The news of the government considering an "official" recall policy, obviously with its own administering mechanism, has been received with consternation or exhilaration, depending on which side of the fence you stand. Even if the proximate cause for this development is a few "misguided" employees, the near nuclear fallout of misrepresenting emission compliance by General Motors (GM) India (despite the subsequent admission of guilt) was only to be expected.
That the rather simplistic remedy being bandied about by activists focuses on more regulation and control on an already excessively regulated industrial environment is also not surprising. Central to both lines of thought is the grossly overstated belief that private industry will cut corners whenever and wherever it can, and the even more exaggerated confidence in the ability of government-appointed regulators to ensure that this does not happen.
Perhaps it is best to first ask: what kind of recalls are we talking of, who can best evaluate the risks and costs of such recalls to society at large and what will ensure the highest standards of compliance in the future?
The first point to note is that recalls in the auto industry almost invariably occur as a response by auto companies to the problems customers face with their products. Customers are normally forgiving of little glitches and the time taken to set them right and tend to complain only when their concerns are inadequately addressed or, worse, ignored. That is when they get vocal in the media (getting almost instant reach nowadays through Facebook, Twitter et al) and end up scaring off other potential customers. Nothing - certainly not government regulation - can hurt auto companies more. So, auto companies constantly track service issues and product issues and provide a fix as soon as they can. The "recall" is the manifestation of that concern of the auto companies to keep the flock together and the bottom lines growing. There is, therefore, nothing sinister about a recall. All this is particularly true in more mature markets, where auto companies and dealers realise that both only gain from a long-term involvement with customers.
Recalls occur for a variety of reasons - when products don't meet mandated safety or environment parameters, or when they fall short in terms of performance or in terms of what consumers perceive as hygiene issues. Generally, these are caused by design, material or manufacturing process inconsistencies and are not deliberate acts of malfeasance - the unfortunate GM India case being an apparent exception. How can an "official" recall policy prevent such things from happening - or getting reported only after significant damage has been done? (I've written elsewhere on the matter, so I will not succumb to the temptation of repeating myself.)
The US has an elaborate official policy while Europe and Japan have preferred to go with self-regulation. Both have had their share of successes and foul-ups. So, the jury is still out on which is better. The underlying reasons are that in all three markets consumers are more aware of: (i) product technologies and (ii) of their well-established rights as consumers, so any alienation or tampering of those rights will bring immediate, widespread censure and, often, significant financial liabilities too. The bitter truth is that India is found wanting on both counts. We have a lot of consumer mis-education on one hand and a painfully tortuous system of grievance redress on the other.
Even more fundamental, our legislation on areas like safety standards, whether in cars or commercial vehicles, has scarcely kept pace with our creditable - but undeniably court-induced - efforts on emission regulation. The auto industry's record on both counts has been, at best, patchy. In such circumstances, what will the overlay of a new bureaucracy on the back of an official recall policy achieve beyond self-perpetuating self-interest?
But I do not believe that there can be anything resembling enlightened self-regulation by the auto industry. It is a rare auto company that will accept that a product it made and sold is inherently flawed (of course, there are many instances where a virtue has been made of a necessity). The way forward would be to ensure that non-compliance becomes suicidal in the marketplace. Just consider how the internet has created awareness like never before. A recall on a passenger car model sold globally gets noticed by Indian consumers almost instantly and creates a recall demand backlash that invariably has the auto company pledging and often delivering, albeit with a lag, similar levels of care to India customers - without an official recall policy in place.
So why does the government not just start by just authorising greater transparency? Let the Insurance Regulatory and Development Authority (Irda), for instance, publish accident statistics of all vehicles arranged model-wise. Start with the record of the last five years, then update it on a quarterly basis. The resultant spotlight on "unsafe" models will ensure, like nothing else ever can, that the laggards in the auto industry get to explain their sorry performance and keep the focus on ensuring that quality and safety engineering are never compromised. No brand, however great, can ever withstand the tsunami of accident rate statistics. Perhaps the Association of State Road Transport Undertakings could put out similar details on bus fleets.
The next obvious step would be to start certification based on higher safety norms - and again the Irda would do the country a great service if it linked insurance premia to safety certification and on-road safety records. Once such steps start impacting sales, the very existence of the company could be under threat. It is very unlikely that any penalty dictated by an "official" policy can ever have such an impact so fast. And industry organisations will be spared the embarrassment of defending the indefensible, only to maintain a façade of unity in their ranks.
So why don't we just forget all this talk of an "official" recall policy, and empower the customer to decide, particularly when all we need to start with is the filing of an application under the Right to Information Act to get the Irda to let us know the accident record of the vehicles on our streets. And then, deliver the coup de grace, by introducing exemplary penalties for willful misrepresentation by manufacturers.
The author, formerly President of Hyundai Motor, runs a strategy consulting company Beyond Visual Range and has interests in auto manufacturing and distribution
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
