Safety on the line: Does lobbying affect product recalls?

Does lobbying affect recalls?

Recalls are especially pervasive in the automobile industry.

By Khimendra Singh

Product recalls are inevitable events across many industries and underscore the intricate relationship between safety, trust and financial outcomes. The process of recalling a product involves withdrawing it from the market after discovering a defect or safety issue. Most important, the goal of the process is to remove the problematic product from the market to prevent any harm to consumers.

Some notable recalls include Johnson & Johnson’s Tylenol, Pfizer's Bextra and Firestone’s tires. But recalls are especially pervasive in the automobile industry. For example, a February 2024 National Highway Traffic Safety Administration report noted that Honda recalled over 750,000 U.S. vehicles due to an airbag defect. In the same month, Mercedes-Benz recalled about 105,000 SUVs needing a transmission software fix.

The negative impacts of product recalls, especially within industries such as automotive and pharmaceuticals, are profound. Beyond the immediate hazards — ranging from loss of life to severe injuries — these recalls can erode public confidence in brands. For instance, CNN News reported in 2015 that the number of fatalities linked to the General Motors’ ignition switch flaw climbed to 124. Recalls can also lead to staggering economic impact, encompassing direct costs like refunds, legal fees and loss of sales, alongside indirect consequences such as brand damage. In 2016 alone, automotive recalls cost about $22 billion in the U.S.

Given their substantial societal impact, it’s not surprising that these negative market events have drawn attention from researchers across various disciplines, including marketing. Notably, though, much of this research primarily concentrates on post-recall outcomes, such as stock market performance and impact on sales.

My colleague, Rajdeep Grewal, Ph.D., from the University of North Carolina at Chapel Hill, and I decided to take a closer look at the pre-recall stage, exploring the factors that lead to a recall decision in the first place. Specifically, our study examines the influence of political factors on firms’ recall decisions (i.e., whether to initiate a recall). Inspired by a 2010 U.S. Congressional report that discussed the possible role of political influence in recall decisions after vehicle-related accidents, our research investigates the possible association between recalls and lobbying, using data from nine years of automotive recalls and lobbying activities.

Results reveal a negative association between lobbying expenditures and voluntary recalls. We also find a decrease in mandatory recalls as lobbying expenditures go up. These findings empirically establish the validity of societal concerns pertaining to the influence of external factors on product recalls.

Traditionally, objective product quality should dictate recall decisions. Therefore, any element that can potentially affect these corrective actions warrants scrutiny. Broadly, this study sheds light on the influencing role of a political dimension within a product-market context. The interface of marketing and politics is a critical but underdeveloped research domain, especially in relation to regulatory oversight in industries in which such mandates have powerful influences on firms’ operations.

It is important to acknowledge the original purpose behind lobbying — to help stakeholders raise their voices within the political system. In a society valuing free speech and equal representation, banning lobbying is not the solution. Instead, advocating for enhanced checks and balances to mitigate undue influence on crucial product decisions is essential.

Our research also highlights a potential mitigating factor: media coverage. By amplifying the visibility of defects, independent media firms and consumer advocacy groups can help reduce lobbying’s impact on recall decisions, offering a pragmatic approach to safeguarding consumer interests.

So, while possible political influence on product recalls may present a challenge, fostering transparency and leveraging media coverage can be used as vital steps towards ensuring that consumer safety and product integrity remain at the forefront of industry practices.

Singh and Grewal’s article, “Lobbying and Product Recalls: A Study of the U.S. Automobile Industry,” was published by the American Marketing Association’s Journal of Marketing Research.