Recalls are a nightmare for all involved. The consumers, investors, and companies involved can all agree—they hate recalls. Consumers often face the inconvenience of faulty products or much worse—injuries, illnesses, and even death. For manufacturers, suppliers or investors, product recalls can wreak havoc on brand reputations, bottom lines and share prices.
Let’s look at the magnitude of damage caused by product recalls by reviewing some of the biggest cases in history published by Kiplinger.
#1 Takata Air Bag Recall
2008 — $24 billion and counting
What began over a decade ago has escalated into the biggest recall in history. Faulty airbag inflators made by now-bankrupt Takata were used by virtually every major automaker on the planet. As of January 2019, roughly 41.6 million vehicles were recalled to replace 56 million Takata airbags that could explode hurling metal shrapnel at drivers and passengers, causing serious injuries and 16 deaths in the United States. Regulators estimate it could take until 2023 to recall and fix every vehicle with a faulty Takata air bag.
The overall cost of the product recall forced Takata into bankruptcy. In January 2017, the Justice Department announced Takata would pay a $1 billion criminal penalty that included $975 million for restitution and $25 billion fine. The restitution was split into an $850 million fund for automakers that were left with recall and repair costs and a $125 million fund for consumers who were physically injured and had not already reached a settlement.
In a separate case, the U.S. states attorney general accused Takata of concealing safety problems and failing to report the safety defects. In February 2018, Takata agreed to pay $650 million to settle complaints, but the 44 state jurisdictions involved announced they would not collect, opting instead to leave the money for people injured by the company’s airbags. By the time of the settlement with the states, Takata had declared Chapter 11 bankruptcy in the U.S., bankruptcy protection in Japan, and sold its remaining assets to rival Key Safety Systems for $1.6 billion with that money going towards satisfying debts and legal claims.1 The bankruptcy did not prevent consumers from getting defective airbags repaired, but left many car manufacturers with great losses.
#2 Volkswagen’s Diesel Engine Recall
2015 — $18.3 billion
Customers and shareholders were both stunned when German car giant Volkswagen was caught cheating on diesel emissions tests. It was discovered that for years, the company employed software that allowed its turbocharged diesel engines to cut their emissions to meet regulatory standards when tested. In actuality, the engines emitted pollutants up to 40 times greater than the levels allowed under U.S. standards.
Volkswagen recalled 11 million vehicles around the world and was forced to set aside more than $18 billion to cover recall costs, legal claims and other related expenses. Shares immediately tumbled and took two years to recover.
#3 Merck’s Vioxx Recall
2004 — $8.9 billion
Merck’s Vioxx hit the market in 1999 and was considered to be a revolutionary breakthrough medication for arthritis pain. Five years later, in September 2004, Merck was forced to pull the drug from the market after studies revealed that Vioxx greatly increased the risk of fatal heart attacks and strokes. At that time, 20 million Americans had already taken the drug with an estimated 140,000 American heart attacks and 88,000 deaths caused from the medication.
The pharmaceutical giant settled a class-action lawsuit for $4.85 billion in 2007 and agreed to a $950 million settlement with the DOJ in 2011. A shareholders’ lawsuit was also settled for $830 million and it is estimated that Merck’s recall costs were somewhere around $8.9 billion.
#4 Firestone Tires and Ford
2000 — $5.6 billion
Bridgestone’s Firestone Tire and Rubber Company suffered a near-death blow when allegedly defective tires installed on Ford SUVs and pickup trucks were linked to 271 deaths and more than 800 injuries in the U.S. alone.
Firestone recalled 6.5 million tires while Ford recalled and replaced 13 million. The recall cost Bridgestone $2 billion while Ford lost $3 billion. In addition, Ford faced $600 million in lawsuits. The Firestone brand survived, but the 100-year relationship with Ford was severed.
#5 Samsung’s Galaxy Note 7 Recall
2016 — $5.3 billion
The world’s largest smartphone maker was forced to discontinue and recall the pricey Galaxy Note 7 smartphone after complaints that some started bursting into flames. Within the first two months of its August 2016 launch, the U.S. Consumer Products Safety Commission received 96 reports of overheating batteries and fires. Samsung was forced to recall 2.5 million devices.
#6 General Motors’ Ignition Switch Recall
2014 — $4.1 billion
In 2014, General Motors was forced to recall 30.4 million cars worldwide due to faulty ignition switches that could shut down the engine without warning—disabling power steering, brakes and air bags. The defected product was linked to at least 124 deaths and more than twice as many injuries. GM stock lost about 15% in 2014 while the broader market gained more than 11%, and the shares have essentially been dead money ever since.
#7 Pfizer’s Bextra Recall
2005 — $3.3 billion
In 2005, the FDA forced pharmaceutical giant Pfizer to pull Bextra, an arthritis painkiller, off the market because of heart risks and “life-threatening” skin reactions. At the time, Bextra provided annual sales of $1.3 billion for Pfizer. In 2009, Pfizer settled civil and criminal allegations that it had illegally marketed Bextra. The $2.3 billion payout was the largest health-care fraud settlement and the largest criminal fine of any kind at the time. Overall, the recall cost Pfizer at least $3.3 billion.
#8 Toyota’s Floor Mat Recall
2010 — $3.2 billion
The car giant was forced to recall 8.1 million vehicles due to the potential for gas pedals to get stuck in floor mats and cause unintended acceleration as well as other concerns. The defect is believed to have caused 89 deaths over the past decade.
In 2010, Toyota’s cost of the recall was approximately $2 billion. Four years later, the company paid a $1.2 billion fine to avoid prosecution from the Justice Department for covering up what it knew about the ill-fitting floor mats and other safety problems.
#9 Peanut Corp. of America Salmonella Outbreak
2009 — $1 billion
Over a decade ago, Peanut Corp. of America was an obscure peanut processor in Georgia that supplied to major brands such as Kellog’s and ConAgra. The massive salmonella outbreak at their facility, which ended up contaminating thousands of products containing their peanuts, killed nine people and sickened hundreds. More than 3,913 different products from roughly 361 different companies had to be recalled and the outbreak caused consumers to shun peanut butter, driving down industry-wide sales by 25%.
Peanut Corp. declared bankruptcy and went out of business. A former top executive was sentenced to 28 years in prison for his role in the outbreak. On top of the losses incurred by PCA, the Georgia Peanut Commission estimated that America’s peanut producers lost approximately $1 billion between sales and lost production, even though their products were not contaminated, as a result of this recall.
#10 Johnson & Johnson’s Tylenol Recall
1982 — $100 million
If adjusted for inflation, this recall would equate to roughly $250 million today. Although there have been larger recalls since, arguably no other recall had a bigger impact than this one. It is known as “the recall that started them all,” and set the standard for the way corporations should handle such events.
In a case of malicious product tampering that has never been solved, seven people in the Chicago area died after ingesting Extra-Strength Tylenol laced with cyanide. J&J spent more than $100 million to recall 31 million bottles of its best-selling product. J&J’s swift and decisive action is credited with saving the Tylenol brand. Although the stock priced swooned initially, it recovered within two months.
Resource: Dan Burrows, “10 Biggest Product Recalls of All Time”, Kiplinger, March 26, 2018
Disclaimer: Berkley Global Product Recall is pleased to share this material with its customers. Please note, however, that nothing in this document should be construed as legal advice or the provision of professional consulting services. This material is for general informational purposes only, and while reasonable care has been utilized in compiling this information, no warranty or representation is made as to accuracy or completeness.