GM’s failure to alert customers sooner could end up costing the automaker hundreds of millions of dollars in fines and much more in reputational damage. It has already cost the lives of the drivers, who perished at least in part because the faulty switches suddenly shut off their cars, stiffening brakes and power steering and disabling air bags.
With so much at stake, why didn’t GM act sooner?
The answer, according to many people familiar with the automaker, is a corporate culture reluctant to pass along bad news. When GM was struggling to cut costs and buff its image, a recall of its popular small cars would have been a terrible setback. By the time GM engineers began to face up to the potential gravity of the defect, the Great Recession had hit and the company was begging Congress for a taxpayer bailout that would become its financial lifeline.
“It’s pretty clear that somebody somewhere was being penny-wise and pound-foolish,” said Marina Whitman, a professor at the University of Michigan and a former economist at GM. “It’s hard to find an explanation for why somebody didn’t do something about something that was known for a good decade. And, for that matter, why [federal regulators] didn’t wake up sooner.”
Whatever the explanation, the price of inaction for GM — which was surging after its 2009 bankruptcy and the federal bailout — is sure to be significant. The company is being sued by trial lawyers in several states, and the National Highway Traffic Safety Administration is investigating. Meanwhile, both the House and the Senate have scheduled hearings for this week.
In preparation for those sessions, set to begin Tuesday, congressional investigators have been poring over 235,000 pages of documents supplied by NHTSA regulators and GM. They say they are troubled by what they have learned.
In 2007, a NHTSA official recommended opening a formal investigation of complaints and other evidence of Cobalt and Saturn Ion air bags not deploying, according to a memo released Sunday by Republican investigators in the House. But the idea was rejected two months later by a panel of NHTSA officials who did not detect a trend in the evidence they reviewed. Meanwhile, there were more crashes, more lawsuits and more settlements, the details shrouded in secrecy. Some victims’ families say they may seek to reopen those settlements now that they know GM delayed taking corrective measures.
“Although we have had the documents for less than a week, they paint an unsettling picture,” said a joint statement issued Sunday by House Energy and Commerce Committee Chairman Fred Upton (R-Mich.) and the chairman of the investigations subcommittee, Tim Murphy (R-Pa.), who are spearheading the House inquiry.
“Lives are at stake, and we will follow the facts where they lead us as we work to pinpoint where the system failed.”
GM also is facing a federal criminal probe. Some analysts say prosecutors could seek penalties similar to the $1.2 billion fine the Justice Department recently levied on Toyota for allegedly lying to the public about an unintended-acceleration problem that led to the recall of many models.
“These investigations always reveal the person who ignored the obvious, the person who dismissed potential problems,” said Maryann N. Keller, an independent consultant who wrote a book about GM. “What it doesn’t reveal is whether or not there was a systemic problem within the company and whether people consciously or unconsciously avoided giving superiors bad news.”
Keller said GM has long been known for hiring people who “individually were the best and brightest” but who were later channeled into a system that rewarded conformity.
“One thing you never did is give your boss bad news, because if he was sidetracked, you were sidetracked,” Keller said.
How bad is news of a recall? William C. Fox, a car dealer in Auburn N.Y., said that while recalls generally do not hurt business, the outcome depends on “the severity of the recall” and “how quickly and professionally a manufacturer handles the recall.”
“Every brand has had major recalls,” said Fox, who sells Chevrolets, among other brands. “And there is not a manufacturer who doesn’t want to take care of customers, if they have a brain in their head.”
With multiple investigations in full swing, GM faces the prospect of cascading blows to its credibility. Accidents once attributed to other causes could be linked to the switch. And the scope of the problem could widen, as it did Friday when GM added 971,000 vehicles to the recall — 824,000 in the United States — because of ignition switches GM sold to dealers for the repair of damaged parts.
Meanwhile, new evidence could emerge that GM’s struggle with ignition switches dates back even further than was previously known and includes other low-cost car models.
Take Jim Thompson, a GM customer in Houston who is wondering whether a defect he reported to GM on a 1997 Pontiac Sunfire may have been related to the ignition-switch flaw under scrutiny in later models. Thompson’s daughter told him that the Sunfire had cut off while in motion on more than a dozen occasions, losing power brakes and steering — symptoms virtually identical to those displayed in the Cobalt and other recalled models.
Pontiac could not diagnose the problem at the time, so Thompson took it to a mechanic who found that a cheaply made grounding bolt was failing. Thompson, who ran a company that supplied safety glasses and other safety equipment to GM, alerted GM’s regional manager in late 1997. More than four years later, on March 6, 2002, GM issued a recall for 1.6 million Pontiac Sunfires because of the ignition switch.
Those switches, like the ones under scrutiny now, were manufactured by Delphi Automotive Systems, a former subsidiary of GM that was spun off as a separate company in 1999. After that, GM moved large quantities of business to other suppliers, complaining that costs at Delphi were too high. Delphi later filed for bankruptcy court protection and went through several restructurings. Delphi declined to comment for this article.
Why GM didn’t order changes or look for another source of ignition switches isn’t clear. GM acknowledges that it had years of warnings that something was amiss with the ignition switches in the Cobalt and other models.
In a briefing with congressional investigators, Delphi executives said GM accepted the ignition switches even though the automaker knew they did not meet all 60 technical specifications for the part, according to a person familiar with the probe, who spoke on the condition of anonymity because the investigation is ongoing.
GM has said it discovered the switch problem in a pre-production Saturn as early as 2001 but thought the problem had been addressed. Then, in 2004, company engineers reported that the switch could turn off if accidentally hit by a driver’s knee. GM said it considered several fixes to increase torque in the key cylinder, but it did nothing after considering “the lead time required, cost and effectiveness” of proposed remedies.
By 2005, the company had multiple reports of stalling vehicles and a fatal crash in which a Cobalt’s air bags did not deploy. The company reached a settlement within months with the victim’s family. In 2006, GM said, a company design engineer signed a document approving changes to the ignition switch that increased its torque.
By 2007, the redesigned part was being installed in new cars — with the same part number. There was no recall of vehicles with the old switch, and their owners were not informed. Later, the company — and federal regulators — received more reports of problems.
Mary T. Barra, who took over as GM’s chief executive in January, has acknowledged that the company made mistakes that allowed the defect to go unaddressed for years.
“Something went wrong with our process in this instance, and terrible things happened,” Barra said in a video released earlier this month.
Barra has apologized repeatedly and appointed a former federal prosecutor to lead an internal investigation to figure out where the process broke down. GM also has appointed a new vice president for vehicle safety, tasked with identifying and resolving safety issues.
Meanwhile, GM has taken some uncharacteristic precautions since issuing the Cobalt recall. Earlier this month, the company recalled more than 1.5 million vehicles to tinker with brakes, air-bag wiring and other parts. The shift in GM’s response in that case was “dramatic,” said Whitman, the former GM economist.
“For the first few days, it was the classic old-style GM: Say as little as possible and, above all, keep the chief exec as far away from it as you can. Then suddenly, overnight, everything changed,” Whitman said. “It’s pretty clear that Mary Barra had taken charge and said, ‘This is not me.’ ”
This weekend, the giant automaker added 662,000 more vehicles to the recall list, to fix a variety of other potential problems.