Avoiding A Total Recall

By Japanese standards, it happened with lightning speed. Just six months after Japanese carmakers were approached by the National Highway Traffic Safety Administration with queries about seat belts made by Japan's Takata Corp., they settled. On May 23, the NHTSA announced that nine of the companies involved--seven Japanese along with Chrysler Corp. and General Motors Corp., which sell some Japanese-built cars--had agreed to fix or replace the belts on 8 million-plus vehicles. Ford Motor Co. and Daihatsu Motor Co. are still negotiating.

Why did the Japanese agree so quickly? Partly because it paid to do so. "The Japanese manufacturers wanted to avoid a mandatory recall at any cost," says a spokesman for American Honda Motor Co. in Torrance, Calif. The reason: Had NHTSA investigators found a safety defect that was causing the belts to jam, they likely would have made the manufacturers replace the entire buckle assembly of all 8 million cars. By opting for a "voluntary" recall, the companies can negotiate less-expensive solutions. For instance, dealers for Nissan North America Inc., which will recall 2 million vehicles, now only must replace the release button on the belts with a sturdier one--a 10-minute procedure.

In the end, the cost of the recall should be far below initial estimates of $1 billion. The biggest savings: Only 20% or so of car owners usually bother to have their cars fixed during a recall, though the number may edge higher for a safety-related recall. The total bill should come to less than $250 million, split between the manufacturers and Takata. Not bad, considering the alternative.

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