A number of big automotive companies have announced that they will be recalling select cars in April after discovering minor faults. Although recalls are fairly frequent among automotive companies, the announcement of recalls by three companies in quick succession has raised questions on the testing and manufacturing ability of these companies. Honda (NYSE:HMC) has indicated that it will recall about 554,000 sport utility vehicles in the United States to inspect for faulty wiring in headlights while General Motors (NYSE:GM) has plans to recall 6,159 big vans and sport-utility vehicles in the United States for possible loss of steering. Porsche (PAH3:Xetra) has announced a recall of 1,232 2012 model-year 911 Carrera S coupes for possible interference between a coolant line and fuel line may cause the latter to become disconnected.
Honda’s recall is limited to CR-V SUVs from model years 2002 to 2004 and Pilot SUVs from model year 2003. It will check for faulty wiring in headlights and then replace parts of the headlight wiring system that could fail. The failure of low-beam can significantly increase the risks of a crash. 
- What Percentage of Honda’s Stock Price Can Be Attributed To Growth?
- What Is Honda’s Revenue & Expense Breakdown?
- How Much Do Auto Companies Invest In Research And Development Comparatively?
- What Is Honda’s Fundamental Value Based On 2016 Expected Results?
- How Honda’s Valuation Depends On Capital Expenditure Projections
- How Much Has Honda Been Investing In Growth Opportunities
General Motors is recalling select Chevrolet, Chevy and GMC models which have an inherent risk of fracture in their gear shafts. The problem was discovered by the supplier during testing of steering gear units. Although tests indicate that failure will not occur at least five months after the most severe use, a fracture could lead to loss of steering and increased risk of accident. This consideration has made it imperative for General Motors to recall vehicles before any major accident is reported.
Porshe will recall its 2012 model-year 911 Carrera S coupes. The company has said that the issue results in the possibility of an interference between a coolant line and fuel line which may cause the latter to become disconnected. This could result in stalling or fire in the case of a fuel leak. Porsche will replace the fuel line in all the recalled vehicles. 
Recalls are traditionally expensive for the companies as they have to spend million of dollars on repair and then spend much more on marketing to convince the customers that their vehicles are still safe and reliable. Considering that now most of the big automotive houses are recalling cars, it will be interesting to see what impression this leaves in the minds of the customers.
Generally, larger recalls which catch the eye of the public tend to inflict more brand damage on the company than smaller recalls. Toyota’s recall of 3.8 million vehicles in 2009 over the issue of jamming floor mats is a typical example of this. Therefore, on a relative basis Honda’s recall is probably going to be more negative for the company given its larger scale than GM and Porsche’s recalls.
We have a price estimate of $44 for Honda, which is around 15% above the current market price.Notes:
- Honda recalls 554,000 SUV’s over headlights, Reuters, 30 March-2012 [↩]
- GM recalls more than 6000 vans, SUV’s over steering, Reuters, 26 Mar – 2012 [↩]