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IJQRM
35,10
2094
Received 19 March 2017
Revised 20 October 2017
Accepted 1 November 2017
International Journal of Quality &
Reliability Management
Vol. 35 No. 10, 2018
pp. 2094-2118
© Emerald Publishing Limited
0265-671X
DOI 10.1108/IJQRM-03-2017-0048
QUALITY PAPER
Consumer safety complaints and
organizational learning: evidence
from the automotive industry
Sourish Sarkar
Black School of Business, Penn State Erie, The Behrend College, Erie,
Pennsylvania, USA, and
Balaji Rajagopalan
College of Business, Northern Illinois University, DeKalb, Illinois, USA
Abstract
Purpose – The purpose of this paper is to investigate the value of information in consumer safety complaints
for organizational learning.
Design/methodology/approach – Empirical analysis of this study uses a novel secondary data set, which is
formed by combining complaints data filed with the National Highway Traffic Safety Administration (NHTSA)
for potential safety defects, and design change information from 2003 to 2011 model-year vehicles in the USA.
Findings – First, the paper demonstrates the value of information embedded in complaints. Second, in the
case of radical product redesigns, owing to the lack of direct applicability of consumer feedback based
learning, the impact of learning on product safety is found to be muted, third, the results suggest that the
safety complaint rates vary by vehicle classes/categories and, fourth, the findings differ from prior research
conclusions on vehicle quality. Prior research finds the debuting car models have the lowest repair rates
among all car models produced in a given year, but the current study finds the debuting models to have the
highest rates of safety complaints.
Originality/value – Quality management literature rarely examines the safety complaints data (which,
unlike other consumer feedbacks, focuses exclusively on the safety hazards due to flaws that result in
accidents). This paper fills the gap in literature by linking safety complaints with future product quality and
organizational learning.
Keywords Innovation
Paper type Research paper
1. Introduction
With a record number of vehicles recalled in the USA in recent years, safety defects in
automobiles raise serious concerns. In several instances of major recalls, car crash fatalities
possibly due to the use of defective components came in news. National Highway Traffic
Safety Administration/Office of Defects Investigation (NHTSA/ODI) enforces safety
performance standards for motor vehicles, investigates safety defects and oversees recall
programs. Individual consumers can file complaints to NHTSA if they feel that
unreasonable safety risk is associated with certain vehicle models. This safety complaint
information is used by NHTSA along with other data sources to flag safety issues that
warrant investigation on potential recall.
Automobile recall literature rarely investigates the contributing factors behind recalls.
A few exceptions are Shah et al. (2013), who investigated the effect of plant-level operational
factors on automobile recalls, and Haunschild and Rhee (2004), who investigated the
influence of voluntary and involuntary recalls in organizational learning to mitigate
subsequent recalls. However, consumer safety complaints may also act as ex ante to
potential future recalls. We argue that even in cases where they do not result in a recall,
there is value in information embedded in these complaints which if harnessed can foster
organizational learning and improve future products. Consumer safety complaints rather
than recall instances serve as solid basis for learning as they subsume cases of both recall Consumer
and non-recall; the latter cases may offer insights for product improvement missed by the safety
former. Moreover, vehicles are sometimes recalled due to reasons other than the increased complaints
risk of accidents. One such example is the recent recall of some Volkswagen cars for not
fulfilling the emission standard (The New York Times, 2015). Therefore, consumer
complaint, instead of the recall could be a better proxy for safety. Consumer complaint data
suggests that a majority of the safety-defect related consumer complaints are filed within a 2095
month from the date of incident. Given the short time between the incident and the recording
of a complaint, learning from the consumer complaints should help the firm in timely
identification of potential issues that can drive early actions for correcting them. To our
knowledge, no prior study in product development context has focused on whether
mission-critical (e.g. safety-related) complaints can drive organizational learning. This
serves as the central question in our study.
Prior research suggests that firms can learn from product recalls, which helps firms to
improve future product performances (Kalaignanam et al., 2013). Levin (2000) studied
automobile repair rate data and reported that the quality improves over time: in any given
year, the most recently designed car models have the best reliability. Both repair rate and
safety complaint rate are signals of quality in the field. Do consumers experience a similar
improvement on safety issues over the production lives of vehicle models as observed in
Levin’s study on repair rates? The evidence from NHTSA seems to suggest otherwise,
as the automobile recall rate has seen an increasing trend in recent years (Figure 1).

Number of Recalls Issued

1,000
900
800
700
600
500
400
300
200
100
0
1996 2001 2006 2011 2016
Year

Number of Affected Vehicles

60,000,000

50,000,000

40,000,000

30,000,000

20,000,000

10,000,000

0 Figure 1.
1996 2001 2006 2011 2016 Time series plot of
Year automobile recalls and
the affected vehicles
Source: NHTSA website (www.nhtsa.gov/sites/nhtsa.dot.gov/files/ in USA
documents/annualvehiclerecallssince1996.pdf)
IJQRM Levitt et al. (2013) analyzed the internal quality data collected for one production year
35,10 from an automobile assembly plant and showed that radical redesign of vehicle has
negative impact on internal evaluation of product quality. We analyze the data on quality
performance in the field for multiple years to investigate how learning occurs over a long
time horizon. In this vein, this research focuses on the consumer complaints for potential
safety defects in automobiles investigating the relationship of such complaints with
2096 vehicle characteristics, such as model redesigning, vehicle class and gas mileage, etc. The
terms “radical redesign” and “redesign” are used interchangeably in this paper. Though
the increase in consumer complaints due to technology innovation may sound intuitive, no
study yet has looked into the safety hazards caused by the innovations. The safety
complaints to NHTSA are filed according to the United States Code for Motor Vehicle
Safety (Title 49, Chapter 301), when a consumer experiences unreasonable risk of
accidents occurring due to the design, construction or performance of the motor vehicle.
Automobile safety complaints are rare events; however, the consequences of these
complaints are severe, as every complaint is instigated by an incident involving the
vehicle, which can cause accidents, injuries and even death. It should also be emphasized
here that driver behavior or road conditions has absolutely no influence on vehicle recalls
or vehicle safety hazards. In this regard, NHTSA identifies critical reasons for automobile
crashes – driver-, vehicle- and environment-related critical reasons are all mutually
exclusive (NHTSA, 2015). Chen et al. (2014), Ellison et al. (2015) and Kaplan et al. (2015)
investigated driver- and environment-related factors. However, the current study
exclusively focuses on vehicle-related safety incidents caused by potential defects in
design or manufacturing of the automobiles.
Based on analyzing a novel data set of complaints involving 245 unique vehicle models,
which is approximately 88 percent of the entire automobile market in USA during our study
period (2003–2011 model-year), we contribute to advancing our understanding of
organizational learning from consumer complaints in several important ways: first, by
showing that safety complaints decline in a short-time following a new model release or
radical redesign, we demonstrate that organizations learn from consumer driven safety
complaints. Second, we provide evidence that consumer safety complaint for an average
vehicle model declines over time signaling that learning occurs. This learning is manifested
even for redesigned products, recently redesigned products have a lower complaint rate
than past redesigns. Third, safety complaint rates depend on vehicle classes/categories:
we provide evidence that certain product classes often have more initial complaints. Fourth,
we compare our findings with results from prior research on vehicle quality, and suggest
that to explain quality improvement over time in products, we need to embrace both
“learning-before-doing” and “learning-by-doing” explanations.
The remainder of this paper is organized as follows: a theoretical background is
presented in Section 2, followed by hypotheses. We present our data and research
methodologies in Section 3. Analysis and results are outlined in Section 4. We conclude with
a discussion of the implications of our findings.

