BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.
To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.
To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.
MUNICH, Germany -- German automakers are self-insured for the costs associated with a recent series of recalls ordered by U.S. safety regulators.
While product recall insurance generally is available in Europe and elsewhere, the cost of purchasing the coverage for the automobile industry would be prohibitive, automakers and insurers say.
Earlier this month, the National Highway Traffic Safety Administration, a U.S. government agency, announced a slew of recall orders in response to its investigation of alleged defects in several models. Volkswagen of America Inc. and other automakers also issued recalls in the wake of the NHTSA probes.
U.S.-based automakers that recalled vehicles could not be reached for comment on insurance arrangements last week.
By sheer numbers, though, the hardest-hit automaker was Munich, Germany-based BMW, which recalled 2.4 million cars built between 1994 and 1998. BMW will replace ventilator caps to avoid the risk of pressure buildups in the cars' cooling systems. Under certain conditions, a rupture could allow steam to enter the passenger compartment. Of the 2.4 million cars affected by the recall, the automaker expects that at least 1.4 million cars worldwide will be returned for adjustment, including 940,000 in Germany alone.
BMW estimates its total cost for the recall will reach 22 million deutsche marks ($13.5 million). A spokesman for BMW said that product recall liability insurance is available in Europe but that BMW self-insures its recall exposures through balance-sheet reserves.
According to the spokesman, BMW chooses not to buy recall liability insurance. "It is a company policy to accept company risks," he said. "Asking someone else to absorb our risk just isn't our way to do things."
Volkswagen of America's parent, Wolfsburg, Germany-based Volkswagen A.G., will recall 153,000 of its cars because of possible safety problems with brakes in Rabbit models built between 1993 and 1995. As BMW does, Volkswagen said its costs will be covered through balance-sheet provisions.
In Germany, insurers have been hesitant to offer product recall coverage to automakers, said a spokesman for Munich-based insurer Allianz A.G. Holding.
"The auto industry makes generous use of recall, sometimes recalling small defects for image reasons. The premiums to cover recall risk would be so huge, automakers just wouldn't accept it," the Allianz spokesman said.
Only recently, German insurers began to offer recall insurance to other areas of industry, in the wake of 1997 legislation that allows the government to order the recall or destruction of unsafe products (BI, April 27).
Nevertheless, the Allianz spokesman said he believes auto manufacturers will not likely see a change soon. "As long as premiums are so high, automakers will find other solutions," he said.