Wragge Lawrence Graham & Co

UK 200 2013 position: 25

Product recall litigation — will the UK follow the US trend?

By Stuart Young

Product recalls have a damaging reputational effect and have huge financial implications for the manufacturer arising from a lack of consumer confidence. In the US, class actions following on from product recalls are a significant risk for many automotive companies. The volume of claimants involved, the availability of punitive damages and the scale of the litigation impose an increased financial burden in addition to the recall itself.

As the automotive industry becomes more and more standardised, product recalls affect more models and brands than ever before. As Prof David Bailey notes, large-scale recalls are set to remain a feature of the industry, ‘given that it can cost anywhere up to $1bn [£590m] to get a genuinely new car to market’. He said: ‘Car makers are increasingly using common components and platforms across models and brands so as to reduce costs. So if something goes wrong with an accelerator pedal or a seat mechanism, it doesn’t just affect one model but perhaps six or seven, and across different brands.’

He added: ‘This can have a significant impact on firms — Toyota, for example, saw a fall in its share price of more than 20 per cent, worth some $35bn, in the wake of the 2009 and 2010 recalls. Fixing the problem literally cost the company billions of dollars.’ …

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