Maruti Suzuki's latest recall unlikely to have significant impact on stock

Car recalls by various brands have become more frequent after a change in law in 2019.

Maruti Suzuki India on December 6 ordered a third vehicle recall of 2022 but it is unlikely to have a significant impact on the stock, which was trading flat in the morning on December 7.

“The recall itself won’t have a significant impact on the stock. This is a regular action taken by many OEMs, we saw this recently with another brand too. It is just a proactive approach,” said Jay Kale, Senior Vice President and Equity Analyst–Auto and Auto Ancillaries at Elara Capital.

Aniket Mhatre, Institutional Research Analyst-Auto, HDFC Securities too said that there won't be an impact on the stock. "It is a customary exercise done by OEMs to rectify any defect or (prevent) any potential defect, and this is done for customer satisfaction. It is more of a preventive exercise. It (recalls) usually doesn't impact stock performance," he said.

He added that it won't affect the performance of the company either.

India’s largest carmaker, which recalled some vehicles in October and April as well, said on December 6 it was recalling 9,125 units of Ciaz, Brezza, Ertiga, XL6 and Grand Vitara models to fix possible defects in the front row seat belts.

The affected vehicles were manufactured between November 2 and November 28, 2022, the company said in a regulatory filing.

The sector experts said that the number of recalls at other brands too have gone up, and not just at Maruti. "A lot of other companies too do recalls and not just Maruti. In fact, this is done by global brands too," said Mhatre.

“Definitely one would not have wanted this because the customer expects cars to be manufactured correctly but recalls are a globally accepted practice,” Kale said.

Also read: Why Maruti has recalled 9,125 units of Ciaz, Brezza, Ertiga, XL6 and Grand Vitara

Recalls by original equipment makers (OEMs) in India have become more frequent after the Motor Vehicles Act, 1988, was amended in 2019 and the introduction of the Consumer Protection Act in the same year.

The amendment added a section to deal with the recall procedure to be followed by the OEMs and provided for the Centre to order a recall if there are a sufficient number of complaints from customers or from “any other source”.

The new law for consumer rights allowed newly constituted regulator the Consumer Protection Authority to order recalls.

The recalls won’t affect the customer sentiment towards the brand since it is a proactive approach, Kale said.

The cost incurred by the OEMs for such a procedure would depend on the product and vary case-to-case but for the customer, a recall does not translate to an added expense mostly.

Also read: Maruti Suzuki may fall short of 20-lakh units production target this fiscal: Shashank Srivastava

When a recall is decided, the brand needs to notify the customer through its website, post or email or any other form of written communication. A recall process is considered inactive after three years from the recall release date.

At 9.49 am, the stock was trading at Rs 8,715.80 on the National Stock Exchange, down 0.018 percent.