Despite Safety Problems, GM Sales Are Up

Mary Barra at the GM Annual Meeting

Photo by John F. Martin/General Motors

Despite Safety Problems, GM Sales Are Up

By R. Alan Clanton | published June 11, 2014 |
Thursday Review editor

Folks out shopping for new cars love General Motors. In fact, a glance at GM’s latest car sales numbers would seem to indicate that the car-buying public is generally unconcerned with the recent super storm of safety issues surrounding the auto-maker.

But the reality is that auto sales of late have been a group effort, and GM is in good company. Sales of GM cars and SUVs have risen right along with the significant sales uptick in new cars now benefitting most major car-makers. Ford, Chrysler, Toyota and Honda have all seen a spike in sales in recent months. Business analysts suggest that GM’s surge has less to do with the public’s disregard of safety issues and more to do with a robust post-recession boom: pent-up demand for cars unleashed by a buying public, the same consumers which held onto older cars as a way to cope with recessionary pressures and lower discretionary income. Job markets have finally improved measurably, and car shoppers morph into car buyers.

Another factor, many industry analysts say, has been the weather. Extreme winter conditions brought car sales nearly to a halt between mid-December and early March—the same icy, snowy and frigid conditions that also inhibited home construction and new home sales. Car buyers swelled into the market beginning in late March when the spring thaw finally lured them outside and onto auto dealers’ lots nationwide.

And some economists say that with the housing boom again stalled—or at least anemic—consumers may be redirecting some of that meager discretionary income toward new cars, especially in a housing market still frozen by tight credit and high interest rates. In other words: if you can’t finance a house, but a new car instead.

But General Motors current set of problems won’t go away with a few spreadsheets showing a surge in new car sales. Those profits may mean a lot to the GM balance sheet, but lurking out there on GM’s flanks are numerous litigious problems, some of them serious.

GM CEO Mary Barra held a video conference earlier in June in which she offered apologies and contrition—to employees, to reporters, to the public. Weeks after Barra became GM’s new CEO, reports of a faulty ignition switch and its linkage to a number of accidents—some resulting in serious injuries, some resulting in fatalities—lead to the revelation in the mainstream press that the automaker was aware of the problem years ago. Engineers and designers apparently avoided confronting the defect, even though a fix would have cost only about 57 cents per vehicle. Some executives at GM considered the ignition switch defect to be a “customer satisfaction” issue.

The defect in the ignition switch could cause the car to shut off completely, rendering power-steering, electronics, power-assisted brakes, and even the air bags useless. Beginning in January, General Motors began a series of recalls to fix the problem, and soon followed-up with many more recalls now totaling more than 15.8 million in the United States and Canada. GM acknowledges that the design defect caused 13 deaths along with a dozen injuries in more than 50 crashes.

After an extensive internal review conducted by attorney Anton Valukas (former U.S. Attorney), Barra announced reorganization at the top, and the dismissal of at least 15 GM employees, the suspension of five others, and the possibility that more would lose their jobs pending further investigation and review. Barra told employees and reporters that there had been “a pattern of incompetence and neglect” at General Motors. Valukas’ report also said that the corporate culture was so badly structured as to facilitate poor decision-making and to encourage bad judgment.

“Repeatedly,” Barra said, “individuals failed to disclose critical pieces of information that could have fundamentally changed the lives of those impacted by the faulty ignition switch.” Barra said that earlier internal disclosure of the problem would have driven GM down a different track, and the problem could have been solved early on. Barra promised that families of crash victims will be compensated for their losses.

That was then, this is now.

This week, speaking at an annual meeting of GM top management and stockholders, Barra reassured board members, stockholders and reporters that the worst of GM’s problems are now behind it. Board members accepted that optimistic view and rewarded Barra with a vote of confidence. Board chair Tim Solso acknowledged Barra’s hard work under difficult circumstances and expressed approval of her performance, saying that Barra will “lead General Motors to make the necessary changes.”

At the annual meeting, Barra also said that at this time there would be no further dismissals of employees for their roles in the ignition switch fiasco or other product recalls.

“We feel we’ve taken the appropriate actions as it relates to the ignition switch recall,” Barra said in response to a reporter’s question. Despite protests outside GM’s headquarters while the meeting took place, no stockholders present in the room raised any questions about the recall.

