BMW TOOK TWO YEARS TO FIND EXTENT OF DEFECT BEHIND RECALL

(Bloomberg) -- It took BMW AG more than two years to discover the extent of a braking system fault that is expected to cost the carmaker nearly €1 billion ($1.1 billion) to fix.

Customers and dealers began complaining to the German auto manufacturer about faulty brakes in June 2022, according to a recall document seen by Bloomberg News. But it wasn’t until last month that BMW realized as many as 1.5 million cars might contain the defective part, supplied by car-parts maker Continental AG and touted as a lighter and more efficient system.

A profit warning last week wiped €5 billion off BMW’s value, a debacle for a premium-car maker known as a driving-tech leader.

BMW launched an in-depth review into the braking system in October 2023, the recall document shows, which found interference affecting the electric signals sent through the brake system. The first recall of about 80,000 vehicles followed in the US in February this year.

That has since snowballed to encompass 1.5 million cars across multiple brands made by BMW — including $420,000 Rolls-Royce Spectres, flagship 7-Series sedans and high-powered XM sport utility vehicles.

“This isn’t just an ordinary recall, this is a significant shock,” said Ferdinand Dudenhöffer, director at the Center for Automotive Research in Bochum. “What’s also noteworthy is that BMW has been stepping up quality control among suppliers with a taskforce, indicating they see risks more broadly.”

“BMW is usually very cautious, preferring stability over short-term peaks, which is reflected in their margins,” he added.

BMW shares declined as much as 0.95% on Monday in Frankfurt. The stock is down around 28% this year. Continental dropped as much as 1.6%.

By US law, carmakers risk fines if they don’t report safety issues in a timely way to the National Highway Traffic Safety Administration. In some cases a manufacturer may reasonably be unaware of a defect even after an extended period. The NHTSA hasn’t fined BMW over the brakes recall.

A spokeswoman for BMW said that it took time to gauge the scale and financial impact of the recall, adding that the automaker needed to discuss the matter with officials across multiple markets and assess how much fixes would cost.

A recall notice Rolls-Royce sent to its American dealers in March, seen by Bloomberg News, shows the company was aware at the time that it had a problem with one of its most prestigious brands.

In capital letters, the luxury carmaker ordered a halt to sales and deliveries of all Spectres built between June 20, 2023 and June 23, 2023. The model’s braking system was potentially faulty, and a mechanic would have to follow a 26-step process to fix affected autos.

The US recall eventually ballooned to 688 Spectres built between January 2023 and July 2024, more than a quarter of the vehicles produced each year. Given recalls in other markets, the total number of Spectres affected is likely higher.

The braking system that prompted the recall is known as brake-by-wire, which uses electronic impulses instead of the hydraulic technology built into most car brakes since the 1920s. Its components are a cornerstone product for Continental’s auto unit, which is in the process of being spun off.

Yet problems soon arose with a “power braking” feature meant to reduce the amount of force needed to activate the brakes. The feature failed to fully activate in some vehicles, according to the recall document seen by Bloomberg. Physically weaker drivers might struggle to apply the necessary pressure in emergency situations as a result, increasing the risk of a crash.

Continental traced the defect back to a plant in Hungary. Workers producing the brakes’ circuit boards there failed to maintain a sufficiently clean environment, leaving smudges or dust on the components that hampered the system’s performance, according to people familiar with the matter.

No accidents or injuries have been reported as a result of the braking fault. But with repairs expected to take months and ultimate costs still unclear, the crisis marks the latest hit to Germany’s most important industry. The sector is already under a cloud as electric-vehicle sales slow and European manufacturers face headwinds in China. Volkswagen AG warned earlier this month that it may shutter factories in the country for the first time.

Andrew Graves, an automotive analyst and emeritus professor at the University of Bath, said a rising number of recalls are raising “serious questions” regarding automakers’ due diligence of their supply chains.

“Perhaps the sector needs to focus and concentrate on core competences to avoid such issues in the future?” he said in an emailed comment.

--With assistance from Veronika Gulyas and Monica Raymunt.

(Updates with BMW shares in 8th paragraph.)