Ford Pays $17 Million Fine on Recall


Ford world headquarters. Photo Credit: Ford Motor Company.

Recalls happen, it's a part of being in the automotive industry. There've been many recalls this year but what's different about this recall for Ford (NYSE: F  ) is how it was handled. I've been a shareholder for years and I can truly count on one hand how few situations Ford has bungled, but this seems to count as one of those times. Ford is paying the maximum $17.35 million in a single fine to resolve a claim that it took too long to notify consumers of defects in its Escape model. Is this a one-off event, or something that could shake consumers' confidence in Ford?

By the numbers
Last summer Ford recalled over 420,000 vehicles for a defect in the Escape, that would leave the gas pedal down after the driver removed his foot. Some regulators believed Ford took way too long to notify customers of the defect and some expressed irritation with the company. "If there was ever a company that deserved a civil penalty for failing to do a timely recall, it was Ford," Clarence Ditlow, executive director of the Center for Auto Safety, said in a statement according to Automotive News.

Ford isn't the only automaker to have issues with gas pedal recalls. Toyota (NYSE: TM  ) paid a similar fine of $17.35 million to settle claims that its gas pedals got stuck on the floor mats. Including all of its settlements from gas pedal issues, Toyota paid three fines totaling nearly $50 million.

Enter Joe Hinrichs
Joe Hinrichs has been climbing into the top tier of Ford's management for years now, and has had huge success in multiple positions that include being CEO of Ford China and brokering UAW deals in 2007 and 2009 that helped return Ford to profitability. His new position will tackle a different challenge: As president of Ford's Americas region, his biggest job will be to fix launch problems that have plagued Ford recently. Due to quality glitches and part shortages, the Lincoln MKZ launch was a debacle earlier this year, and both the Escape and Fusion have had multiple recalls.

If Hinrichs can succeed with this project, multiple recalls and massive fines should be a thing of the past. That's great news for Ford investors because there are two huge redesign launches coming around the corner, with the next generation F-150 – Ford's most profitable vehicle by a landslide – and new Mustang dropping for the 2015 model year.

Bottom line
The headlines around the Internet posting Ford's massive penalty are striking, but in reality Ford has had fewer recalls than just about all of its competitors. In fact, if you look at the 10 largest recalls this year, both Ford and crosstown rival General Motors (NYSE: GM  ) managed to avoid the list. Chrysler can't say the same, taking the largest recall by a large margin with its 2.7 million Jeep Grand Cherokees and Liberty models. Toyota also had more than a million vehicles recalled due to faulty airbag issues.

This will be an important development for Ford investors over the next couple of years as multiple vehicles are redesigned and launched – especially regarding the Lincoln luxury line that needs flawless launches to help repair the brand. If Ford fixes its launch problems and recall issues, it will easily be a more profitable company and investment. The good news is that Ford's management has a track record of fixing big issues.

How will domestic recalls affect Ford's plans in the world's largest auto market? A recent Motley Fool report, "2 Automakers to Buy for a Surging Chinese Market", names two global giants poised to reap big gains that could drive big rewards for investors. You can read this report right now for free – just click here for instant access.


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Comments from our Foolish Readers

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  • Report this Comment On August 02, 2013, at 3:13 PM, whyaduck1128 wrote:

    Has anyone at the so-called Center for Auto Safety ever been happy with the timeliness or depth of a recall? Like so many "public interest" organizations, they seem to exist to complain.

    They remind me of some one-time acquaintances at various times in my life who wouldn't take "yes" for an answer.

  • Report this Comment On August 02, 2013, at 9:06 PM, glt6208 wrote:

    So this story would have us believe that its OK for Ford to not be concerned with the safety of 420,000 of their customers. If that is in fact true, there is no need to fix their launch quality problems.

  • Report this Comment On August 02, 2013, at 9:40 PM, GotTradinSkills wrote:

    No this story would have you believe that one fine is a big deal, but looking at the big picture Ford has had less issues than most, so take headlines w a grain of salt.

    At the same time improving launches is valuable and profitable. What story did you read?

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