Manufacturers recalled millions of defective products across the U.S. in 2016. For safety reasons, companies pulled food, automobiles, electronics, medical devices, pharmaceutical products and more from the marketplace.
Of course, product recalls raise more than concerns about consumer safety. They also carry economic implications. When companies recall defective products, their financial health falls into jeopardy.
Companies can face litigation that result in huge, multimillion- or multibillion-dollar settlements. They can also face a significant decline in sales and profits from nonrecalled products due to consumer distrust.
For this reason, you should study the impact of a product recall on a company as you consider whether to invest in it.
Here are the five “worst” recalls of 2016 in terms of the safety risks they posed and the financial consequences for the companies.
1. Samsung Galaxy Note 7
The recall of the Samsung (TSE:005930, Financial) Galaxy Note 7 garnered much attention in 2016. The manufacturer issued the recall after numerous reports of the phones catching fire without warning.
The U.S. Consumer Product Safety Commission reports that the phones’ batteries could overheat, triggering the sudden fire. Phone users faced the risk of suffering serious burn injuries.
Airlines even barred travelers from carrying the phones on board due to the fire risk.
2. Volkswagen vehicles
The defective emissions control systems on Volkswagen (VOW) vehicles turned into one of the most scandalous stories of the year. The defect involved as many as 11 million vehicles worldwide, according to Consumer Reports.
The automaker faced a massive fallout. The company is liable for a $14.7 billion settlement that will compensate vehicle owners.
3. Takata airbags
The Takata (TSE:7312, Financial) airbag recall continued in 2016, involving millions of vehicles produced by 19 different automakers. Defective inflators in the airbags that could suddenly explode and send metal shards flying at drivers and passengers triggered the recall.
WLNS.com reports that, so far, consumers replaced only eight million of the estimated 85 million defective airbags.
4. GM vehicles
When it comes to recalls, General Motors (GM, Financial) has gone through a tough couple of years. In fact, the company recalled enough vehicles in 2014 to wrap around the entire earth four times, according to Time.
The Takata airbags contributed to many GM vehicles being recalled. However, faulty ignition switches and other defects led to the recall of millions of other cars and trucks manufactured by the company.
For example, GM recalled 4,789 full-sized trucks in the U.S. because of front upper control arms on the vehicles that had the potential to separate, The Detroit News reports.
5. IKEA dressers
Finally, one of the most shocking recalls of 2016 involved IKEA MALM chests and dressers. The company recalled nearly 30 million of the furniture units due to stability issues.
In tragic cases, the dressers toppled over, causing injuries and deaths of children, adults and pets. The U.S. Consumer Product Safety Commission identified at least four child fatalities associated with the MALM dressers.
The author has no stake in any of the stocks mentioned in this article
Start a free seven-day trial of Premium Membership to GuruFocus.