2. Theoretical background and hypotheses development

The purpose of this research is twofold: to explore the effect of model-year design changes
on automobile safety performance and to explore whether organizational learning is driven
by consumer safety complaints to improve product quality. As organizations get more
experience in production, the unit cost and the production errors decrease at a decreasing
rate, this is the fundamental concept behind “organizational learning curves.” There is a
significant body of work on organizational learning, particularly on its effect in reducing
production time. For a comprehensive recent review see Argote (2012). We outline a brief
survey of organizational learning literature as it relates to our work.
 Two complementary approaches in process development – “learning-before-doing” and Consumer
“learning-by-doing” are outlined in Pisano (1994). In the former, learning occurs even before safety
the commercial production of the new product begins, while the latter approach suggests complaints
learning after the beginning of commercial production. A framework for why only one of
these two approaches is appropriate for a certain technological environment is offered by
Pisano (1996). According to this framework, predicting how different technical choices and
their interactions will influence actual process performance in the factory settings is often 2097
difficult. If the organization has a sufficient understanding of the process to reasonably
predict the influences, then it may be advantageous to leverage “learning-before-doing.”
However, if the organization lacks this knowledge, then use of “learning-by-doing” becomes
imperative. Pisano further posited that acquiring complete knowledge of the process
technology is often difficult in reality, particularly for complex product development
processes. In such scenarios, variability of product quality level reduces over time following
a learning process ( Jeang, 2015). The recent spate in automobile recalls suggests a difficulty
in complete understanding of process development – hence, “learning-by-doing” approach
may be adopted. This rationale connects three areas in learning: product innovations in auto
industry that set the stage for learning, “learning-by-doing” that attempts to improve
product quality and consumer complaint, which can serve as both a measure of quality and
an input to this learning process. In the following sections we review these three strands of
literature that form the basis for our study.
We begin by reviewing prior work on product innovations in the automobile industry,
and the causes and effects of redesign of existing vehicle models. Then, we turn attention to
organizational learning, particularly the relationship between learning and innovations, and
how exogenous sources help the organizations to learn. Finally, we look at consumer
complaints and recalls and illustrate how they have the potential to drive product
improvement. Taken cumulatively, the three areas provide a foundation for us to develop
the hypotheses.

2.1 Product innovations in automotive industry

While it is difficult to precisely define the technical specification of a good vehicle, it has long
been observed that vehicle buyers are generally attracted by the “newness” of a vehicle (new
styles or features being offered in the vehicle’s latest model-year). Therefore, design
engineers introduce new styles and bring major changes in the features every few years.
After a major change in the vehicle design, it is promoted as a new generation vehicle.
Automobile styling change is discussed predominantly in marketing and economics
literatures. Automobile redesigns are considered as fashion trends (Reynolds, 1968).
Frequent redesigning enables transformation of automobiles from durable goods to
consumables, which increases the overall market size (Eastman, 1984). Larger automobile
firms can successfully use frequent style change to compete against the smaller firms
(Menge, 1962). Model redesigns are often very expensive investments for the automakers;
however, these investments generally have positive impacts on the model’s sales volumes
and market shares (Sherman and Hoffer, 1971; Hoffer and Reilly, 1984; Korenok et al., 2010).
Although vehicles are occasionally redesigned to comply with the enhanced safety
standards (The New York Times, 2006), the purpose for most redesigns is to reap a large
profit for the automakers (The New York Times, 2012). Both redesign of existing vehicle
models and introduction of new models increase long-term financial performance and firm
value (Pauwels et al., 2004). However, increasing product complexity and shortening of
product life cycles result in a challenge for the manufacturers to maintain high product
quality (Iwaarden and Wiele, 2012).
Continuous product innovation is critical for the survival of automobile brands in a
competitive environment (Talay et al., 2014), and vehicle model redesign is the primary
IJQRM means for incorporating this innovation (Townsend and Calantone, 2014). Incorporating
35,10 complex innovations in automobiles may require contributions from different technological
fields. Automakers are frequently forming research and development alliances nowadays to
overcome the technological challenges. Transfer of knowledge among the members of such
alliances is important but not always successful (Schulze et al., 2014). Another trend
observed in the last two decades is outsourcing of vehicle model development tasks to the
2098 suppliers (Cabigiosu et al., 2013). Previous studies linked quality concerns (e.g. product
recalls) with the extent of outsourcing activities (Steven et al., 2014). Therefore, it is
important to investigate the quality improvements in redesigned vehicle models.

2.2 Organizational learning

Organizational learning can occur by both exploration of new possibilities and exploitation
of old certainties (Levinthal and March, 1981; March, 1991). Experience gained in new
products and new set of tasks is considered as exploration, whereas experience gained from
repeating the existing set of tasks is considered as exploitation. Exploration involves a
discovery or innovation process, such as new product development and redesigning of
existing product. In contrast, exploitation is typically related to refinement and
enhancement of existing product quality or efficiency.
Different learning patterns are observed in different phases of product innovation (Dyck
et al., 2005; Bingham and Davis, 2012). Dyck et al. (2005) investigated the knowledge creation
process in a 20 person manufacturing firm, which went through a vehicle redesigning
initiative. Minor adjustments or fine-tuning in the process is observed after the steady-state
production begins. Fine-tuning was also observed by Levitt et al. (2013), who reported
significant improvement in internal quality of the vehicles after the first eight weeks of
production. As consumers are the ultimate evaluators of the product quality, determination
of external quality may be even more important than interval quality per se (Garvin, 1984).
However, literature on quality learning curves focuses predominantly on internal quality
and ignores the voice of the consumers (Lapré and Tsikriktsis, 2006).
An organization can learn by acquiring information unexpectedly from the environment
(such as customers, competitors and government), which is termed as random or exogenous
learning (Levy, 1965). A literature stream on organizational learning supports the view that
firms can learn from past recalls/errors, which helps to reduce the likelihood of future recalls
(e.g. Haunschild and Sullivan, 2002 on commercial airlines, Haunschild and Rhee, 2004 on
automobiles, and Thirumalai and Sinha, 2011 on medical device industry). Haunschild and
Sullivan (2002) demonstrated learning from accidents and incidents and studied the
variation in learning across firms in the US commercial aviation industry. Haunschild and
Rhee (2004) provided evidence that voluntary recalls are more effective than mandated
recalls for organizational learning. This learning is treated as exogenous, as the government
mandated recall program helps the automakers to learn. Consumers routinely test the
performance of the product as they use it under various operating conditions. As such,
experience of the consumers can be a great source of exogenous learning (von Hippel, 1988).
In service operations, Lapré and Tsikriktsis (2006) analyzed consumer dissatisfaction for
large US airlines and showed that customer dissatisfaction follows a U-shaped function of
operating experience. The airline passengers’ expectations increased over time, therefore an
improvement in service alone may not be sufficient to meet future consumers’ expectation.
However, safety hazard related consumer complaints can behave differently, as
expectations for minimum safety requirements do not change much over time (NHTSA’s
documentation United States Code Title 49—Transportation, Chapter 301—Motor Vehicle
Safety receives very few amendments since 1998 till date). No prior research seems to have
focused on safety hazards complaints. In addition, no study has investigated the learning
effect of consumer feedback in product development context.
2.3 Consumer complaints and automobile recall Consumer
Vehicle owners and other consumers are encouraged by NHTSA to file vehicle safety related safety
complaints to them by any of these three ways: Vehicle Safety Hotline, NHTSA online or US complaints
Mail. Consumers can file a complaint if they perceive unreasonable risk of accidents because
of faulty design, construction or performance of a motor vehicle (US Department of
Transportation, National Highway Trafic Safety Administration, 2011). NHTSA has a
well-defined set of criteria on what constitutes a safety related complaint, which helps to 2099
avoid any potential bias due to subjective assessment of safety performance. Once the
complaints are received, they are classified according to the vehicle make, model and
model-year and then the information is made publicly available. The technical experts in
NHTSA review every complaint for potential safety defect. A defect investigation is
initiated when a continuing trend in complaint filing is detected for a vehicle model-year.
The NHTSA defect investigation process involves four steps: preliminary screening of
consumer complaints to reach a decision on whether to open an investigation; analysis of
petitions submitted by the individuals requesting NHTSA to conduct a particular
investigation; preliminary evaluation and engineering analysis of the suspected defects;
oversight of the recall management process and monitoring of recall performance in case a
safety recall is recommended. This four-step process clearly distinguishes consumer
complaints from recalls: all complaints do not necessarily result in recalls, and even when
they do, there is often a considerable time lag between complaint filings and recall
announcement (The New York Times, 2014).
Shah et al. (2013) categorized automobile recalls as design-related and manufacturing-
related. They analyzed plant-level data to investigate operational causes of recalls.
Increasing product variety was shown to be associated with design-related recalls, but not
with manufacturing-related recalls. Prior research also distinguishes between proactive
(voluntary) and passive recall strategies for a firm. Chen et al. (2009) showed that a proactive
recall strategy is often adopted by less reputable firms, as they typically have low buffer to
safeguard against detrimental product-harm crisis. While prior research predominantly
focused on the automobile recalls, it is important to pay attention to the safety complaints
made by the consumers. The adverse effect of complaints and negative word-of-mouth on
product sales is well-established in literature (Mahajan et al., 1984; Mittal et al., 1998), which
motivates us to identify the main drivers of automobile safety complaints.

