You are on page 1of 3

Ethics Assignment on application of Decision making framework to case study Product recall or replacement: a case of Tata motors Nano

In the biggest ever recall for the Indian auto market, Tata motors took 1.4 lakh Nano cars off the road to replace the starter motor free of cost, for all the cars sold since its launch in 2009 till November 2011. The expected cost of this exercise was Rs 115 cr. A spokesperson for Tata Motors said, We have devised a better starter motor and so we are upgrading it in our old Nanos for improved performance. We have not received any complaint for this and this is not a recall. We will change the part in all the old Nanos that were sold before launching the Nano 2012 in November. Product recalls are double-edged swords. It may mean an immediate cash outgo. There is also the risk of adverse publicity as customers might interpret the exercise as a sign that the product is flawed. But there is also the possibility that the company earns the goodwill of its customers as a consequence. Which of these two possibilities finally plays out in the market depends on a number of factors, prime among which is goodwill. Well use Hodgsons three stage ethical decision making framework to resolve the above dilemma of whether Tata Motors should go for product recall?

Step: 1 Examine the situation - Get the critical facts: The launch of the car in 2009 was soon followed by reports of many Nanos catching fire. Tata started first recall to install safety protection. This, the second recall, started in October 2011, to replace a faulty motor unit for the entire lot of Nano since the launch of car in 2009 (about 140,428 units of Nano as per Society of Indian Automobile Manufacturers, cost of this exercise to the company was around 115 Cr.

- Identify the key stakeholders: the consumer, the regulatory agency, insurance companies and the company (Tata motors). - Identify each stakeholder's options: 1) As, customers are spoilt for choices and are much more aware of their rights, they would demand immediate recall or replacement, even with one-off incident.

2) The regulatory agency would want that the car on roads to be 100% safe and would ensure the payment of proper compensation, as per consumer protection act, in case the company fails to adhere to the prescribed safety standards. 3) There might be mixed reactions from the car insurance companies. On one hand the recall would reduce the immediate cash outgo on its part, but in the longer run fewer buyers might opt for insurance, anticipating similar action from Tata motors, hurting its future revenues. 4) Tata Motors has to decide whether to even go for recall and if so then for either partial or complete recall, depending on the cost and the perceived benefits to its customers.

2 Establish the dilemma - Identify the working principles and norms that drive each option (why each stakeholder wants it done) Driving force behind what the customers and regulatory agencies want is the need for the secure drive and safety of its family .The environmental and political aspects to these two groups are minimal. While for the insurance companies and the Tata motors, economic motives may play important role in their respective options. These two motives might clash in this situation leading to the dilemma - Project the possible outcomes (consequences) of each stakeholder option. Do any violate your principles or those of your organization? The possible outcomes are as follows: a) As the Tata Motors spokesperson clarified, there are not any formal complaints received, so Tata motors might not go for the recall at all. b) Tata motors might choose to go for the partial recall depending on the results of its random checking of cars c) Tata motors can also go for the complete recall and in the process build strong brand loyalty Neither of these possible outcomes violate my personal principles as such, because Tata Motors is doing this to build long term goodwill and is under no moral or legal obligation to recall or replace the electric circuit fuse of those unaffected cars. - State the dilemma

The dilemma for the Tata Motors is whether to go for Product recall in first place. As stated earlier, customers may view this exercise as covering up for the below par product undermining the core philosophy of recall i.e. build long term goodwill. But as a responsible corporate citizen , it wants to pass on the benefits of superior technology and take proactive steps which will reduce the probability of any future accident due to faulty electric circuit fuse to zero. Company has to choose between these two difficult choices. 3 Establish the options - Identify the General Principles(s) behind each option. The general principles can be categorized into followings: a) Cost concern Vs. Safety/Values: company should decide whether to stick to its founding fathers values of putting society ahead of business or go simply as per rules of book and not go for any recall for the fear of draining out shareholders money. b) Proactive Vs. Reactive: Here company has the choice to set example by becoming ideal and responsible corporate citizen and not just follow others footsteps ( Honda Motors and Maruti Suzuki have recently recalled their cars after complaints of faulty engine part) c) Build long term goodwill Vs. short term gains : for a company like Tata motors, which has survived over decades on peoples trust , it is imperative to go for recall and preserve the brands image. Choice of Action: Among the choices available, after analyzing pros and cons of each, it is clear that Tata Motors should go for replacement of Electric circuit fuse of all cars sold between 2009 and 2011. This way it may incur few crore in near term but the intangible value in terms of brand loyalty, goodwill and motivation among employees, will in the long term give company much higher benefits. This is also the most responsible option which will build trust between governmental regulatory bodies and company, which might help in future litigations.

Dipak Haridas Roll no. G12079 XLRI- GMP (2012-13)