Many in the mainstream media and in the automotive press—along with several members of Congress—have been skeptical of GM’s internal review. Barra, they suggest, may have been genuine in her contrition and blunt with her apologies, but she did not hold to account several top GM execs who may have had direct knowledge of the defect years earlier. And some in Congress have gone further, suggesting that if in fact those same top executives and managers did not know about the defect, then they were so deeply disconnected from the operations of their departments as to qualify them as incompetent. If they were aware of the problem, those executives were negligent.

Some have questioned Barra’s role in the scandal as well. Barra, who has worked for the company for decades, served as GM’s chief product development officer during some of the same period during which the ignition switch issue was being revealed as an ongoing problem. In that role Barra would have seen most safety issues and concerns move across her desk, and some critics of GM’s internal report suggest that Barra should be held to account for her own inaction and inattention. Valukas' 350-plus page report concluded with the notion that neither Barra nor any other top executives knew anything about the defective ignition switch until late December 2013, only seven months ago.  For those most critical of the internal review, this is the smoking gun--and proof that GM's own report is merely a whitewash.

Then, there is the issue of GM’s acknowledgment of 13 deaths. Families of those who have died in GM cars over the years say that the actual number must certainly be much higher, and have complained that GM is refusing to consider the number of crashes—those linked to the ignition switch problem—in which individuals in the passenger seat or in the back seats died. Other families are concerned that crashes in which no clear cause-of-accident was established, but may fall into the larger realm of switch-related crashes, will be ignored by GM. At the meeting in early June, top GM execs dodged the question of how compensation for other victims will be factored, and stuck to their position that, for now at least, they were only acknowledging 13 deaths as being linked to the switch failure.

Consumer safety groups have been especially critical of GM’s own reckoning of accident totals. Some analysts say that by the time all the independent investigations are complete, and by the time the various legal reviews and litigations are concluded, GM may face as many as 400 cases of drivers or passengers who died or sustained injuries as a result of the faulty ignition switch.

In the meantime, General Motors has secured the services of attorney Kenneth Feinberg to draft a plan for compensation for victims and the families of victims. GM spokespersons have said that Feinberg will have the discretion to decide if compensation will be offered to any person beyond the 13 identified in the report. According to Reuters, a variety of government crash data and independent data indicate that the true number of fatalities is 74.

While Barra and others in top management have been publicly agreeable to the compensation discussion, and despite the latitude GM says it is giving Feinberg, some within GM’s corporate structure have been fighting a behind-the-lines skirmish over the size and breakdown of compensation, as well as reducing the number of separate legal fights.  GM will almost certainly seek to narrow the scope of what it defines as ignition switch-related crashes.

Furthermore, business and legal experts expect GM to shield itself—at least partially—by the exact terms of its 2009 bankruptcy paperwork. Though General Motors repaid its debts after the recession nearly killed the company in 2009, the language of its Chapter 11 terms may protect it from much of the litigation that will surely follow it over the next months and years as a result of the ignition switch failure. Like Chrysler, GM emerged from bankruptcy and began its slow climb back toward financial health. (Ford did not accept Federal money during the recession).

GM’s internal investigation, which was conducted by Valukas and his team, included interviews with hundreds of employees and scrutiny of thousands of documents and emails.

Senator Richard Blumenthal (D. Connecticut) has called GM’s internal review “the best report money can buy.” Blumenthal has questioned why in the end only middle-managers and engineers were fired, not top executives. “It [the report] absolves upper management, denies wrongdoing and dismisses corporate culpability,” Blumenthal said.

Senator Edward Markey (D. Massachusetts) is calling for legislation to bring about better Federal standards for auto safety. Markey told reporters he was skeptical of GM’s review and felt automakers needed to take a proactive role in safety.

“We need more than an accounting of past mistakes,” Markey said, adding “an internal investigation alone is not enough to ensure that a decade-long tragedy like this never happens again.”

At the stockholders’ meeting on Wednesday, Barra took time near the beginning of her remarks to comment directly on the ignition switch issue, and address the concerns of those in Washington who, like Senator Markey, worry that GM will quickly sweep this episode under the rug and move on—especially in an environment where auto sales are good.

“You should know that I have and will be guided by two clear principles:” Barra said, “to do the right thing for those that were harmed, and, to make sure we accept responsibility for our mistakes and commit to doing everything within our power to prevent this problem from ever happening again.”

Barra said today that GM expects to begin accepting claims as early as August 1 from families impacted by the ignition switch failure.

Related Thursday Review articles:

GM CEO Fires 15 Over Ignition Switch Scandal; R. Alan Clanton; Thursday Review; June 5, 2014.