Skip to main content
Sister Publication Links
  • European Rubber Journal
  • Plastics News
  • Tire Business
web
Subscribe
  • Login
  • Register
  • Subscribe
  • News
    • Automotive
    • Tire
    • Non-Tire
    • Suppliers
    • Silicone
    • Latex
    • Coronavirus
    • Executive Action
    • Government/Legal
    • Opinion
    • Technical Notebooks
    • Women in Tire & Rubber
    • ITEC
    • International Elastomer Show
    • HEXPOL Sponsored Content
    • Customers confused about all-season vs. all-weather tires
      Video: Michelin looks to diversify for additional growth opportunities
      Marked for winter: Origin of Three-Peak Mountain Snowflake
      Conti adding dynamic driving simulator at German R&D center
    • Customers confused about all-season vs. all-weather tires
      Yokohama to open D/C near Dallas this summer
      Cancarb recognized for sustainability efforts
      Video: Michelin looks to diversify for additional growth opportunities
    • Cancarb recognized for sustainability efforts
      Hutchinson names new chairman, CEO
      Cabot completes Louisiana plant emissions control upgrades
      NewAge Industries achieves B Corp certification
    • Kan-do attitude: Trelleborg brings intelligence to inventory management
      Cancarb recognized for sustainability efforts
      Kuraray resumes production at Texas plants
      Video: Americhem expands Pa. compounding plant
    • Saint-Gobain unveils new silicone tubing for food, beverage market
      New Products: 3M rolls out new silicone adhesive for medical use
      Dow launches new LSR in Silastic portfolio
      Reduced heat leakage improves wearable health device
    • Titan Tire to offer free COVID-19 vaccines at Iowa facility
      Bridgestone hosts vaccination events for plant employees
      USTMA reveals data showing COVID-19 impact on tire industry
      China sees energy opportunities in post-COVID recovery
    • Motion Industries promotes industry veteran Jim May
      Hutchinson names new chairman, CEO
      Eagle Elastomer taps three to join executive team
      Motion Industries names VP for the automation segment
    • Top Glove says U.S. withhold order bears no financial impact
      AirBoss gets U.S. glove pact worth up to $576 million
      House Democrats seek to expand loan program for fuel-efficient vehicle projects
      New York chipping in $3 million toward Sumitomo factory expansion
    • Column: Ramping up to an RPN milestone
      Our view: It may be time to rethink, rebuild supply chains
      Editorial: Auto industry's rebound a bright spot in difficult year
      Future looks positive for Goodyear-Cooper combo
    • Material to give tire compounds lower density, lower hysteresis and improved wear
      Technical notebook: How to control porosity in extruded EPDM dense profile
      Part 2: Studying RPA ASTM methods for detecting compound quality differences
      Studying RPA ASTM methods for detecting compound quality differences
    • WORD Conversations: Charles Goodyear Medalist Puskas says academia needs to ease time commitments
      Women find success, opportunity in petrochemicals
      Rubber Division to host WORD webinar series
      Rubber Division introduces WORD webinar series
    • Goodyear recognized by Lockheed Martin as 'elite supplier'
      EV tire advancements to help secure future
      Lambillotte: Only question on AVs is timing
      CAR official says EV future brighter than autonomous
    • Rubber Division preparing for Spring Technical Meeting
      Rubber Division introduces WORD webinar series
      Rubber Division seeks abstracts for 200th Technical Meeting
      WORD panelists say evolution, authenticity keys to success
    • Sponsored By HEXPOL Compounding
      Faster Access to Your Polymer Compounding Experts Around the World
      Sponsored By HEXPOL Compounding
      Take a walk thru a HEXPOL Lab
      Sponsored By HEXPOL Compounding
      HEXPOL offers a unique selection of High Performance Elastomers to match your application requirements
      Sponsored By HEXPOL Compounding
      It’s what you can’t see that makes the Difference at HEXPOL
  • Blogs
    • Products
    • Wacky World of Rubber
    • New Products: MonTech adds to LP 3000 lab press lineup with custom options
      New Products: 3M rolls out new silicone adhesive for medical use
      GRI gains OE fitment for KION Group forklifts
      New Products: Hexpol develops new salt-water hydrophilic waterstops
    • Wacky World of Rubber: How Trelleborg, teens sealed a spot in the world record book
      Wacky World of Rubber: Of chicken and feet, but not chicken feet
      Wacky World of Rubber: Time to go mattress shopping
      Wacky World of Rubber: Because nothing says football like 'frunk' shrimp
  • Newsletters
    • Rubber in Automotive
    • Silicone News
    • Latex News
    • Sign Up for Newsletters
    • Customers confused about all-season vs. all-weather tires
      Video: Michelin looks to diversify for additional growth opportunities
      Marked for winter: Origin of Three-Peak Mountain Snowflake
      Conti adding dynamic driving simulator at German R&D center
    • Saint-Gobain unveils new silicone tubing for food, beverage market
      New Products: 3M rolls out new silicone adhesive for medical use
      Dow launches new LSR in Silastic portfolio
      Reduced heat leakage improves wearable health device
    • Sunflower rubber research expands with new funding
      Top Glove says U.S. withhold order bears no financial impact
      Our view: It may be time to rethink, rebuild supply chains
      Top Glove products being seized at U.S. border
  • Multimedia
    • Videos
    • Photo Galleries
  • Directory
  • Resources
    • Classifieds & Mold Mart
    • Sponsored Content
    • White Papers
    • HB Chemical
      Sponsored By HB Chemical
      The HB Chemical and Ravago Partnership: Taking Customer Service to a New Level
      Sponsored By HB Chemical
      Above and Beyond with HB Chemical
      Sponsored By HB Chemical
      The Company Behind the Inventory
      Sponsored By French Oil Mill Machinery
      Process Improvement, Cost Reduction with Custom Press Systems
    • Sponsored By AirBoss
      AirBoss introduces next-gen EPDM compound: HeatBoss EPDM
      Sponsored By Uncountable Inc.
      Labs of the Future: How to Choose a Laboratory Information Management System in 2021
      Sponsored By Uncountable Inc.
      Cooper Standard deploys lab informatics platform to synchronize R&D
      Sponsored By Elkem
      LSR Selectâ„¢: A solution to improve your financial impact in molding applications
  • Data
  • Events
    • RPN Events
    • RPN Livestreams/Webinars
    • Industry Events
    • Past Events
    • ITEC Library
    • International Silicone Conference Library
    • 2021 Healthcare Elastomers Virtual Edition
      2021 Rubber in Automotive Virtual Edition
      2021 International Latex Conference Virtual Edition
      2022 ITEC
  • Advertise
  • DIGITAL EDITION
MENU
Breadcrumb
  1. Home
  2. News
June 26, 2013 02:00 AM