2.4 Hypotheses development

Prior research on organizational learning in automobile reported that the quality
improvement over the production life of a car model follows a learning-curve pattern (Levin,
2000). In addition, new car models, in their introductory years, are shown to be of better
quality than existing models. Organizational learning literature suggests a trade-off
between resource utilization in exploration and exploitation (March, 1991). During a product
development/modification, the resources are channelized in exploration, and the
organization may have fewer resources for exploitation. Achievement of innovation
performance is shown to impact quality performance (Prajogo and Sohal, 2003). As the
automakers consider design modifications, typically a new generation vehicle model should
strive for adaptation of new technology. If this new technology is distinctively more
advanced than the existing technology, then the radical redesign should result in reduced
repair rate. However, limited experience with the new technology may cause problems in the
short-term (Tyre and Orlikowski, 1994). These short-term problems may be even more
applicable for technologically advanced innovations; we suggest that both new model
designs and radical redesigns fall in this category.
In both manufacturing and service industries, the adaptation of a technological
innovation is shown to be highly discontinuous and episodic (Tyre and Orlikowski, 1994).
IJQRM Once a new technology is introduced, brief windows of opportunity follow, when a firm
35,10 undertakes technological adaptation initiatives. These adaptation initiatives greatly subside
afterwards, once the opportunity windows close. Therefore, we can expect to see a learning
curve every time a redesigned vehicle is introduced. Lead time of vehicle model redesign
process – defined by the time gap between conceptualization and introduction of the
redesigned model to market – is a critical dimension of the firm’s product development
2100 performance. However, a prolonged lead time can negatively affect the market acceptance
by losing the “freshness” of the redesigned models (Clark and Fujimoto, 1991). A higher
degree of uncertainty and higher risk level in exploration, together with the market
requirement of short lead time may create errors and eventually may turn into an
unanticipated safety issue in the product. The automakers, striving to quickly bring the
products to market, open the possibilities of “premature engineering” in case the lead times
are too short.
Short lead time is not the only problem associated with model redesigns. In a complex
product development process, development of new capabilities and transfer of process
technology to the factory for actual production of newly designed products are often
challenging (Pisano, 1996). This challenge may be due to the presence of functional silos or
technical difficulties. In the context of automobile manufacturing, Iansiti and Clark (1994,
p. 560) provided one example of developing dies, where design and manufacturing errors in
dies were corrected only after the start of vehicle production. We see support of this
rationale in the organizational learning literature on automobile manufacturing (Dyck et al.,
2005; Levitt et al., 2013). Auto-manufacturers often issue technical service bulletins (publicly
available from NHTSA), which also recognize the presence of unanticipated safety issues in
the vehicles.
Following this line of reasoning, we expect to see a higher consumer complaint rate for
new generation model-years. As organizations learn, the complaint rate should gradually
drop in the subsequent model-years until the next redesign. This learning curve is repeated
for the following generations of the same model. This leads to the following hypothesis:
H1. There is a learning effect in reducing safety complaints for automobiles. The
complaint rate in the initial phase of a vehicle model’s generation is higher than that
in the later phase.
There are several types of technological changes in innovations: Sood and Tellis (2005)
classified these changes as “platform innovation,” “component innovation” or “design
innovation.” Platform innovations are characterized by the emergence of a new
technology. Component innovations use new parts/materials within existing technological
platforms, while design innovations reconfigure the layout of components without using
new parts or technologies. Some examples of innovations in the context of automotive
industry are: platform innovation – introduction of hybrid or electric cars; component
innovation – changing the transmission of an existing model from front wheel drive
(FWD) to all wheel drive system; design innovation – revised exterior or interior styling,
etc. This classification suggests that both redesigned and brand-new models
predominantly implement a combination of component innovations and design
innovations. Therefore, the degree of technological change is higher for these models
than the other vehicle models. If a particular model-year does not undergo a major
redesign, some minor technological change may still be implemented (less significant
design innovations). Irrespective of whether a radical design change is made, designs of all
new model-years are built upon existing technologies, and a breakthrough technology is
rarely implemented. Therefore, we expect that the knowledge acquired from production of
past model-years is useful to some extent for the production of new model-year vehicles.
For example, 2007 Ford Edge has 7.841 complaints per 10,000 vehicle based on the
complaints filed in the first three years. We expect to see a decrease in the complaint rates Consumer
for 2008 and 2009 Ford Edge because of the manufacturer’s ability to learn through safety
operational experience. The complaint rates, in fact, dropped consistently – 4.523 for 2008 complaints
and 1.316 for 2009 model-years. It should be noted, however, that the complaint rate
decrease over time is a general trend, and there may be exceptions where the complaint
rate actually increases for some specific model-years. Therefore, we consider an “average”
vehicle model in the following hypothesis: 2101
H2. Learning influences the design of subsequent model-year vehicles. Therefore,
ceteris paribus, consumer safety complaint rate for an average vehicle model
declines over time.
According to the above hypothesis, the complaint rates, on average, decreases for future
model-years. Although H2 implies an overall improvement in quality considering all
model-years, it does not address whether the first model-year in a vehicle generation (i.e. a
new generation model) is also benefitted from learning. The overall quality improvement
may result from the annual improvement of later model-years in a generation: quality
improvement of such model-years may outweigh the influence of new generation models.
H1 suggests that the manufacturer needs to relearn as a new generation starts. Is the
previous operational experience useful at all to reduce the defect rates for the new
generation? We argue that we should be able to see some learning effects even for
radically redesigned models. In Section 2.1, we explained new generation model-year,
which is a redesign of the existing model. For the remainder of this paper, we will use the
term all-new model to emphasize that the model-year is the first introduction of a new
model, which is in contrast with redesigned from prior model. For example, 2007 Ford
Edge is an all-new model (as Edge was first released in 2007), and 2007 Ford Expedition is
a redesigned model (as Expedition’s generation changed in 2007). Both all-new and
redesigned models are the examples of exploration, as a vehicle generation starts with
either of these models. The technological changes in all-new models are predominantly
component innovations, though platform innovations are sometimes implemented. In
redesigned models, the technological changes are combinations of component innovations
and design innovations. Continuing with the previous arguments that form the basis for
our second hypothesis, we expect the extent of technological changes in an all-new model
to be more than that for redesigned from prior models. The more an existing technology is
used, the more learning is carried over from past experiences, and the lower the
probability of untoward technological consequences. Therefore, irrespective of the
production year, we expect to see fewer safety complaints for redesigned models than for
all-new models. The level of technological changes as it relates to learning and innovations
forms the basis for our next hypothesis:
H2a. Owing to the learning effect, on average, a redesigned model’s complaint rate is less
than an all-new model’s complaint rate.
H2a does not necessarily imply a quality improvement over time. To continue with the
example of 2007 Ford Edge (all-new model), and 2007 Ford Expedition (redesigned model),
H2a only suggests that we should expect to see more complaints for the earlier model than
the latter, on average. Let us consider the complaint rates for: two different models: 2006
Ford Explorer (which is a redesigned model) vs 2007 Ford Expedition (another redesigned
model, which was redesigned one year after 2006 Explorer), and two different model-years
of the same vehicle model: a redesigned 2003 Expedition vs a 2007 Expedition (redesigned
four years after 2003 Expedition). Three-year complaint rates for Explorer 2006, Expedition
2007 and Expedition 2003 are 7.276, 6.987 and 10.205 per 10,000 vehicles, respectively.
Can we expect to see declines in three-year complaint rates for latter model-years in general?
IJQRM We suggest as follows: if we consider only the new generation vehicles, we should expect to
35,10 see a general trend of quality improvement over time. The operational experiences with
production of any previous model should be useful to some extent, for production of new
generation models. Levitt et al. (2013, p. 673) provided two examples on how the fixes are
implemented in practice for redesigned vehicle models – the learning from fixing issues in
the current models should expedite fixing for future redesigns. We summarize this logic in
2102 our next hypothesis as:
H2b. Consumer complaints for new generation vehicle models will decline over time.
Product recalls help the automakers to learn. Because of the learning from past automobile
recalls, a reduction in the subsequent recall rate (Haunschild and Rhee, 2004), and also a
reduction in future traffic accidents (Kalaignanam et al., 2013) are observed. What happens
to the complaint rates over time when recall is not issued? Let us consider an example:
Kia Spectra 2006 through 2009 model-years. The first recall among these models was
announced in 2011, which was for 2007 model. Can we then expect to see a decline in
three-year complaint rates for 2007 through 2009 model-years, which were released before
the first recall announcement? In fact, there is a gradual decrease of complaints over these
model-years: we argue that the automakers learn from consumer complaints, irrespective of
past recalls. Learning from consumer feedback is demonstrated in literature (Fundin and
Elg, 2010). The impact of learning is measured as a reduction in number of potential
safety-defect-related complaints in subsequent model-years of the same model generation.
However, when there is a change in model generation, learning gets a reboot (H1); therefore,
we may not observe the reduction in complaint rates across multiple generations. Levitt
et al. (2013) described three mechanisms installed in one automobile production facility to
measure and control the internal quality of the products. Direct feedback from consumers as
a measure of external quality should be equally, or perhaps even more important to these
automakers. Regular monitoring of consumer complaints help the automaker in fine-tuning,
which aims to improve future product quality. Technical service bulletins are also issued by
these automakers to address the concerns of current consumers. In many situations,
the recalls are not announced, but the bulletins are released to address some specific
concerns – this is a clear indication that the automakers learn from consumer complaints.
So, we expect to see a reduction in complaint rates over time for the vehicle model-years in
same generation. Hence, we posit the following hypothesis:
H3. Organizational learning occurs even in absence of recalls, hence, the safety
complaint rate for average vehicle model declines from one model-year to the next
within the same generation.
There are eight dimensions of product quality (Garvin, 1984), and the vehicle quality in
some dimensions may depend on its model class. For example, luxury sedans should have
better conformance quality than ordinary sedans. We can categorize all models sold in the
USA into several model classes. Literature on traffic safety reports that the fatalities in the
case of accident depends on the vehicle class the model belongs to (Ulfarsson and
Mannering, 2004; White, 2004; Wenzel and Ross, 2005; Jacobsen, 2011). Because of the
difference in quality across model classes, we expect that the consumer complaint rates for
potential safety hazards also vary across vehicle classes. In addition, the fuel economy of the
vehicles varies across model classes. NHTSA sets the Corporate Average Fuel Economy
(CAFE) standard, which all automakers selling vehicles in USA must abide by. Automakers
are sometimes accused of producing cheap and low-quality compact cars only to maintain
the CAFE standard (cf. Isidore, 2014). It has also been argued that the automakers are
reluctant to announce expensive recalls from low-end model classes as the profit margin in
low-end models are typically lower than other models (e.g. G.M. is recently blamed for failing
to fix the defective ignition switches from Cobalt and other compact cars). Based on this line Consumer
of reasoning, we expect the following hypothesis: safety
H4. Consumer safety complaint rates vary across model class. complaints

