How Much Brand Damage Can Companies Endure?

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According to a recent Businessweek report, Whirlpool Corp. (NYSE: WHR  ) issued a dishwasher recall that was the largest of such recalls in three years. Apparently, 1.7 million of its Maytag models (Whirlpool acquired Maytag in 2006) have a faulty heating element that can short-circuit and ignite, creating a fire hazard. So far, there have been 12 reports of fires, but no one has been injured.

Whirlpool estimates the recall cost at approximately $75 million. The company sells appliances under the brand names of Maytag, Amana, Jenn-Air, Admiral, Magic Chef, Performa by Maytag, and Crosley, and products are sold at major retailers like Sears Holdings (Nasdaq: SHLD  ) , which accounted for 10% of total Whirlpool sales in 2009.

In the past, we've seen recalls do major damage to a company's brand, such as Toyota (NYSE: TM  ) . The total recall cost for the sudden acceleration problem is now being estimated at over $2 billion. That number includes lawsuits, warranty payments, and lost sales. Toymaker Mattel (Nasdaq: MAT  ) also experienced embarrassment and brand damage when a recall of Chinese-made toys with excessive amounts of lead cost the company $30 million back in the second quarter of 2007. And the near-ubiquitous McDonald's (NYSE: MCD  ) has just issued its own recall of cadmium-tainted drinking glasses.

However, some such instances have been a mere blip on the radar screen (E.coli-laced spinach, anyone?). Will there be any considerable brand damage to Whirlpool? And more broadly, if there's not, is it too much to ask that products be safe and not seriously injure (or, god forbid, kill) consumers? Let us know what you think in the comments box below!

Claire Stephanic does not own any of the companies mentioned. The Motley Fool has a disclosure policy.

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  • Report this Comment On June 05, 2010, at 1:19 PM, BobMichigan wrote:

    Are you part of the Toyota propaganda machine?

    Toyota's image has not been damaged by recalls, it has been damaged becasue IT IS OBVIOUS THAT THEY WILLINGLY IGNORED SAFETY PROBLEMS FOR DECADES AND LIED ABOUT IT.

    Wirlpool has 12 fires and is recalling the product. That is worlds of difference between that and the Toyota situation.

    The only company name that comes to mind in comparison to Toyota is Mitsubishi, the only other company caught (twice) lying about safety issues.

    Can you guess what is the same about those companies?

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