Product liability becoming shared responsibility for auto makers, suppliers

Shawn Wright, Crain's Detroit Business
  • Tweet
  • Share
  • Share
  • Email
  • More
    Print

    DETROIT—As vehicle manufacturers increasingly require contributions from suppliers for potential product liability, warranty and recall claims, the emphasis on shared responsibility has worked its way from the auto makers down to all three tiers of the supply chain.

    "Ten or 12 years ago, the dialogue that was happening between (original equipment manufacturers) and the supply base was to really eliminate warranty costs," said Linda Watson, a member at metro Detroit's Clark Hill PLC and co-chair of the firm's automotive and manufacturing practice group.

    "They came a long way in achieving some of that, but it certainly didn't eliminate warranty costs. Over the course of the last three or four years, the goal now on the OEM side is to shift warranty costs."

    One bellwether case in Michigan cited by attorneys centers on tier-one supplier Hutchinson FTS Inc.

    In 2009, Dykema Gossett P.L.L.C. won a nearly $47.7 million breach-of-contract lawsuit in Michigan's Oakland County Circuit Court for client Chrysler L.L.C. after it countersued Troy, Mich.-based tier one Hutchinson for supplying the automaker with defective parts.

    Hutchinson had provided hoses and cooling lines used in Chrysler's 2005 minivans, which were recalled because of leaks in those parts. Hutchinson denied that the parts were defective.

    The finger-pointing in these scenarios is unavoidable and something the industry is discussing.

    Dave Andrea, senior vice president of industry analysis and economics for the Original Equipment Suppliers Association, based in Troy, Mich., said one of the OESA's goals has been to eliminate warranty problems. But while acknowledging that claims will be made, the association is looking at how auto makers and suppliers along the chain can share the costs involved.

    Andrea said the OESA wants to help car makers and suppliers work on root causes—pinpointing where the system broke down. Specificity is key: How did the supplier fail to meet the agreed-on parts order?

    "That's the piece we'd like to see from the suppliers and vehicle manufacturers, to look at that in a responsible manner," Andrea said.

    One of the reasons that auto makers are able to have the supply base share more of the warranty costs, Watson said, is that some tier one and two suppliers have gotten bigger, and most likely can share more of the costs. This size is a result of the consolidation of the supply base that has happened over the past several years, Watson said.

    How this will affect business in the supply chain remains to be seen.

    Watson thinks some fallout could occur when a company that's lower in the supply chain has a low-margin part. To the extent that the tier ones and twos push down their warranty allocation programs with the auto makers to the supply base below them, she said, situations may arise in which the lower suppliers could decide it doesn't make a lot of financial sense to pick up that type of warranty risk on such a small-margin part.