3. Methods and analysis

3.1 Data and variables 2103
The unit of analysis for this study is the vehicle. Specifically, we focus on new vehicles sold
in the USA by the major automakers during 2003–2011. We eliminate the models that did
not go through even a single redesign process (generation change) during 2003–2011. Large
Vans as well as ultra-luxury brands are also excluded. Several other models are excluded
because of data mismatch. Our final data consider a total of 245 unique models, accounted
for more than 115 million vehicles during 2003–2011. This is about 88 percent of the entire
US automobile market during this time period.
We draw on several secondary sources to construct our data set. The first is NHTSA/ODI
website for complaints and recalls databases (retrieved in January 2014). While there are
several alternatives for the consumers to file complaints (such as direct mailing to the
manufacturer, dealer feedback and online forums), we exclusively focus on NHTSA
database as we only consider safety-related complaints, and NHTSA has specific guideline
to determine whether the complaints are “safety-related.” We have used NHTSA Campaign
Number, Vehicle Make, Model, Potential Number of Units Affected and Report Received
Date. If multiple complaints were made for the same vehicle unit, then we only consider the
date of first complaint, which has been identified by NHTSA’s internal reference number.
Our second data source is Automotive News, which provide us with the monthly sales
data for all vehicles sold in USA, and market classification data to determine the vehicle
classes for all vehicle model-years we considered. Model-years are changed annually;
however, for most vehicles the new model-years begin selling from sometime in the second
half of the preceding calendar year. Two consecutive model-years of the same model are
often sold simultaneously during August through January. However, the monthly sales data
are available only at the model level, and not by model-years. Aggregate of the consecutive
twelve months of model level sales volume can still be a good approximation for the actual
model-year level sales volume (see Figure 2: monthly sales of model-years in Copeland et al.,
2005). We consider a September to August cycle (cf. Klier and Linn, 2010). Approximate
model-year sales are considered for each new generation model as the maximum of
consecutive twelve-month of model-level sales volumes during 18 months period starting
from July of the preceding calendar year. This procedure always results in a high estimation
of the required sales volumes, and therefore, the complaint rates for new generation models
are conservatively estimated.
Our third data source is the website of Edmunds.com, Inc., from where we collect models’
generation change information. A few of the generation change data collected from
Edmunds.com, Inc. is also cross-checked using articles published in major newspapers
available from LexisNexis Academic (2002–2011). When a new vehicle model is first
introduced in the market (i.e. an all-new model), Edmunds.com described it in the “What’s
new” section of the model review using words such as new, all-new, new-breed, or debut.
Interchangeable phrases, such as completely revamped, redesigned inside and out,
completely overhauled, thoroughly redesigned, totally redesigned, makeover inside and out,
or complete makeover are typically used to indicate a redesigned model.
Two raters (a data analyst in automotive industry and a graduate student in a US public
university), who were blind to the research hypotheses, evaluated the same set of
descriptions available from Edmunds.com and determined the generation change
years for each vehicle model. The inter-rater reliability (i.e. the percentage of agreement
IJQRM 30
Compact SUV
30
Midsize SUV
35,10 25 25

Three-year Complaint Rate

Three-year Complaint Rate

(per 10,000 vehicles)

(per 10,000 vehicles)

20 20

15 15

2104 10 10

5 5

0 0
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9
Years in a Generation Years in a Generation

30 30
Large SUV Luxury SUV
25 25
Three-year Complaint Rate

Three-year Complaint Rate

(per 10,000 vehicles)

(per 10,000 vehicles)

20 20

15 15

10 10

5 5

0 0
Figure 2. 1 2 3 4 5 6 7 8 1 2 3 4 5 6 7 8 9
Variation of complaint Years in a Generation Years in a Generation
rate for different
classes of SUVs Notes: SUV classes also include crossover utility vehicles (CUV), for example, compact SUV
class includes compact CUVs, etc.

