How I Learned to Stop Worrying and Love Recalls

Author's note:  I had to change the headline and message after rethinking this issue.

I write this to clear up a fundamental misperception regarding recalls: consumers hate them and car companies hate them.  But dealers love them, or so I have been told.

Car companies hate recalls and often work hard to avoid them completely.  This effort at avoiding recalls and the associated bad press and customer frustration sometimes leads to bad and/or illegal behavior.

It's time to fall in love with recalls.   Some dealers might not be huge recall fans - after all customer-pay work is much more attractive - but no dealer would deny that recalls bring in new service customers, re-engage inactive customers and serve as an on-ramp for hundreds of thousands of dollars in customer-paid work - maybe even a new or used car sale down the road.

The best news of all is that the National Highway Traffic Safety Administration exists to hold car makers' collective feet to the fire - much to the delight of most franchise dealers.  The bad news is that recall rates have spun out of control forcing a fundamental rethinking of the recall repair process from the car makers to the dealers to the car owner.

And, contrary to what the leadership of the National Automobile Dealer Association might claim, recall repairs are by definition a safety issue.  Regardless of how unpopular they are or how unhappy they make some customers, this is work that must be done.

Sadly the occasional bad behavior by car manufacturers trying to avoid recalls is only compounded by the bad behavior of customers who either cannot afford the inconvenience of taking time to visit the dealer to drop off their car or simply don't take the recall warning seriously enough.  J.D. Power & Associates published research two weeks ago noting the negative impact on customer satisfaction scores from recall work - acknowledging what the industry already knew - that the system is badly broken.

Contradicting J.D. Power's findings are the experiences of Piston Data, which runs new service customer acquisition programs on behalf of dealers built around identifying open recalls within the dealer's franchise lines and operating geography.  Piston Data president Brian Allen guarantees a 7-1 return on investment for dealers using Piston Data's program.  "Customer's calling in to make their appointments for recall work are almost universally pleased at the opportunity," says Allen.

Happy customers are good prospects for additional customer-pay work and new car sales.  It is difficult to convert an angry or frustrated customer into a happy customer or one, that is, who is willing to contemplate optional or even necessary vehicle maintenance that might be revealed during the dealer visit. 

This is clearly evidenced by the 1,000 dealers for whom Piston Data has performed this service.

Some dealers may feel they are losing money on recall work or barely breaking even in relation to the normal customer-paid work they may be doing with the same technicians.  But maybe if dealers consider the fact that they are pulling customers back into their garages and away from the independent repair marketplace, maybe recall repairs can be viewed in a less unpleasant light.  Maybe recall repairs can be embraced as the red carpet opportunity they represent.

The fact that dealers sometimes struggle to make money on recalls and there are millions of recalls that need to be performed is a big problem.  A quick visit to the National Highway Traffic Safety Administration Website's recall database revealed the scope of the challenge. As an example, my wife's 2004 Toyota Sienna has 10 recalls, 10 investigations, 1900 complaints and 85 manufacturer communications - and that's a good, reliable car!  Imagine the figures for a lower caliber vehicle.  Some experts estimate that more than a fourth of all cars on the road in the U.S. have open (uncorrected) recalls.

The only way the industry, dealers and consumers will come to grips with the current recall crisis - which literally has life and death consequences in view of the danger posed by metal-spewing Takata airbags - is to change the industry mindset around recalls and embrace the problem.  I recently spoke with one dealer, now retired, who did so with outstanding results.

Herm Brocksmith was president and general manager of Kuni Honda on Arapahoe in Colorado.  Herm saw that Honda's compensation program for the Takata recall work was a low-margin proposition.  To overcome this challenge he created a shock team of techs who would come in early or work late to take on airbag recall work en masse.

His techs told him that with the right coordination and equipment they could do the work estimated to take 6/10ths of an hour in 3/10ths of an hour.  In this way, Kuni's service team could make a little bit of money in the process of performing a substantial amount of airbag recall work - which they proceeded to do.

At the same time, Herm successfully wrestled with the challenge of prodding owners of older or newly-out-of-warranty vehicles out to consider taking care of some of the delayed, deferred or otherwise overdue service work on their cars.  The big payoff from recall work was not the recall work itself it was the customer-pay work and new car sales generated from new and returning customers coming into the store.

Brocksmith derived the majority of his ROI from owners of later model vehicles, including subsequent and frequent return business, but he also had his techs focus in on a few low cost items in the $100-$200 range for owners of older vehicles so as not to scare off these already skittish customers who hadn't been in to see a dealer in years.

The result?  Hundreds of thousands of dollars in customer-paid work for Kuni Honda.

Herm didn't share his conversion rate with me, but he said recall work on late model cars was in and of itself a financial bonanza while additional opportunities on older cars was their to be had with the proper approach.  All in all, recall work, if approached in a strategic manner was a customer acquisition and retention winner for new car dealers.  One can only hope that there are more Herm Brocksmith's across the country willing to bring a little creativity to the recall repair process - especially as cars last longer and need more dealer attention.

As for finding cars around YOUR dealership with open recalls?  Well, I strongly recommend you contact my friend Brian Allen at Piston Data.  Brian can help you fill up those empty service bays with recall-ready vehicles.  There are millions of them out there and it's time for them to come home.

Roger C. Lanctot is Associate Director in the Global Automotive Practice at Strategy Analytics.  More details about Strategy Analytics can be found here: https://www.strategyanalytics.com/access-services/automotive#.VuGdXfkrKUk