The costs of an automobile recall can be immense for an OEM automobile or light truck manufacturer — and potentially ruinous for a member of the industry’s supply chain. Some of the notable hardware-related issues include:
- The ongoing Takata airbag scandal, which Bloomberg says could cost US$24 billion.
- General Motors’ ignition locks recall, which may have reached $4.1 billion.
- The exploding Firestone tires on the Ford Explorer in 2001, which cost $3 billion to recall.
But what about bits and bytes? Until now, it’s been difficult to quantify the impact of software defects on the automotive industry. Thanks to a new analysis from financial services provider SRR, we have a good handle on this elusive area.
Report Methodology and Analysis
According to SRR’s report, titled “Industry Insights for the Road Ahead: Automotive Warranty and Recall Report 2016,” there were 63 software-related vehicle recalls from late 2012 to June 2015. SRR derived the figure, which is based on data from the United States’ National Highway Traffic Safety Administration (NHTSA), using the following methodology (p. 22):
“To classify a recall as a software component recall, SRR searched the ‘Defect Summary’ and ‘Corrective Action’ fields of NHTSA’s Recall flat file for the term ‘software.’ SRR’s inquiry captured descriptions of software-related defects identified specifically as such, as well as defects that were to be fixed by updating or changing a vehicle’s software.”
This methodology led to the following analysis (p. 22):
“Since the end of 2012, there has been a marked increase in recall activity due to software issues. For the primary light vehicle makes and models we studied, 32 unique software-related recalls affected about 3.6 million vehicles from 2005–2012. However, in a much shorter time period from the end of 2012 to June 2015, there were 63 software-related recalls affecting 6.4 million more vehicles.”
The analysis also adds that (p. 23):
“From less than 5 percent of all recalls in 2011, software-related recalls have risen to almost 15 percent in 2015. Overall, the amount of unique campaigns involving software has climbed dramatically, with nine times as many in 2015 than in 2011…”
This should come as no surprise, given that today’s connected vehicles ship with software that is exponentially more complex than vehicles from just a few years ago. Sophisticated internal networks, dozens of ECUs (electronic control units with microprocessors, memory, software and network connections), and extensive remote connectivity may enable highly-desirable features, but they also create a much larger surface area for defects.
No Subsystem Is Safe from Automotive Software Defects
The software defects discussed in SRR’s report not only occur in systems where one expects to find sophisticated microprocessors and software, such as engine management controls and Internet-connected entertainment platforms, they are also found in microprocessors that analyze everything from the driver’s position and stage of alert to road hazards and lane changes. These potentially defect-ridden microprocessors also offer advanced features, such as automatic parallel parking.
Since 2006, says the report, recalls have been prompted by defects in areas as diverse as locks/latches, powertrains, fuel systems, vehicle speed control, air bags, electrical systems, engine and engine cooling, exterior lighting, steering, hybrid propulsion — and even the parking brake system.
Sweeping Automotive Software Defects Under the Rug?
Not every software defect results in a public and costly recall — that's the last resort, from the OEM's perspective. Whenever possible, the defects are either ignored by the vehicle manufacturer or quietly addressed by a software update next time the car visits a dealer. If the car doesn’t visit an official dealer for service, however, the owner may never know that a software update is available. This practice is noted in the report (p. 25):
“In addition, SRR noted an increase in software-related Technical Service Bulletins (TSB), which identify issues with specific components, yet stop short of a recall. TSBs are issued when manufacturers provide recommended procedures to dealerships’ service departments for fixing problematic components.”
A major role of the NHTSA is to record and analyze vehicle failures and attempt to determine the cause. Not all failures result in a recall — or even in a TSB. However, they are tracked by the agency via the Early Warning Reporting (EWR), according to the report (p. 26):
“In 2015, three new software-related categories reported data for the first time:
- Automatic Braking, listed on 21 EWR reports, resulting in 26 injuries and 1 fatality
- Electronic Stability, listed on 6 EWR reports, resulting in 7 injuries and 1 fatality
- Forward Collision Avoidance, listed in 1 EWR report, resulting in 1 injury and no fatalities”
Beyond protecting life and property, the bottom line is the bottom line for the automobile and its supply chain. As the report says in its conclusion (p. 33):
“Suppliers that help OEMs get the newest software-aided components to market should be prepared for the increased financial exposure they could face if these parts fail.”
For a technological look at ways to help manage the risk in developing and testing embedded automobile software, watch an archived webinar that I led along with Parasoft Chief Evangelist Arthur Hicken, called Your 7-Point Plan for Securing Automotive Software.
About the SRR Report
"Industry Insights for the Road Ahead: Automotive Warranty and Recall Report 2016” was published by SRR: Stout, Risius Ross, which offers global financial advisory services. SRR has been in the automotive industry for 25 years, and says, “SRR professionals have more automotive experience in these service areas than any other advisory firm, period.”
This brilliant report — which is free to download in its entirety — was written by Neil Steinkamp, a Managing Director at SRR. He has extensive experience in providing a broad range of business and financial advice to corporate executives, risk managers, in-house counsel and trial lawyers. Mr. Steinkamp has provided consulting services and has been engaged as an expert in numerous matters involving automotive warranty and recall costs. His practice also includes consulting services for automotive OEMs, suppliers and their advisors regarding valuation, transactions, and disputes.