    "In that regard, you might see some hiccups in the supply chain," Watson said. "Or you may see, potentially, some M&A activity where some of these bigger suppliers maybe pick up some of the parts that have lower margin and spread the risk of warranty cost allocation along a better overall margin."

    In addition, if an issue arises down the supplier pipeline, the question for the tier one is whether its tier two and three suppliers are financially viable to pay should warranty exposures or claims occur, said Daljit Doogal, managing partner of Foley & Lardner L.L.P.'s Detroit office and a member of the firm's auto industry team.

    "It's a race to figuring out who, ultimately, is liable for the defective part," Doogal said. "Most of the tier ones are solid players, but then you go further down the food chain to the tier twos and threes. They are definitely smaller companies that don't have as much financial wherewithal that some of the tier ones have."

    The question also becomes how the potential liability is examined during an M&A deal evaluation of a supplier and whether it can go forward. Before any deal goes through, Doogal said, most companies hire operational consultants to talk with the supplier's employees and customers and look at the history of warranty and recall exposures. Companies that have higher incidents of warranty or product recall claims will depress the purchase price, he said.

    One trend is buyers purchasing "representation and warranties" insurance. This covers a loss from claims made by a buyer for any breach or alleged inaccuracy made by a seller in a purchase and sale agreement. Policies generally cover transactions with values ranging from $20 million to $1 billion.

    These policies also can protect against inaccuracies in representations and warranties made by the seller or target company in an M&A deal. Michael DuBay, a partner at Honigman Miller Schwartz and Cohn L.L.P. in metro Detroit, said that in the past three or four years, this type of insurance has become more prevalent.

    "It's just another tool in the toolbox as you're trying to figure out in a privately negotiated acquisition how you're allocating risk between buyer and seller and what will be the source recovered," DuBay said. "You're absolutely seeing more of that, and I think the insurance companies have realized that there's a market for this product."

    What it comes down to, he said, is that buyers in the automotive world will want to make warranty and recall exposures one of their high-level items to check off early in the M&A due-diligence process.

    Determining the seller's historical warranty and recall issues is important, DuBay said, but so is understanding the product line, the end product it's going into and the broader recall issues that may have happened at the automaker.

    "The automotive space is a unique space," DuBay said. "There are going to be further discussions and intentions of having the entire supply chain take some role of responsibility in a product warranty or recall situation."

    Letter
    to the
    Editor

    Rubber & Plastics News wants to hear from its readers. If you want to express your opinion on a story or issue, email your letter to Editor Bruce Meyer at [email protected].

    SIGN UP FOR NEWSLETTERS
    EMAIL ADDRESS

    Please enter a valid email address.

    Please enter your email address.

    Please verify captcha.

    Please select at least one newsletter to subscribe.

    Get our newsletters

    Staying current is easy with Rubber & Plastics News delivered straight to your inbox, free of charge.

    Subscribe Today

    Subscribe to Rubber & Plastics News to get the best coverage and leading insights in the industry.

    SUBSCRIBE
    Connect with Us
    • LinkedIn
    • Facebook
    • Twitter

    MISSION

    To serve companies in the global rubber product industry by delivering news, industry insights, opinions and technical information.

    web
    Contact Us

    2291 Riverfront Pkwy, Suite 1000
    Cuyahoga Falls,
    OH 44221

    Customer Service:
    877-320-1726

    Resources
    • About Us
    • Digital Edition
    • Contact the Staff
    • Advertise
    • Order Reprints
    • Privacy Policy
    • Privacy Request
    • Terms of Service
    • Careers
    • Ad Choices Ad Choices
    • Sitemap
    Partner Sites
    • Tire Business
    • European Rubber Journal
    • Plastics News
    • Plastics News China
    • Urethanes Technology
    • Automotive News
    • Crain Brands
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • News
      • Automotive
      • Tire
      • Non-Tire
      • Suppliers
      • Silicone
      • Latex
      • Coronavirus
      • Executive Action
      • Government/Legal
      • Opinion
      • Technical Notebooks
      • Women in Tire & Rubber
      • ITEC
      • International Elastomer Show
      • HEXPOL Sponsored Content
    • Blogs
      • Products
      • Wacky World of Rubber
    • Newsletters
      • Rubber in Automotive
      • Silicone News
      • Latex News
      • Sign Up for Newsletters
    • Multimedia
      • Videos
      • Photo Galleries
    • Directory
    • Resources
      • Classifieds & Mold Mart
      • Sponsored Content
      • White Papers
    • Data
    • Events
      • RPN Events
      • RPN Livestreams/Webinars
      • Industry Events
      • Past Events
      • ITEC Library
      • International Silicone Conference Library
    • Advertise
    • DIGITAL EDITION