Public retail groups are grappling with how to handle the recall of millions of used cars with faulty airbags.
Some retailers are halting sales of affected vehicles; others will sell them but with a strict warning to get the vehicle fixed pronto. Almost all agree, after posting strong earnings gains in the third quarter, that the rising pace of recalls will help boost service business and possibly sales of new and used cars in the fourth quarter.
“The income that will come from the replacement of airbags on cars on the lot or those belonging to consumers will happen over the next three to six months,” said Bryan DeBoer, CEO of Lithia Motors Inc., in Medford, Ore.
The recall gives the retailer a chance “to win customers back that might not be repetitive customers,” DeBoer said. “It is a chance to upsell and make sure their cars are top performing. It’s a chance to show we’re timely, convenient and value oriented.
“If we can show all that, then we win.”
Nearly 8 million 2000-04 model year cars containing faulty airbags made by Takata Corp. have been tagged by regulators as potentially at risk. The airbags can explode with too much force during a crash, spraying metal and plastic debris.
Lithia has 100 to 200 used vehicles on its 129 dealership lots that need airbag repairs, DeBoer said. Some have been fixed. Those that have not will still be sold, he said, but Lithia will warn the buyer that the car must be repaired.
“There aren’t 9 million airbags sitting around that can go into cars. They have to manufacture those, and it may take months to do that,” DeBoer said.
In contrast, the largest U.S. auto retailer, AutoNation Inc., of Fort Lauderdale, Fla., said last week that it would stop sales on the 400 recalled vehicles it has on its lots, repeating a stance it took earlier in the year during the General Motors ignition recalls.
Penske Automotive Group Inc., of suburban Detroit, also will halt retail sales of the impacted vehicles until they are repaired, said Tony Pordon, Penske’s executive vice president of investor relations and corporate development.
“If we have issues with parts or parts availability,” Pordon said, “we give our dealerships the chance to wholesale them to get rid of the vehicle instead of sitting on it.”
Takata and the National Highway Traffic Safety Administration said the airbags are most vulnerable to failure in hot, humid climates.
AutoNation CEO Mike Jackson criticized the handling of the recall.
He said the 10 manufacturers affected have varied responses, from telling owners to just keep driving until a repair can be done, to warning them against sitting in front of the airbag until it can be repaired, to instructing them to disconnect the airbag and put a sticker in the vehicle saying that it’s disabled.
“NHTSA’s been a mess on this thing, all over the place and putting out a lot of confusing misinformation,” Jackson said. “When you have a component that’s across this number of manufacturers, shouldn’t there be an integrated, coherent recall policy?”
The high levels of various recalls — not just those related to airbags — this year are driving up parts-and-service business at each of the public groups.
During the third quarter, AutoNation’s parts-and-service operations saw 9 percent growth of both revenue and gross profit on a same-store basis. The recalls alone were responsible for 27 percent of the growth in gross margin in those operations, said COO Mike Maroone.
Lithia and Penske said the Takata recall did not contribute to the boost in their service profits or sales in the third quarter but should in the fourth.
“It has potential to benefit us,” said Penske’s Pordon.
“If you have an older car on the road, and it has a recall on it, the customer may want to trade it in. That’s where you’ll see some of these customers you haven’t touched in a while and possibly make some incremental sales.”
Amy Wilson contributed to this report.