Automotive Industry Risks Threatening Your Business (and How to Address Them)

The automotive aftermarket industry continues to grow at a projected rate of 4.1% from 2023 to 2030. These predictions point to massive opportunities for automotive businesses in the secondary market to rapidly grow their clientele, expand their offerings and accelerate sales.

However, with expanded growth, comes expanded risk. Your business faces numerous exposures—from labor issues to vendor relationships—that can threaten your financial growth and harm your reputation. Understanding the top risks in the automotive industry and how to safeguard your business with a comprehensive plan will set your organization apart and maximize financial stability.

10 Risks Threatening Your Automotive Business

1. Product Recalls

Product recalls pose a significant risk to automotive aftermarket companies due to their potential to damage reputation, strain financial resources and disrupt operations. When a defective part is recalled, businesses are often required to bear the costs of replacing or repairing faulty products, leading to increased operational expenses and lost sales. Additionally, recalls can erode customer trust, particularly if safety issues are involved, resulting in long-term damage to brand loyalty. While businesses strive to avoid the risk of product recalls through strategies like quality control and testing, they can still occur. According to Sedgwick’s latest quarterly recall report, automotive recalls increased 9.2% quarter-over-quarter, with 262 events in Q1 2024.

2. Employment Lawsuits

Your employees are the backbone of your business, but they can also pose a risk if and when employment lawsuits are filed. The number of claims faced by U.S. businesses is on the rise, according to the Equal Employment Opportunity Commission (EEOC) which received a 10.3% increase in new discrimination claims in 2023 compared to 2022. In an industry where skilled labor is critical, retaining a positive work environment is essential to avoiding legal complications and maintaining a strong workforce.

3. Third-Party Liabilities

Every business, vendor, contractor or other third party you engage with introduces risks that can impact your business. From the suppliers of your materials to subcontractors, there are exposures that can significantly impact your business if not properly managed. Additionally, third-party service providers handling sensitive customer or business data may expose companies to cybersecurity risks if they fail to implement proper security measures. Regulatory non-compliance by third parties can further lead to legal liabilities for the business, making it essential to thoroughly vet and monitor all external partners.

4. Property Damage

Property damage is a significant threat to businesses in the automotive aftermarket industry due to the high cost of repairs, potential operational downtime and the disruption it can cause to supply chains. Damage to manufacturing facilities, warehouses or retail locations—whether from natural disasters, fires or accidents—can halt production, delay shipments and reduce inventory levels, impacting the ability to meet customer demand. For businesses with specialized equipment, the cost of replacing or repairing damaged machinery can be substantial. Additionally, prolonged downtime could result in lost revenue and reputational harm. Property damage also often leads to increased insurance premiums and unexpected expenses, further straining a company's financial stability.

5. Cyberattack / Breach

With the growing use of digital platforms for e-commerce, data management and vehicle connectivity, businesses in the aftermarket industry are increasingly vulnerable to cyberattacks. Recent studies have found that 97% of automotive manufacturers are using or evaluating smart manufacturing technology, which may handle sensitive business and consumer data. While technology helps to streamline operations, it also opens up additional entry points for threat actors. Data breaches can lead to significant financial losses and reputational damage.

6. Automation

To accelerate and streamline the manufacturing of vehicle parts, more and more businesses are turning towards automation. According to recent reports from the International Federation of Robotics, the automotive industry has the largest number of robots working in factories globally, with an estimated one million units in operational stock. However, automation also increases exposure to cybersecurity threats, system malfunctions and product liability risks which could disrupt operations if not properly managed.

7. Theft

Cars are one of the biggest targets for theft, with over 1 million vehicles stolen in the U.S. in 2023, according to the National Highway Traffic Safety Administration. The high value of car parts makes businesses in the automotive aftermarket vulnerable to crime. While risk mitigation strategies like alarm systems and surveillance cameras can help, these do not always deter thieves from acting. Not only do businesses have to face the cost of replacing stolen items, but downtime during this process can result in significant financial losses and delays in customer service.

8. Negligence

Negligence refers to a failure to exercise care when installing, repairing or maintaining parts or systems on a customer’s behalf. Examples of negligence in the automotive aftermarket include:

• Improperly installing aftermarket parts
• Use of low-quality used parts
• Inadequate testing or inspection post-installation
• Failure to follow safety regulations

These oversights can put your business at risk of liability and financial loss while decreasing customer trust. In addition, time spent dealing with legal disputes or resolving shortcomings can cause delays in service, impacting your business’s ability to continue generating revenue.

9. Supply Chain Disruptions

Global supply chains, critical for sourcing components and parts, remain vulnerable to disruptions caused by geopolitical tensions, natural disasters or pandemics. The semiconductor shortage, for example, highlighted the fragility of supply chains, causing delays and increased costs. When supply chains are disrupted, businesses may face price increases for parts due to scarcity and increased shipping fees. These price hikes can make it more difficult to make a profit and achieve financial stability. Additionally, businesses may be forced to turn to alternative suppliers to obtain parts which may be lower in quality, leading to dissatisfied customers and increased liability.

10. Regulatory Compliance

Environmental regulations concerning emissions, waste management and sustainability standards continue to evolve. Businesses need to stay compliant with these regulations, which may require expensive operational changes or adjustments to product offerings.

How to Navigate These Critical Risks in the Automotive Industry 

As the leading insurance broker in the automotive aftermarket, RevPro understands the daily challenges that automotive aftermarket businesses face and how to resolve them. With over 30 years of industry experience, RevPro connects automotive parts manufacturers, wholesalers, retailers and installers with holistic insurance policies to protect against unique industry risks, including:

• Automotive Manufacturer and Distributor Liability Insurance: This coverage is designed to shield your organization from the everyday risks that come from operating, including general liability, premise liability and personal and advertising liability.
• Automotive Product Liability and Recall Insurance: This insurance protects against recalls, design defects, manufacturing defects and bodily injury or property damage caused by products you sell.
• Garage Keepers Liability and Garage Liability Insurance: This policy shields businesses in the automotive aftermarket from exposures for liability actions when caring for a customer’s car or offering test drives.
• Property Damage Liability Insurance: Property damage protection safeguards your building, equipment and earnings from risks like accidents or natural disasters.
• Cyber Liability Insurance: Cyber insurance provides coverage for extortion demands and payments as well as lost income resulting from a cyber attack.

By tapping into RevPro’s extensive industry knowledge and experience, you’ll have the guidance you need to overcome today’s biggest threats and develop an effective risk management program. Request a quote today to learn how RevPro can earn you access to the most comprehensive coverage on the market.