GM: Don't Fight the Victims' Compensation Fund

Jim Motavalli

Jim Motavalli | Apr 01, 2014

It’s hard to get my head around the numbers in General Motors’ epic ignition switch recall. The company is now bringing back almost 2.6 million cars with faulty switches that can shut off and disable the air bag, among other dangerous situations. The defect has been linked to 13 deaths. Add in some other recalls, and the company has taken back 4.8 million vehicles just since February.

This 2010 Cobalt crash was fatal, and led to a settlement between GM and the family of the victim. (Image courtesy of the Cooper Firm)
This 2010 Cobalt crash was fatal, and led to a settlement between GM and the family of the victim. (Image courtesy of the Cooper Firm)

There's evidence from a House subcommittee that the federal safety agency (NHTSA) and GM knew that its ignition switch was problematic as early as 2002 (when supplier Delphi warned it would not meet specs). But neither acted. GM is now facing gale-force winds. Why didn’t the automaker and the regulators learn lessons from two other big knew-the-truth-but-ignored-it-for-profit-reasons the Big Three went through?

  • Remember Ford’s fiasco over exploding Pintos in the 1970s? The company could have fixed that with a cheap and lightweight plastic baffle costing just $1 per car, Mother Jones reported, but it chose not to make the investment. Penny-wise, pound foolish, not to mention tragic—because there were at least 500 burn deaths attributed to the defect, the magazine said.
  • Remember the Ford/Firestone debacle? In that one, back in 2000, the recall controversy dragged out for a month. And then, according to CNN, “Ford said it knew of problems with Firestone tires on Explorer sport/utility vehicles in Venezuela in 1998, two years before they began replacing tires for customers there.”

The moral is that it pays for automakers to get out in front of crises, not to stall (in more ways than one) over them. And “savings” over safety will prove costly in the end, at the bottom line and in terms of the company’s reputation.

Senator Richard Blumenthal (D-CT) was a real activist as state attorney general, and now he’s all over the GM recall. Blumenthal recently asked the Justice Department to require the automaker to set up a compensation fund for the growing number of car owners hurt by the bad ignition switches. Blumenthal said he was “appalled and astonished” by GM’s admission that it knew of problems with the switches prior to its 2009 reorganization.

GM declined to comment on the compensation fund issue, but the company's best move is just to set it up--without waiting for an order from the Justice Department. Customers need to believe that the cars will be made safe (not just by taking keys off the key ring), and that GM cares about the victims. It's kind of a no-brainer. David Johnson, CEO of Strategic Vision, a branding agency, says that GM should publicize that it is giving out free loaner cars to recall customers, do explanatory newspaper ads, and directly address victims' families in public messages.

Natasha Weigel (at right) and Amy Rademaker were killed in a 2006 Cobalt crash in Wisconsin. (Family photo)
Natasha Weigel (at right) and Amy Rademaker were killed in a 2006 Cobalt crash in Wisconsin. (Family photo)

The New York Times noted Monday that NHTSA regulators sometimes end up working for law firms that defend the very auto companies that NHTSA investigates. It’s a familiar revolving door in Washington—usually it leads from a House or Senate seat to a K Street lobbying firm.

When the regulator joins the regulated, there’s often big money involved because the new hire brings along inside information on how his or her former agency works. Just watch a few episodes of House of Cards, you’ll see how it all works.

So how’s new GM CEO Mary Barra handling all this? It was smart for her to go on YouTube and tell owners that their cars are safe to drive, and she’s saying the right things. “Something went wrong with our process”…“We all have to own it”….“We are conducting an intense review”…“We will be better because of this tragic situation—if we seize the opportunity.”  

Barra appeared before a congressional subcommittee Tuesday, and said that GM has set up a recall website, has beefed up call centers, and is using social media to reach out to victims. She also pointed out that the company is setting up an independent investigation under a former U.S. attorney, Anton Valukas. "The facts will be the facts," Barra said. "Once they are in, my management team and I will use his findings to help assure this does not happen again. We will hold ourselves fully accountable." She added, "I am deeply sorry."

To keep GM above the rising water, Barra will really have live by those statements. She has to lead and stand up to company forces—still infesting the executive suite—who are going to push back against full disclosure, the compensation fund, and big payouts. But now that we know that GM has been sitting on this problem for more than a decade, there’s no short-cut containment strategy that makes sense.

Here's Barra on video. You decide if she's sincere:

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