Risky Business !

Henry Ford was undoubtedly a genius.  His concept of building cars on a moving assembly line where individual workers specialised in adding the component part they were trained to handle brought the finished cars price to a level that the average person could afford.   The old clunkers of that era were pretty basic and that magic word  " Warranty " was not part of the lexicon.

What a difference today.  What we now call the "Automobile " has evolved in myriad shapes and sizes to suit a variety of uses and each car contains components made by a network of surrounding industries that compete to produce the luxury, comfort and reliability that is now integral to our personal means of transport.

As the modern car evolved its c omplexity grew exponentially. A long time ago a car with a radio was a novelty.  A car heater was a winter luxury, but now few cars are sold without factory installed air conditioning.  The complex range of safety features is ever growing and todays cars come with a factory warranty that stretches for years.   One maker now guarantees the vehicle for seven years and unlimited mileage.

This whole industry is facing a threat to its cost structure because safety standards insist that if a fault develops even after the warranty period has expired there is a risk of a mass court action if that fault exposes owners and drivers to death or injury.

The "Recall " is an event that strikes fear into the very hearts of motor industry money managers - and recalls are fast becoming a regular occurrence.  This week Mitsubishi and Toyota, two of the biggest Japanese manufacturers announced recalls of five hundred thousand and three hundred and twenty four thousand cars over a wide range of models to have faults repaired at no cost to the owners - and some of these cars are now ten years old.

That is part of the risk of building cars on a "platform " that is common to different models.  It allows component uniformity, hence if a fault develops there is every chance that it will be widely distributed across the product range, extending the cost of the recall.

This Mitsubishi recall seems to involve the electrical pod controlling  the turn signals, car lights and windscreen wipers.  The Toyota problem concerns the delivery of fuel to the engine.  If a crack develops in a component it may allow petrol vapour to penetrate the interior with a consequent fire risk.

These recalls are in addition to a major event that threw the entire industry into dismay.   One manufacturing company had managed to win the air bag supply contracts for many car manufacturers and it was discovered that a fault in the air bag specifically designed to protect drivers could spray shrapnel causing death or serious injury if it was deployed in an accident.    The extent of the recall was staggering.    1.3 million cars were involved and replacements will still be taking place well into 2017.

The risk factor may thin the ranks of the world car industry.  Certainly only those with very deep  pockets can withstand the astronomical costs that a major recall imposes - and these days shareholders and investors seem to be very risk adverse !