Vehicle recalls performance in an emerging market: Evidence from the comparison between China and U.S.

Abstract

The past decade has witnessed a remarkable growth of automobile sales and production in emerging economies, with China developing into the largest global auto market since 2009. This paper focuses on an important but neglected aspect in these emerging markets, namely, vehicle recalls. The aim of this study is twofold. The first is to show that a significant difference exists in the number and volume of vehicle recalls between the emerging Chinese market and the established US market; the second is to detect whether this difference can be attributed to the initiator level (voluntary versus involuntary recalls) and/or the firm level (organizational ownership structure and nationality of the foreign partner in international joint ventures). To that end, we quantify the recall performance by means of 4 metrics: total number of recall events per annum (NRE), total number of units recalled per annum (NUR), average number of vehicles recalled per event per annum (NRPE), and recall rate (RR); for each of these, we benchmark the US market and assess the relative performance of the investigated market using a bootstrap method. The empirical results indicate that the recall metrics in the Chinese market have un-derperformed relative to those of the established market. This is extremely pertinent in light of the current "Going Out" policy put forward by the Chinese government, as subpar quality awareness hampers the successful access of Chinese automakers to foreign markets.