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The government may punish a car company, but customers don’t necessarily follow suit.
Last week Honda Motor Co was fined $70m for holding back information from US regulators about accidents involving its vehicles in which people were killed or injured. It was the largest penalty that National Highway Traffic Safety Administration (NHTSA) has ever imposed on an automaker.
But at Honda dealerships around the country, the record levy barely seems to be causing a ripple.
Out at Waikem Honda in Massillon, Ohio, customers have been streaming in and driving off with new Accords, Civics and CR-Vs, without interruption.
“Our traffic is good, and our sales are good,” said Doug Waikem, owner of the dealership, located on a busy street about five miles from the Pro Football Hall of Fame. “People know about the issues Honda has had, but I don’t think it really puts many people off because I’m not really seeing an impact.”
The contrast between the magnitude of the fine and the business-as-usual reality on the ground illustrates an paradox of the US auto industry. NHTSA is cracking down on car companies that don’t move quickly on safety-related matters, and last year it levied $126m in fines as auto makers recalled more than 62m vehicles, both record numbers. Yet the agency’s fines don’t serve as much of a deterrent – $70m is a blip for a company like Honda, which takes in about $120bn a year in revenue.
Meanwhile, American consumers tend to tune out the headlines, and often remain loyal to favored brands even amid torrents of negative news.
Honda is in hot water because of defective airbags, made by a Japanese supplier, Takata Corp. The devices can inflate too violently and spray vehicle occupants shards of metal and plastic. Five people are believed to have died because of the defect. A dozen auto makers have recalled about 18m cars with Takata airbags; Honda is the most effected, having recalled 5.7m.
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Mary Saraco, a college writing teacher in Bedminster, New Jersey, and an owner of a Honda CR-V sport-utility vehicle, said she’s heard about the car company’s troubles, including radio reports when Honda executives were grilled before Congress. “That doesn’t totally destroy my confidence in the company,” she explained. “If I personally have had to have significant repairs, I might feel different, but I love my CR-V. It’s been a really good car for me.”
The $70m fine imposed on Honda was related to two serious infractions the company acknowledged in November amid the airbag furore.
One was for failing to report 1,729 claims over the past 11 years that alleged deaths and injuries occurred in accidents involving its vehicles.
The second was the result of Honda under-reporting the number of warranty claims during the same period.Auto makers are required to report both injury and warranty claims to NHTSA as part of an early-warning system used designed to identify vehicle serious defects before injuries or deaths mount.
Earlier last year, General Motors was fined $35m in connection with a defective ignition-switch that has been linked to 42 deaths and has sparked the recall of 2.2m vehicles. Like Honda, GM has continued to experience rising sales.
Safety advocates and NHTSA itself are calling for higher fines. Last year Senator Bill Nelson of Florida introduced a bill that would eliminate the cap on penalties NHTSA can levy. NHTSA itself has asked Congress to increase the maximum fine to $300m. “That would have much more of a deterrent effect,” said Joan Claybrook, a former NHTSA administrator who has criticized the agency to being too lenient on auto makers.
That’s to say the surge in recalls and fines hasn’t had an impact on the industry. After seeing the public embarrassment and adverse publicity GM, Honda and other companies have endured, manufacturers have become quicker to issue recalls, in an effort to head of defects before they cause serious problems.
This willingness to go through with recalls early helped drive up the number of total recalls last year. After its ignition-switch missteps were revealed, GM recalled millions of cars and trucks, many for issues it had previously deemed not serious enough to warrant broad recalls.
Perhaps the most telling example of the industry’s new mindset came on 29 December, when Porsche, the German sports car maker, issued a recall for suspension bolts that may not have been tightened enough in manufacturing.
The number of cars affected in the US? Two.
While Honda can put the NHTSA fine in the rearview mirror, plenty of trouble may still loom down the road. The company could face both class-action lawsuits by families of people killed or injured in accidents involving Hondas, and possibly a criminal investigation by the US Department of Justice – courses of action that are likely to serve as greater warning signs for the auto industry.
The $70m fine “is just the opening act of what Honda is going to face”, said Jason Vines, a crisis management expert who spent two decades in the auto industry. “The serious stuff is when the plaintiff attorneys get going, and if the Justice Department does something. Then you’re talking about [the possibility of paying] billions of dollars, not millions.”
For what may be in store for Honda, the auto industry needs look at Toyota Motor Corp, which was fined by NHTSA in 2010 for failing to report potential problems with accelerator pedals, an issue that was uncovered amid complaints its cars could suddenly accelerate on their own.
Source:https://www.theguardian.com/money/2015/jan/12/hondas-record-70m-fine-draws-shrugs-from-consumers
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