between rater) is found to be 97.45 percent. A widely used measure of inter-rater reliability is
Cohen’s κ, which is the estimate of the proportion of agreement that is greater than the
agreement happened by chance among the raters. We found κ ¼ 0.91 in our study, which
reflects a strong agreement between the raters.
Our fourth data source is the website cars.com, which provided us with gas mileage
data for vehicle model-years. For any vehicle model-year, we consider the average of city
mileage and highway mileage ranges available from the website. A few gas mileage data
collected from cars.com is also cross-checked for reliability by using EPA website (www.
fueleconomy.gov, 2014).
Dependent variables. Our analysis focuses on the consumer complaints on product safety
issues in the context of US automotive industry. We investigate whether all-new designs,
radical redesigns and the product classes could be among the contributing factors behind
these complaints. Two dependent variables are separately used in two analyses: consumer
complaints for each individual vehicle, and three-year complaint rate for each vehicle
model-year. The first variable is a dichotomous variable coded “1” when a safety complaint
is filed for the first time for any vehicle unit, otherwise the variable is coded “0.” The second
measure of dependent variable is obtained by dividing the aggregate number of complaints
filed in the first three years for any model-year by the sales volume.
Predictor variables. We measure time since the last major redesign of the vehicle models.
Major redesign also marks the beginning of a new generation model. As described earlier,
we consider three distinct stages of the model generations: early-generation, mid-generation,
and late-generation models using a categorical variable stage in generation. In later part of
the analysis, we deviate from this classification: details are provided in the results section. Consumer
The second and third predictor variables are vehicle model class (categorical variable) and safety
vehicle mileage. Two time-dependent covariates are used:time, and impact of previous complaints
recalls. We use the year associated with any model-year as the measure of time. For a vehicle
model-year with safety defects, consumer complaint rate may be high before recalls are
announced. Once the defects are rectified, complaints filing related to this particular safety
defect is expected to drop in subsequent years. 2105
We use natural logarithm of cumulative recall impact that considers the potential vehicle
units of a model-year affected by all recalls announced by the given time (year). Its value is
calculated as follows: data on potential number of units affected for each recall campaign is
collected from NHTSA database. However, a defective component can be used in multiple
vehicle models or in one model for multiple model-years, or both. Since NHTSA’s campaign
numbers are unique to the components, several models/model-years can have the same
campaign number. In absence of detail data on potential number of affected units for
individual models/model-years, we assume that the number of potentially affected units in
each model-year is proportional to the sales volume. Cumulative recall impact combines the
impact of all previous recalls affecting the particular model-year.
Control variables. Productivity learning curve depends on the production volume of the
current model-year. The natural logarithm of sales volume is considered as a proxy for
production volume. Learning may also occur by transfer of knowledge from other similar
products manufactured by the firm, the economies of scale, and even by transfer of
knowledge from other organizations (Argote and Epple, 1990). We therefore consider:
annual aggregate sales volume for each model class produced by the firm division,
aggregate sales volume across all model classes produced by the firm division and
aggregate sales volume for each model class produced by all firm divisions. These variables
are named Own class output, Firm division output, and Total market class output,
respectively. The natural logarithms of these variables are considered in the analysis.
Our choice of the control variables is consistent with the prior research. Some key statistics
for the automakers in our sample is reported in Table I.

Average three-year
complaint rate
Automaker Number of unique models Number of redesigns (per 10,000 vehicles)

BMW 9 9 6.378
Chryslera 23 28 3.387
a
Daimler AG 12 13 9.968
Forda 32 38 5.951
Fuji Heavy Industries 6 8 4.619
General Motors 49 55 7.798
Honda Motor Co. Ltd. 15 21 5.544
Hyundai 20 25 7.401
Mazda Motor Corporation 9 11 7.117
Mitsubishi 5 6 5.018
Nissan 21 27 6.987
a
Porsche 2 3 3.197
Table I.
Suzuki Motor Corporation 4 3 11.869
The number of
Toyota Motor Corporation 26 34 7.377 models, redesigns and
Volkswagen 12 12 8.073 complaint rates
Notes: aThese firms sold off some brands during our study period. The above data considers brand considered in the
ownerships as of year 2003 analysis
IJQRM 3.2 Econometric models
35,10 Filing a safety-defect complaint can be compared with an event of failure, and a proportional
hazard model is applicable for our analysis. We consider a discrete-time method, where the
time unit is a 12-month period (September–August). In our case, many events can occur at
the same points in time, resulting in many ties in our data set. Exact methods in partial
likelihood estimation are required to handle tied data (Allison, 2010). The exact methods are
2106 computationally demanding and may not be applicable for a large data set. We use
maximum likelihood method, which is a logistic regression model. A logistic regression
model is appropriate for predicting the occurrence of an event, regardless of its timing
(Morita et al., 1993). When the hazard rate is small (as in our case), a logistic regression
model converges to a proportional hazard model ( Jenkins, 1995).
When a dichotomous variable data set has thousands of times fewer events than
nonevents, it is treated as rare events data. In our data set, we observe about seven
safety-defect complaints, on average, per 10,000 vehicles sold. As described in the literature
for rare events logistic regression (King and Zeng, 2001a, b), a standard logit model
underestimates the probability of an event. Therefore, we sample all events and a small
fraction of nonevents, as recommended in King and Zeng (2001b). We estimate the following
logistic regression model:


Pr yiTjt ¼ 1 ¼ F b1 ðstage in generationiT Þþb2 ðmodel classi Þþb3 ðmileageiT Þ
þb4  T þ b5 ðcumulative recall impactiTt Þ
þb6 ðestimated model year salesiT Þ
þb7 ðown class outputiT Þþb8 ðfirm division outputiT Þ

þb9 ðtotal market class outputiT Þþb10  t þeiTjt ; (1)
where i indexes vehicle models, T indexes year of model (i.e. model-year), j indexes
individual vehicle units within the model-year, t indexes year of complaints filing, and yiTjt is
the dependent variable consumer complaint. Other variables are introduced earlier.
We also compute the number of complaints received within the first three years of new
model-year sales. Therefore, we have two separate sets of analyses: one considers all
complaints, and the other only considers complaints filed within the first three years of new
vehicle ownership. Our logic for using this approach is threefold: first, aggregated
three-year complaints should be a good indicator of the vehicle model’s initial quality, as
typically all automakers provide a minimum of three years of all-inclusive warranty for any
new vehicle sold. Considering complaints filed within a fixed number of years for all
model-years enable us to directly compare the complaint rate for the vehicle models across
our study period. Second, the analysis will eliminate the possibility that an excessive
number of complaints filed in later years (i.e. beyond the first three years) for some vehicle
models may influence the results. In reality, some consumer complaints on safety issues
may not be about safety, but about durability of the vehicle. These durability issues should
be eliminated from our consideration. As the vehicles get older, the durability related
complaints become more prominent. Focusing on only the first three years of complaints is
helpful in this regard. Third, the analysis will help us to directly compare our results with
Levin (2000), who used data on repair record during the third year of car ownership.
We consider a total of 214,854 complaints and 79,537 three-year complaints filed during
year 2003–2013 for 2003–2011 model-year vehicles. It can be noted that our computation of
three-year complaint data is an approximation. For example, in a 2005 model year vehicle,
we consider all complaints recorded till August 31, 2007, while most units of this model were
sold after September 1, 2004. Thus, we effectively consider less than three years of
complaints, which should not be a concern as we are consistent with this approach for every
vehicle model-year considered. For analysis using three-year complaints, we do not Consumer
differentiate among the complaints based on the filing time as long as the complaints are safety
filed within the first three years. As we will see later, the variable cumulative recall impact complaints
can be removed without seriously affecting the standard error of the model. We determine
the complaint rate for each model-year and then use OLS regression for analysis. As the
observations for same vehicle model-year may not be independent, we report the results
with cluster-robust standard errors, which are heteroskedasticity and within-cluster 2107
correlation consistent. We consider clustering in one dimension (by the vehicle model); this
yields almost identical results to clustering by both model and year, as there are only a few
clusters for years (Petersen, 2009).
Use of both logistic and OLS regression on related dependent variables also serves the
purpose of cross-validation. The OLS regression model is specified as follows:

y0iT ¼ b00 þb01 ðstage in generationiT Þ þb02 ðmodel classi Þ þb03 ðmileageiT Þ

þb04  T þb05 ðestimated model year salesiT Þ þb06 ðown class outputiT Þ
þb07 ðfirm division outputiT Þþb08 ðtotal market class outputiT Þ þe: (2)
The coefficients in the above equation are denoted by β’s to make them different from β’s,
which are used in (1) for logistic regression.

