The second largest U.S. automaker Ford Motor (F, Financial) declared a recall for around 65,000 Fusion cars in North America last week on account of some software problem. Out of the total recalls, around 56,500 cars are in the U.S., 6,000 are in Canada and somewhat 2,350 are in Mexico. Fusion has been Ford’s top selling sedan in the American economy. The cars sale through the first 10 months of the year hovers around 250,000 units, which is an improvement of 20% over last year reported numbers. Larger peer General Motors (GM, Financial) has also had a tough year with record number of recalls. Let’s check out what happened with the Ford Fusion.
Software slips lead to the recall
The Detroit automaker will be recalling 65,000 2014 and 2015 years model Fusion sedan as these cars are identified to have programming glitches which could result in the car rolling away. In one of the statements Ford said, "This issue allows the key to be removed 30 minutes after the ignition is turned off, even if the transmission is not in Park…this is a compliance issue, a regulation involving theft protection and rollaway prevention." This means that keys can be removed after it’s more than 30 minutes of the ignition switch being turned off and if the car is on gear. Such as glitch increases the risk of the car rolling away unknowingly, and this encroaches upon the U.S. safety regulations.
On a positive note, Ford said that it has not heard of any accidents, crashes, injuries or any other untoward incident pertaining to this issue. National Highway Traffic Safety Administration (NHTSA) that undertakes issues regarding the safety of vehicles in the U.S. has not yet put up this recall issue on its website. The recall will start next year on January 5.
A point of concern for the automaker
Recalls are becoming a bit worrisome for automakers. Ford’s third quarter results were adversely impacted by recall costs in North America. The automaker registered $835 million in profit, a fall of 34% from prior year comparable period’s $1.3 billion. The recall also had an impact on the profit margin that came in at 7.1% in the past quarter, which is the lowest Ford has experienced in years. Company CFO Bob Shranks said that the margin would have been quite better, around 10.2%, had the company not borne an amount of $650 million as recall charges. Majority of these recalls were the airbag problem that surfaced in North America.
Airbag recalls had started growing to such a level in the market that eventually National Highway Traffic Safety Administration sent out a warning. This has been the biggest auto safety issue of the current year. The recalls had expanded to as much as 7.8 million, and that was like a warning bell to take some steps. Not just Ford, several other auto giants are involved in airbags not functioning well. And the biggest name in this is General Motors. Other big names that declared airbags issue include Toyota (TM, Financial), Chrysler, Honda (HMC, Financial), Mazda, Mitsubishi, Subaru, BMW, and Nissan (NSANY, Financial). As a measure, the NHTSA requested 11 auto companies to look into the matter and “act immediately.” Starting this year, General Motors had announced a massive recall of 2.6 million vehicles on account of some ignition switch problem. This ate into huge amount of profits of the company, leading to a dismal financial metric.
It’s high time for automakers including Ford and General Motors to develop a streamlined system and identify the lacuna in the entire process to avoid such regular recalls. Recalls are weighing on the company’s financials, as seen in Ford’s latest quarter results. It would be interesting to watch how these auto behemoth find a way to tackle the issue.
