or other mishap, Smith explains, "Comes down to how is it viewed by the buyers. Being proactive and getting in front of the problem is a positive. Second, what is the experience going to be like? How will you make up for this problem?"
GM scrambled to respond to its lapse in reporting the faulty ignition switch. The automaker launched a company-wide safety review, created a new global safety chief, and pledged to recall any cars that had safety issues. In addition, GM established a fund to pay claims related to the defective ignition switches. The fund does not have a cap and the company has so far placed $400 million in the fund.
GM has so far recalled more than 29 million cars this year and is on track to break a decade-old industry recall record of nearly 31 million cars, according to data from the National Highway Traffic Safety Administration (NHTSA).
Other problems also occurred. The NHTSA reported in August that not only are GM's ignition switches defective, so is its website for determining if you own one of the defective cars.
Drivers who used the vehicle identification number (VIN) look-up site were told their cars weren't involved in the recall if the repair parts weren't yet available, even when the cars were actually being recalled. GM said that it was fixing the errors on the site and directed customers to the customer service phone numbers listed on its website.
"What has happened is tragic, but we're focusing on putting the customer in the center of everything we do and doing right by them," says David Mingle, executive director of North America customer experience at GM. "We have over 2,000 customer service agents for the U.S. and we're adding more staff as quickly as possible." The company has temporarily hired more than 100 agents to help with the spike in calls related to the recalls.
GM is also making "significant investments" in providing agents with more information about its customers, such as by enhancing its CRM system, Mingle continues. The company uses Oracle's Siebel CRM system and is investing in analytics to provide more individualized services.
In addition, GM is using its social media channel as a collaboration tool with other customer-facing departments. GM's social media center coordinates its messages with its public relations, communications, marketing, and care departments. The center is useful for providing a consistent message and understanding the challenges people are having with the recall process and other aspects of the business, according to Mingle. It has also become a benchmark for aligning other areas of the business.
"Customers don't care that you're organized as departments," Mingle notes. "They see us as one Chevrolet, one Cadillac and especially during a crisis, the better integrated we are within the company, the more seamless and efficient our service will be to our customers."
GM will hardly be the last company to issue a recall and there are other things companies can do to reduce the impact of a recall, according to Karl Brauer,senior director of insights and senior editor for Kelley Blue Book. Depending on the severity of the recall, companies can use it as an opportunity to introduce customers to new products or lines.
"Dealers often talk about how difficult it is to get people into a dealership," Brauer notes. "When you have people doing a forced visit, make the most of it. Have clear protocols in place to interact with the customer while they're at the dealership. Show them new models or throw in an extra service beyond what's part of the recall. This could be a great opportunity to strengthen your relationship with the customer."
But even when a company strives to improve the customer experience, there is no quick fix for winning back customer loyalty after a major mishap, notes Edmunds.com Retail experience Editor Matt Jones. "Even if you're proactive about reaching out to customers about a recall, that doesn't guarantee that your customers will come back," he says.
Unsurprisingly, GM's net profit plunged in the second quarter as news spread about the massive recall. The automaker squeezed out a net profit of about $200 million, down from $1.2 billion a year ago. Its earnings before interest and taxes (EBIT) was $1.4 billion, as compared to $2.3 billion in 2013, and included the impact of $1.2 billion in recall-related costs for the quarter.
But despite its recall problems and missteps, GM's core operating performance remained relatively strong during the second quarter. Net revenue increased $500 million from last year to $39.6 billion and EBIT profits rose in the company's international operations.
Brauer attributes GM's ability to salvage its profits to the company's approach to addressing the recall. Compared to other auto companies that issued massive recalls, such as Toyota, "GM has also recalled a lot of vehicles, but it quickly created a compensation program and instituted other efforts [to address the recall] so the public perception seems to be that it is working hard to make up for its mistakes," he says.
Including new features in its latest models, Brauer adds, such as a high-speed cellular connection, will also help smooth over the recall's impact. Earlier this year, GM unveiled its 2015 Chevrolet Malibu, which includes a 4G LTE Wi-Fi hotspot.
"From the customer experience standpoint, this allows people to take their virtual life into their cars," Mingle says. "And this lets us customize the experiences that people are having with their cars in real time. You can download a portfolio of games, for example, for your kids."
And more important, Mingle adds, is that this technology will enable GM to add more diagnostics to its vehicles. "Over time you'll also see more vehicle diagnostics for things like oil life and tire pressure and other aspects to proactively communicate with the customer to keep the car running and safe," according to Mingle.
Auto manufacturers are also beginning to apply predictive analytics to parts optimization within the supply chain, quality analysis, customer service, and other areas. For example, BMW is using IBM's SPSS predictive analytics software to help detect and fix vulnerabilities in new models before they are released.
The software analyzes data from test drives and workshop reports, as well as warranty, diagnostics, and repair information to anticipate maintenance needs and reduce workshop visits, according to IBM.
However, advanced features can also be a double-edged sword, Brauer warns. "People want things like voice control options, a built-in Wi-Fi system, and other add-ons [in cars] but they also don't want anything to break," he notes. "There's a growing sense that if my car is going to be advanced, it shouldn't break, which puts even more pressure on companies to deliver dependable products."