Total Recall: GM Bites the Bullet
The bullet (•) is the symbol the old school music industry employs to denote an unusually fast rising visitor to the upper reaches of the radio hit parade. The phrase also seems appropriate here, not just because old school GM is back in the news all of a sudden. But because GM seems like it’s been shot. Once again, the wounds are self-inflicted.
Perhaps you’ve not heard of the General’s news-making plight, unfolding just as people temporarily stopped grousing about its bailout and the whole idea of government having a stake in a car company, extinguished only recently with the sale of the Treasury’s last-remaining GM shares.
If, on the other hand, you’ve heard the story of GM’s current woe, prepare yourself to hear lots more of it, as the company, a fair bit of the way back from its 2009 bankruptcy, now braces itself for months of rancorous grilling and bipartisan grandstanding from, by and before congressional committees, federal safety agencies, the Department of Justice, states’ attorneys general, NGOs and the media, not to mention an army of tort and criminal lawyers, with whom they can expect to be in conversation for years to come. The timing isn’t great for GM, but in the brutal world of car building, you don’t always get to choose when the circus comes to town. Or maybe, through your misdeeds, you do.
It all follows from the revelation that the giant carmaker, only recently the world’s biggest, spent six years (2001-2007) selling cars in the U.S. with a faultily designed ignition switch that could on occasion turn itself to the ACCESSORY or OFF positions, shutting down engines and disabling airbags. The culprit: a weak and poorly designed detent in the ignition mechanism, which caused it to jump settings from on to off when weighted down by something as improbable (not) as a heavy keychain. By GM’s account there have been 31 crashes and 13 people dead as a result, so far.
The problem is, as always seems the way with these things, someone at the company knew of the defect (though it’s not agreed whom) and didn’t tell the government or customers, as legally required; meanwhile, a proposed fix was considered in 2005, then rejected. All parties agree people died (not 13 but 303, according to a preliminary study by consultants to the non-profit Center for Automotive Safety) because of the airbags’ failure to go off. Separately, the relevant government regulator, the National Highway Transportation Safety Agency (NHTSA) may have been negligent itself, failing to demand a recall as soon as data came in suggesting its necessity. To give you an idea how overdue the recognition of the problem is, this could have been ordered during the Bush Administration.
GM and its new CEO, Mary Barra, have apologized profusely, announcing the belated recall of 1.37 million affected cars at an anticipated cost to the company of $300 million (hardly that much, considering). Separately, the newly reflective GM also plans on calling back to home base another 1.5 million vehicles of other types for unrelated recall reasons to do with brakes and wiring harnesses and we can’t argue with any of it. If you’ve got safety issues and it is your intention to fix them, might as well get it over with.
The General will pull through this, yet another crisis in its more than 100 years of operation, we predict. But not, if history is any guide, before senior management’s claims of lack of knowledge of the defect are disproven. Inevitably it will be revealed that its executives engaged in unseemly cost benefit analyses comparing the cost of replacing defective and poorly designed parts, versus that of settling wrongful death suits. We’ve seen this movie before.
Avoidable deaths aside, the key point of interest in GM’s predicament now is how so much of it pertains to bankruptcy, its supplier’s and its own. GM set up Delphi Automotive, the giant parts maker responsible for designing and manufacturing the faulty ignition switch, in 1995, assembling a so-called independent supplier from the mortal remains of GM’s own Delco Electronics and cast-off pieces of Hughes Electronics, part of the famously ill-fated purchase of Hughes made under the direction of infamous GM CEO Roger (“And Me”) Smith. As was the vogue in that faraway decade, the Frankensteinian enterprise was taken public, with GM lifer J.T. Battenberg at the helm, in 1999. It didn’t go well.
In 2005, the year the ignition fix was first proposed only to be tabled, Delphi was filing for Chapter 11 bankruptcy protection, and several of its executives, including Battenberg, would resign under clouds, resulting in the company’s shaming delist by the New York Stock Exchange. In this same year, twenty-four Delphi plants were shuttered. So maybe possibly everybody’s eyes were off the ball? (Battenberg would be convicted of filing false accounting statements in 2011.)
