Plant Operations and Product Recalls in the Automotive Industry: An Empirical Investigation

36 Pages Posted: 20 Nov 2013 Last revised: 21 Jan 2016

See all articles by Rachna Shah

Rachna Shah

University of Minnesota - Twin Cities - Department of Operations and Management Science

George Ball

Operations and Decision Technologies Dept, Kelley School of Business, Indiana University

Serguei Netessine

The Wharton School, University of Pennsylvania

Date Written: January 21, 2016

Abstract

While there is overwhelming support for the negative consequences of product recalls, empirical evidence of operational drivers of recalls is almost non-existent. In this study, we identify product-variety (measured as the number of factory installed options), plant-variety (measured as the number of models per assembly line in a plant), and capacity utilization as drivers of subsequent manufacturing-related recalls. We examine their individual and joint effects using a unique dataset compiled for a 7-year period by linking assembly line production data for North American automotive manufacturers with recall data from the National Highway Traffic and Safety Administration. We show that manufacturing-related recalls are positively associated with product-variety and plant utilization, but not with plant-variety. We also find that the joint effect of plant-variety and utilization is positively associated with increased recalls. In quantitative terms, a one standard deviation increase in the number of options (four additional options) is associated with two additional recalls and costs $46.2 million to automakers over the sample duration. We observe similar results with plant utilization. A car built in a plant which is being utilized above 100% capacity, is associated with more than eight additional recalls which corresponds to a cost of $167 million.

Suggested Citation

Shah, Rachna and Ball, George and Netessine, Serguei, Plant Operations and Product Recalls in the Automotive Industry: An Empirical Investigation (January 21, 2016). INSEAD Working Paper No. 2016/01/TOM. Available at SSRN: https://ssrn.com/abstract=2356315 or http://dx.doi.org/10.2139/ssrn.2356315

Rachna Shah (Contact Author)

University of Minnesota - Twin Cities - Department of Operations and Management Science ( email )

Minneapolis, MN 55455
United States

George Ball

Operations and Decision Technologies Dept, Kelley School of Business, Indiana University ( email )

1309 E 10th St
Bloomington, IN 47405
United States

Serguei Netessine

The Wharton School, University of Pennsylvania ( email )

3730 Walnut Street
Philadelphia, PA 19104-6367
United States
(215) 573 3571 (Phone)

HOME PAGE: http://www.netessine.com

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