4. Results
Descriptive statistics and correlation matrix are provided in Table II. The strongest
correlations are observed among the control variables as expected. First, we estimate the
logistic regression model without using stage in generation, mileage and cumulative recall
impact. Then, these three variables are added one at a time without observing any
significant changes in the coefficients. The estimates obtained using this complete model
based on Equation (1) is reported in Table III.
For a very large data set like ours, the p-value problem is well-known (cf. Lin et al., 2013):
even a small effect of an independent variable can be statistically significant as the standard
error becomes small for very large sample size. As suggested by Lin et al., we observe that the
odds of filing a complaint because of safety defects are higher for early-generation models
(i.e. in the first two years since generation debut) than late-generation models by a factor
estimated to be between 43.7 and 94.0 percent. This effect size should be highly significant,
even practically, considering the fact that each complaint is based on a potentially fatal
incident. The odds of filing a complaint seems to be higher for mid-generation models than the
late generation models, the coefficient is weakly significant.
Table III suggests that the cumulative recall impact does not have any significant
influence on consumer complaints (among all variables, the odds ratio for this variable
and mileage are the closest to 1). As discussed earlier, safety risk is not the only reason for
recalls. Another possible explanation is that some recalled components are more crucial
than other components. For example, an automaker can recall faulty wiper switches or a
faulty component in the vehicle’s powertrain. A nonfunctional wiper is less likely to cause
a safety hazard than a nonfunctional powertrain. Therefore, it is difficult to estimate the
relative importance of the recalled components. As the cumulative recall impact is found
to be the least significant, we eliminate it from our consideration for the remaining part of
the analysis.
The OLS regression results are reported in Table IV, which includes five different
models. All models are highly significant (p o0.001). Model 1 is based on Equation (2). As
before, early-generation model turns out to be highly significant, and mid-generation is
weakly significant. In logistic regression, the coefficient for early-generation model is 0.5126.
 35,10

2108

Table II.
IJQRM

Descriptive statistics
Panel A: summary statistics
Variable Mean SD Min Max Total
Complaints for each model-year 100.404 203.197 0 2,400 214,854
3-year complaints (per 10,000 vehicles) for each model-year 7.065 8.919 0 160.268 –
Years in current generation 3.401 2.005 1 13 –
Early-generation model – – – – 572
Mid-generation model – – – – 470
Late-generation model – – – – 406
Vehicle class – compact – – – – 179
Vehicle class – midsize sedan – – – – 170
Vehicle class – fullsize sedan – – – – 34
Vehicle class – Compact SUV – – – – 164
Vehicle class – midsize SUV – – – – 120
Vehicle class – Large SUV – – – – 161
Vehicle class – compact/mid pickup – – – – 48
Vehicle class – sporty – – – – 47
Vehicle class – minivan – – – – 74
Vehicle class – luxury Sedan – – – – 313
Vehicle class – Alt. power – – – – 14
Vehicle class – luxury SUV – – – – 124
Mileage 22.485 5.120 13.670 55.500 –
Estimated model-year sales 79,180 97,131 10,023 966,340 –
Firm division output 653,768 657,379 10,309 2,372,494 –
Own class output 155,612 204,095 10,092 1,399,077 –
Total market class output 1,421,158 824,178 16,454 3,912,172 –
Panel B: correlations
(1) (2) (3) (4) (5) (6) (7)
3-Year complaint rate (per 10,000 vehicles) 1.00
Years in current generation −0.233*** 1.00
Mileage 0.102*** −0.058* 1.00
Estimated model-year sales −0.012 0.018 0.068** 1.00
Firm division output 0.038 0.046**** 0.053* 0.522*** 1.00
Own class output −0.053* 0.015 −0.083** 0.654*** 0.552*** 1.00
Total market class output −0.084** 0.020 −0.009 0.353*** 0.261*** 0.587*** 1.00
Notes: *,**,***,****Coefficient significant at p o 0.05, 0.01, 0.001 and 0.10 levels, respectively
 Dependent variable: consumer complaints
Consumer
Variables Odds ratio 95% wald confidence limits SE safety
complaints
Vehicle class – compact 0.787 0.427 1.452 0.312
Vehicle class – midsize sedan 0.717 0.429 1.197 0.262
Vehicle class – fullsize sedan 0.952 0.668 1.357 0.181
Vehicle class – compact SUV 1.191 0.747 1.897 0.238
Vehicle class – midsize SUV 1.693* 1.119 2.564 0.212 2109
Vehicle class – large SUV 0.518* 0.286 0.938 0.303
Vehicle class – compact/mid pickup 1.157 0.819 1.635 0.176
Vehicle class – Sporty 5.355*** 3.189 8.994 0.265
Vehicle class – minivan 1.591** 1.142 2.217 0.169
Vehicle class – luxury sedan 0.896 0.595 1.350 0.209
Vehicle class – Alt. power 14.833*** 5.078 43.328 0.547
Mileage 0.995 0.964 1.027 0.016
ln (estimated model-year sales) 0.928 0.811 1.062 0.069
Year 0.977 0.945 1.009 0.017
Complaint year 1.018* 1.001 1.037 0.009
Early-generation model 1.670*** 1.437 1.940 0.077
Mid-generation Model 1.134**** 0.983 1.307 0.073
ln ( firm division output) 1.111**** 0.993 1.242 0.057
ln (own class output) 0.924 0.781 1.094 0.086
ln (total market class output) 1.731*** 1.362 2.200 0.122
ln (recall impact) 0.995 0.979 1.011 0.008
Wald χ2 (D.F. ¼ 21) 851.96*** Table III.
Notes: Robust standard errors are clustered at vehicle model level; Odd ratios are calculated at the mean of Logistic regression
all variables. *,**,***,****Coefficient significant at p o 0.05, 0.01, 0.001 and 0.10 levels, respectively results

Based on this value, the marginal effect is calculated as 3.972 complaints per 10,000 vehicles
for early-generation models. This value is close to the corresponding coefficient value
from the OLS regression results, which serves as a robustness check. Model 1 supports our
H1 and H2.
In Model 2, we remove the original variable stages in generation and introduce a new
categorical variable level of innovativeness. This variable classifies vehicle model-years as
all-new model (i.e. innovativeness level is the highest as the models are introduced first-time
ever), redesigned models (innovativeness level is lower than the previous one), and
model-years with no major design change (no significant innovation). The evidence shows
that both all-new and redesigned models contribute to the complaints, but in different
degrees. This finding supports our H2a, as the average complaint rate increase for all-new
models (6.685 per 10,000 vehicles) is about 62 percent more than that for redesigned models
(4.116 per 10,000 vehicles).
In model 3 we remove year and level of innovativeness from Model 2 and introduce a
new variable design year. This variable indicates the debut year of new generation (both
all-new and radically redesigned) models. Vehicle model-years, which are not new
generation models, are dropped from the data set. The results support H2b that the new
generation models debuted in later years have fewer complaints: a reduction of 0.814
complaints per year per 10,000 vehicles, which is about 7 percent of the average complaint
rate considering all new generation vehicles (average ¼ 11.681 complaints per 10,000
redesigned vehicles).
In Model 4, we prepare the data set in the following way: first, we identify all vehicle
model-years that do not have any recall announcement within the first three years of
model-year release. Then, we form vehicle model dyads where the two components of each
dyad represent two consecutive model-years of the same vehicle model. Next, we conduct
IJQRM Dependent variable: consumer complaint rate (considering complaints filed in the first three years,
35,10 per 10,000 vehicles)
Variables Model 1 Model 2 Model 3 Model 4

Vehicle class – compact n.s. n.s. n.s. n.s.

