Costly Product Recalls
Target Corp. (TGT) has decided to recall 560,000 Easter toys that include the Hatch & Grow Easter Eggs, Easter Grow Toys and Hatch Your Own Dino. These small toys are water absorbent that could expand inside a child's body if ingested and could potentially prove life threatening. While this recall may not prove to be very expensive to the company there are many examples where a product recall could burn a hole in the company's financials.
As Samsung discovered after the Galaxy Note 7 fiasco, product recalls are a costly headache that requires a company to refund its customers' money, give them replacements and hope that the problem doesn't worsen in the interim. Here are some of the most notorious product recalls of all time.
In its fourth such settlement in seven years, Pfizer agreed in 2009 to pay $2 billion in civil fines and a $1.3 billion criminal penalty for illegally marketing the painkiller Bextra and other drugs. According to the New York Times, the total fine was less than three weeks of sales for Pfizer. The company invited doctors to all-expenses-paid luxury conferences and advised them that Bextra – originally approved for arthritis and menstrual cramps – could be prescribed at high doses to treat post-operative and other severe pain. It was never found to be more effective than Advil, and associated with heart and skin side-effects. It withdrawn in 2005.
Takata Corp. Airbags
Takata has recalled nearly 300 million airbag inflators as of September 2016, following reports that nine people have died after being hit by metal and plastic shrapnel from the faulty components. The Japanese company announced in March 2016 that its worst-case costs could exceed 2.7 trillion yen, or around $26 billion.
Merck & Co. Vioxx
Choosing to ignore indications that the painkiller could be harmful, Merck sold Vioxx for five years before agreeing to take it off the market in 2004. By that time it had caused perhaps 55,000 deaths due to increased risk of heart attack and stroke. The company is still involved in litigation as of September 2016, and estimates of total costs are hard to come by. Our estimate of $8.9 billion comes from the $4.85 billion settlement and $1.9 billion in legal costs it paid in 2007, followed by $58 million in 2008, $950 million in 2011 and $1.06 billion – initially reported as $830 million – in 2016.
Volkswagen AG Emissions Scandal
Volkswagen is faced with the prospect of fixing 11 million cars worldwide after it emerged in 2015 that some diesel models' software had been programmed to reduce nitrogen oxide (NOx) levels during emissions testing. As soon as the test was over, NOx emissions shot back up to as much as 40 times the U.S. legal limit (standards are lower in Europe). Volkswagen has set aside 6.5 billion euros (around $7.3 billion) to cover the recall, acknowledging that that amount might not be sufficient when all costs are tallied.
Between 2009 and 2011, Toyota recalled more than 10 million vehicles due to incidents of unintended acceleration that killed 37 people. Some of the incidents were found to involve driver error, others to an ill-fitting floor mat that led to the gas pedal to get stuck. Mechanical and electrical errors may also have been involved. The company estimated $2.1 billion in recall costs and lost sales in 2010. In 2012 it agreed to pay $1.1 billion to settle a class action suit related to the acceleration issues. That brings its total costs to $3.2 billion.
InvestingA product recall can decimate a stock in some cases, and have hardly any impact in others. What's the difference?
InvestingA product recall is the process of retrieving and replacing defective goods for consumers. When a company issues a recall, the company or manufacturer absorbs the cost of replacing and fixing ...
InvestingA look at how the stock prices of companies in the food industry react during times of a recall.
InvestingBest Buy was selling recalled products. Details and analysis here.
InsightsSome products were announced with great hype, only to be pulled from shelves.
InsightsThe Detroit car maker is replacing faulty fuel pumps that may result in sudden stalling.
InvestingT-Mobile will begin selling the Galaxy Note 7 again after a massive recall on the part of Samsung.
InvestingCustomers in South Korea are complaining that the replacement Note 7 phones are overheating. Samsung says this is an unrelated issue to the exploding phones problem.
InvestingPolaris Industries (NYSE: PII) has another big problem on its hands. Once again, the powersports vehicle manufacturer has been forced to announce a recall, but this time it's for a fire hazard ...
InsightsApple has initiated a product recall for product adapters of its devices. But, it will not have a material impact on the stock's performance.