GM’s Seriously Huge Liability Trouble – Businessweek

Posted: Tuesday, March 25, 2014

Last week, as things were beginning to crumble at General Motors (GM), new Chief Executive Officer Mary Barra told employees via video link: “Something went wrong with our process … and terrible things happened.” She deserves credit for candor. Now it looks as if GM is in a deeper hole than perhaps even Barra knew.

The New York Times has published a gripping feature story this morning about how the car company “misled grieving families on a lethal flaw” in the ignitions of Chevrolet Cobalts and other small cars:

It was nearly five years ago that any doubts were laid to rest among engineers at General Motors about a dangerous and faulty ignition switch. At a meeting on May 15, 2009, they learned that data in the black boxes of Chevrolet Cobalts confirmed a potentially fatal defect existed in hundreds of thousands of cars.

But in the months and years that followed, as a trove of internal documents and studies mounted, G.M. told the families of accident victims and other customers that it did not have enough evidence of any defect in their cars, interviews, letters and legal documents show. Last month, G.M. recalled 1.6 million Cobalts and other small cars, saying that if the switch was bumped or weighed down it could shut off the engine’s power and disable air bags.

Now that the truth is coming out—in fact, GM employees had inklings of ignition problems as far back as 2001—the company is going to face a litigation storm of Biblical proportions. The liability shield that some GM lawyers may have imagined the company’s 2009 taxpayer-bailout and bankruptcy-court restructuring would provide will not hold up in the court of public opinion, not when the company was apparently tricking relatives of car crash victims. To regain consumer confidence, GM will have to settle out of court—and settle big.

How big? Startling reporting by Automotive News hints at just how “wrong” and “terrible,” to use CEO Barra’s words, things got. The headline captures the findings nicely: “Former GM Engineers Say Quiet ’06 Redesign of Faulty Ignition Switch Was a Major Violation of Protocol.” The trade publication elaborates:

Why did GM authorize a redesign of the part in 2006, eight years before the recall? And why was the change made so discreetly—without a new part number—that employees investigating complaints of Ions and Cobalts stalling didn’t know about it until late last year?

These questions, among many that will be posed by lawmakers and federal safety regulators looking into GM’s handling of the recall, have confounded some former GM engineers, who say the company’s reports to regulators describe a sequence of events that was fundamentally at odds with standard operating procedure.

When a company gets caught violating its own basic safety protocols, punitive damages that way lie. When former insiders are available to narrate the breakdown, the penalties are going to be big. Many facts are yet to be determined, but if the well-researched Automotive News piece holds up—and I have no reason to think it won’t—I’d estimate that the procedural failure it describes could add a cool $250 million to GM’s ultimate settlement bill.

In this kind of situation, the tab is not calculated with any precision. A company desperate to put such an episode in the rear view mirror has to make grand gestures. And one would hope that a new CEO realizes that the deep-seated malfunctions she’s inherited will require more than apologies and large checks. GM has a serious bunch of problems to fix.


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