Back in 2014, we have just learned that most of the recalled cars are Chevy Cobalts and Saturn Ions from the 2004-2007 window – yet here again the strings of bankruptcy music can be heard. Unmitigated crap cans from the day they left the factories that first built them in 2003, these flawed, uncompetitive machines bespoke GM’s utter indifference to cars as it chased rich SUV profits in a post-9/11 world, a condition precedent to GM’s ultimate insolvency.
Already careering towards the fiscal wall in 2005, GM was in the business of shedding cost basis and it’s not hard to imagine the circumstance where an expensive recall for cheap cars it didn’t care about didn’t mesh with the plan. Subsequently, when GM was approaching Congress cap in hand for a bailout in 2008, the timing for such a recall may not have appealed. The optics would have been poor.
Still the latest revelations add context to the remarks of GM’s and other auto companies’ executives at the time of Toyota’s runaway acceleration scandal of 2010, saying, more or less, that they wouldn’t gloat at their competitor’s misfortune or cluck too loudly about the market share they stood to gain as a result of the Japanese leviathan’s blunder – for there but for the grace of god went thee. And so, now we see, they did. So they did.
In recalling GM’s wrenching bankruptcy of 2009, it occurs that the government’s imperative not to act and demand a recall was also ongoing. Consider the politics of the day. In the first instance, anything that might slow or queer the congressional deal to bail out GM was likely pushed to a siding for consideration after a bailout plan had been struck. But then when the government became a shareholder in the reorganization it wanted GM to stand on its own feet more than anything. Why saddle it with an expensive and vibe-killing recall ahead of a public offering that had the potential to make the government’s politically charged investment look more – or less -- wise?
So far, GM has invited us to believe that news of this fatal defect in some of its cars went up various chains of command, stalling in silos that didn’t communicate adequately, and somehow failing to make it to the attention of the company’s top executives or its board or indeed anyone in a position of authority. CEO Barra, a GM lifer and the first woman to lead an automobile manufacturer, has suggested that she only heard about a problem right before she took her post in January.
One might reasonably suppose that this former product development chief ought to have long since known of so serious a failing, but let’s put that aside. One understands from her statements that she was briefed on this just before taking the big job. And, thus, that her CEO predecessor and possibly his predecessors knew about it for some time as well.
And what if they did? Well the events of the last few months at GM make a different kind of sense. The sudden departure of GM’s last chief executive Dan Akerson in January, midway through his contract, for instance. The selection of Barra as his replacement. She’s been around GM her entire career, yet maybe it was thought the face of a woman would be seen as more empathetic in tough times than that of the famously impatient Akerson or his genuinely abrasive, post-bankruptcy predecessor, Ed Whitacre. Was this part of the thinking behind her appointment, the need for someone who could immediately step into the role of Apologizer in Chief? Another question is, Did GM come clean of its own volition or was the government starting to make noises the company wanted to get out in front of?
GM have appointed a new board member in charge of global vehicle safety, a first, though also arguably another layer of management between the CEO and the truth. Barra has ordered an internal investigation that could take months and advises that they’re basically not saying anything until then. Of course they aren’t. They've got a whole lot of explaining to do, and they need to get their story straight.
It seems like only yesterday that Toyota was being taken to task for the purported runaway acceleration of certain Toyota and Lexus models. They’ve paid billions in fines (most recently a record $1.2 billion fine to settle criminal charges) and sales suffered for a time, but lately they are more profitable than ever. With luck, GM will come back as well. Though it may face an even bigger fine than Toyota, the company can always take comfort in the knowledge that it is, in its own way, too big to fail. Post-bankruptcy, it is also a different company, legally, than the one that sold the crappy Cobalts and inoperative Ions. It just has many of the same players and the same name.