Vehicle class – midsize sedan 4.455**** (2.446) 4.341**** (2.440) n.s.
Vehicle class – fullsize sedan n.s. n.s. n.s.
2110 Vehicle class – compact SUV 4.137* (1.745) 4.113* (1.717) n.s. n.s.
Vehicle class – midsize SUV 3.016* (1.305) 3.067* (1.286) n.s.
Vehicle class – large SUV n.s. n.s. n.s. n.s.
Vehicle class – compact/mid pickup n.s. n.s. n.s.
Vehicle class – sporty 13.173**** (6.945) 13.731* (6.941) n.s. n.s.
Vehicle class – minivan 5.824*** (1.312) 5.767*** (1.329) 10.350** (3.773)
Vehicle class – luxury sedan 2.650* (1.343) 2.711* (1.360) n.s.
Vehicle class – Alt. power 22.607* (9.081) 22.787* (9.498) n.s.
Mileage n.s. n.s. n.s. n.s.
ln (estimated model-year sales) n.s. n.s. n.s. n.s.
Year ‒0.346** (0.119) ‒0.316** (0.114) n.s.
Early-generation model 4.116*** (0.520)
Mid-generation Model 0.721**** (0.437)
All-new model 6.685*** (1.071)
Redesigned model 4.116*** (0.719)
Design year −0.814** (0.295)
ln ( firm division output) 0.592**** (0.355) n.s. n.s. n.s.
ln (own class output) n.s. n.s. n.s. n.s.
ln (total market class output) n.s. n.s. n.s. n.s.
Second year model in dyad −1.544** (0.524)
Observations (model-years) 1,448 1,448 293 130
R2 0.177 0.195 0.182 0.295
Table IV. Notes: n.s. ¼ not significant; Model 1 supports both H1 and H2. Models 2, 3 and 4 support H2A, H2B and
OLS Regression H3, respectively. Robust standard errors clustered at the vehicle model level are in parentheses. Model 1 and 2
results support H4. *,**,***,****Coefficient significant at p o 0.05, 0.01, 0.001 and 0.10 levels, respectively

first round of elimination, where we eliminate all dyads where the second components
represent major redesign (generation change) of the model. In the second round, we further
eliminate the dyads where the second components represent model-years involving
modification of the vehicles’ powertrains for at least some trim-levels from the previous
model-years. We eliminate dyads involving powertrain related modifications, as powertrain
is considered to be the set of most critical components in a vehicle. We originally had
78 dyads: 6 and 7 dyads are removed in the first and second round of eliminations, resulting
in 65 remaining dyads (i.e. 130 unique model-years). Since this data set is small, we consider
collapsing the categories for model class variable. We notice the absence of fullsize sedans,
pickups, minivans and alternative powered vehicles in the data set. The vehicles are now
categorized as sedan (combines both compact and midsize sedans), SUV (compact and
midsize SUVs), large SUV, sporty and luxury (luxury sedans and luxury SUVs). A new
variable second year model in dyad is introduced, which is coded as “0” for first, and “1” for
second components of all dyads. The regression results support H3, as the complaint rate
mitigates on average for the subsequent model-years even when there is no recall.
We observe that the results are still significant when we consider all original vehicle classes
(though the significance is a bit weaker; p o0.05). We consider another data set with dyads,
which has only redesigned models in the second components. Interestingly, a significant
and strong positive correlation is observed (r ¼ 0.787, p ¼ 0.002) between complaint rates
and second year model in dyads. The data set is very small (only six such dyads) and we do
not report this finding in details.
 For Models 3 and 4, the model classes do not generally appear to be significant, as our Consumer
data set for these two models are not very large. For our original data set (Models 1 and 2), safety
some model classes are appeared to be significant, which provides support to our H4. complaints
Luxury SUV vehicle class is set as the omitted category.
Our results in this study are robust, we also analyze the data using fixed-effects regression
method, where a dummy variable is considered for each vehicle model: the main results are
still intact. However, model class is same for all observations of any vehicle model; therefore, 2111
the results for model class are not available in fixed-effects regression analysis.

5. Discussion and conclusions

The empirical results highlight four important findings in the context of the consumer
complaints’ role in organizational learning: the data shows the presence of learning curve for
product quality as measured by the consumer safety complaint rate, previous learning on
the production process is not very effective in case of radical redesign of the existing
products, the complaint rates vary across different classes of the same product and
“learning-by-doing” reduces complaint rates over time after introduction of newly designed/
redesigned products. This work is probably the first to explore how new product release or
design modification influences product safety hazard measured via consumer complaints.
Radical model redesign, indicated by the model generation change is an important driver
of safety related complaints filed by the consumers. Our findings are aligned with
organizational learning theory. We find that the average complaint rate for early-generation
models is substantially higher than late-generation models. However, the difference between
average complaint rates for mid-generation and late-generation vehicles is not very large,
which indicates a short adaptation window. This finding supports Tyre and Orlikowski’s
(1994) argument on the brief “windows of opportunity” for adaptation to technological
innovation. We find less benefit of previous learning, once a model is redesigned. Therefore,
we posit that a major redesign may involve a significant amount of new learning as the
learning from the prior model year of the same vehicle cannot be used in entirety. This new
learning is manifested by a surge is the consumer complaints. Heim and Ketzenberg (2011)
reported the adverse effect of service redesign on service outcome – we show the adverse
effect of product redesign in manufacturing.
Our results suggest that the smaller size (and relatively less expensive) vehicle classes
seem to be more prone to safety complaints (compare compact and midsize SUVs vs large
SUV ). Coefficient for alternative power driven vehicles is much higher than those for other
model classes, which is according to our expectation, since alternative power is a new
technology and learning of this technology is in its nascent stage. We find support of this
result in another measure of quality issues: J.D. Power and Associates’ Initial Quality Study
ranked the hybrid cars as the worst among all cars in 2013 (USA Today, 2013). Our results
indicate high average complaint rate for sporty vehicles, for which frequent styling change
should be important to keep up the “trendy” look. This may increase the overall complaint
rate for sporty class, as the models are potentially redesigned before the learning curve for
the previous generation flattens out. Minivans also have higher complaint rate on average
than many other vehicle classes. Recent news articles (e.g. CNN Money, 2014) on the safety
features of minivans support this finding. How complaint rate varies across vehicle class is
evident from Figure 2, which shows the variations in complaint rates with number of years
since the last redesign for four different SUV classes we considered in the model.
A logarithmic trend-line is fitted to each class. The complaint rate for new generation model
is the highest for compact, and gradually reduces for midsize, large and luxury SUVs. The
trend line for luxury SUV suggests that the three-year complaint rate goes below five
(per 10,000 vehicles) within the second year after introduction of a new generation model. It
takes much longer for other SUV classes to reduce the complaint rates to the same level.
IJQRM It is interesting to note that the coefficient of ln (total market class outputiT) is significant
35,10 in the logit model (p o0.001), but not at all significant in the OLS model. We suggest a
possible explanation as follows. Our logit model considers all complaints till 2013, where
the OLS model only considers the complaints filed within the first three years after
model release. The logit coefficient indicates that the complaint rates are higher for the
model classes, which have larger market volume (e.g. compact or midsize sedan).
2112 The difference between the logit and OLS models indicate that the consumers of model
classes with larger market volume tend to file more complaints beyond the first three years
of ownership. The difference between compact and luxury cars in certain dimensions of
quality (e.g. durability) explains this finding. This is quite intuitive that the compact or
midsize sedans have larger market size than luxury cars, and the durability issues in these
low-end model classes become more prominent after the first few years, which drives the
consumers to file more complaints for the low-end models than the high-end models.
Some of our findings are in contrast with Levin (2000), who also studied learning curve in
automobile quality. Levin found lower repair rate of newly designed car models compared to
the other models in the same year. His advice is to buy a new car in its first year of
production. In direct contrast to this suggestion, we find a surge in safety complaints in the
initial years of a model generation. In Figure 3, the variations of three-year complaint rates
during our study period are shown for six best-selling car models: the short-term impact of
radical redesign on complaint rates is clearly visible. Ford Fusion did not go through a
generation change in 2010. However, the 2010 model-year had been “significantly updated”
that includes a powertrain revision, which might be a possible explanation for increased
volume of complaints.
Levin posited that dramatic improvement in quality can be instilled in all-new and
radically redesigned models; this extent of quality improvement cannot be achieved by
incremental design modifications within a model’s current generation. He further argues that
key “windows of opportunity” for quality improvement actually occur before the commercial
production begins. While Levin’s work provides emphasis on “learning-before-doing”
approach, we demonstrate the indispensability of “learning-by-doing” for quality
improvement in the same automotive industry. The emphasis of two differing learning
approaches is the crux of the difference between two recommendations on buying new

(a)
20
Camry Accord Civic
Rate (per 10,000 cars)
Three-year Complaint

Redesigned Redesigned
15
Redesigned Redesigned
10

0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Model-years

(b)
30
Rate (per 10,000 cars)
Three-year Complaint

Altima Corolla Fusion

25
Redesigned
20
Figure 3. 15
Variation of Redesigned All-new Redesigned
10
complaint rate for Altima
six best-selling 5
cars during the 0
study period 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Model-years
generation cars. We find that vehicle model redesigning is one example, where different Consumer
learning approaches may play key roles in different aspects of quality improvement process, it safety
all depends on how we measure “quality.” Levin measures quality using repair rate, and we complaints
measure quality using consumer safety complaints. We argue that the repair rate is usually
improved by advance preparation before the commercial production of the model-year begins.
However, the actual experience in factory settings is still needed to reduce the potential
defects. Initiatives to reduce repair rates for future model years are carried out using R&D 2113
(exploration). The firm investigates the shortcoming of past model years (high repair rate, etc.),
and seeks to improve the product design. Finite element analysis of key components, and
R&D experiments, such as computer simulations and prototype testing are conducted.
Sometimes, new, improved technology (e.g. corrosion resistant materials, etc.) is also used for
newer model-years. All of these initiatives are examples of how an organization learns to
improve product quality before the actual production begins. Because of these initiatives, the
repair rate of new generation cars is found to be lower than that for other cars, which provides
evidence that “learning-before-doing” is more significant than “learning-by-doing.” However,
modification of product design and use of improved materials often necessitates a change in
the production process. At the start of the actual production, the organization may not learn
the new production process well enough to produce the vehicles defect-free. Some
technological issues still remain in the initial production years of redesigned product.
The manufacturers then fine-tune the production processes that eventually reduce product
defects (exploitation). We advocate that repair rate for new generation cars declines because of
an overall improvement in the product design; however, a lack of learning in the new process
technology increases consumer complaints. We see support of our findings from Dyck et al.
(2005), who differentiate between explicit knowledge and tacit knowledge: product errors
involving tacit knowledge are harder to identify and rectification needs more learning effort
compared to the errors involving explicit knowledge. A surge in consumer complaints for the
new generation models, followed by a rapid decline is a ramification of the “learning-by-doing”
approach, which now takes more significant role in improving quality of future products. The
potential safety issues may not affect each and every unit of the products. Nevertheless,
eliminating the reason behind this small fraction of safety complaints (with huge
consequences of such complaints) is important for the automakers. We also find that all-new
models have the highest complaint rate on average, the redesigned models have relatively
lower complaint rates, which is still higher than the complaint rate for other models.
The coefficients for all-new and redesigned model are much higher than the absolute value of
the coefficient for year. These values indicate a strong negative influence of radical redesign
on quality, which surpass the effect of incremental quality improvement over years. Levin’s
study finds “time” as the key determinant of product quality, however.
Our study can be viewed as an extension of Levitt et al. (2013), who reported the presence
of learning curve for both quality and productivity in one-year long automobile plant
performance study. We show that the learning continues beyond one year. While Levitt et al.
focused on internal quality of the products, we show that the impact of learning can benefit
consumers and if not taken advantage of, negatively affect their experience.
In the past, initiatives were taken to educate the drivers and to improve road conditions
under the assumption that driver errors and improper highway maintenance is
responsible for a majority of the incidents. However, our research shows that the
consumer reported safety issues increases significantly when vehicle model is redesigned;
therefore, the negative impact of product design modification on consumer safety cannot
be ignored. A counter-argument to the interpretation of this study can be made that the
consumers may be prompted to file a safety complaint, where the root cause is the age of a
vehicle. However, this does not explain why new generation models receive higher number
of complaints.
IJQRM Prior research shows that newer model-years vehicles have a 8.8 percent price premium,
35,10 on average, over previous model-years in the primary market (Copeland et al., 2005). This
price premium indicates a higher market demand from the consumers for newer model-year.
Consumers often get attracted to new generation models for the sake of “newness.”
Our findings raise the question: Is it worthwhile to pay the price-premium when the newer
model-year vehicle is also a new generation model? Past safety hazard complaints suggest
2114 that the consumers may be better off buying previous generation models, which are often
sold simultaneously with the new generations.
A question may be raised that whether the automakers are currently churning out too
many all-new and redesigned models. The short-term ramification of implementing radical
redesigns seems to be detrimental to the consumers – this finding is surprising, since one key
objective of redesigning a vehicle should be to ensure safety. Design modification is a way of
implementing innovations. This is the exploration part of the organizational learning process.
As mentioned by past researchers, consequence of learning may not always be beneficial to
the firm, particularly in the short-term. In the long-term, exploration prevails, as a rapid
refinement of exploitation cannot effectively replace exploration in entirety. Maintaining a
reasonable amount of exploration is instrumental for achieving competitive advantage
(March, 1991). Therefore, another open question in the context of automotive product
innovation is: What is the ideal balance between exploration and exploitation keeping in mind
the overall benefit of the consumers? We find different levels of exploratory effort by different
automakers during our study period. Particularly, generational longevity for European
models seems to be higher than USA and East Asian models. This finding makes the question
of right balance even more relevant. The linkage among type of vehicle/brand, number of
complaints, and the velocity of complaint reduction could also be explored in a follow-up work.
This study focuses only on the safety hazards as a measure of product quality. Use of
NHTSA data set on consumer complaints restricted us from considering a broader
definition of quality. The information available in the data set does not allow us to further
categorize the quality issues into different categories, such as performance, reliability,
durability, etc. An extension of this study may consider a broader measure of quality and
then categorize them into eight dimensions (Garvin, 1984). Future studies may also extend
this investigation of product quality to various consumer products.
One limitation of this study is that we consider consumer reported safety issues, and not
the actual accident instances. However, use of surrogate safety assessment, instead of accident
data analysis is common in transportation research (e.g. Fazekas et al., 2014). Another
limitation is a possible presence of sample bias, as the inclination of the vehicle owners to file
safety complaints may vary with model class. For example, luxury vehicle owners may be
more concerned with their vehicles and file complaints even for minor incidents. It is also
possible that the owners of sporty vehicles are “risky” drivers, and many incidents may
happen because of increased risk level of the drivers. Given the large sample of car models we
use in this study, the likelihood that this limitation will render our results invalid is very small.

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Further reading
King, G. and Zeng, L. (2001c), “Logistic regression in rare events data”, Political Analysis, Vol. 9 No. 2,
pp. 137-163.
NHTSA (2014), “National highway traffic safety administration”, available at: www-odi.nhtsa.dot.gov/
downloads/

Corresponding author
Sourish Sarkar can be contacted at: szs15@psu.edu

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