Bloomberg News

GM Recalls Stalled in 10 Years of Committee Alphabet Soup

March 11, 2014

GM CEO Mary Barra

For Mary Barra, chief executive officer of General Motors Co. (GM), the recall poses a challenge: Can the new CEO change the culture at a company where she has worked for 34 years? The recall, issued a month after she became CEO on Jan. 15, risks harming GM’s reputation just as it tries to shake the “Government Motors” tag from its federally funded bankruptcy. Photographer: Ralph Orlowski/Bloomberg

At the heart of General Motors Co. (GM:US)’s slow response to fatally flawed ignition switches is a committee culture that impeded the flow of information from the engineering ranks to the corner office.

The company began investigating reports of faulty switches in 2004. Yet GM’s top executives, including new Chief Executive Officer Mary Barra, didn’t learn of the situation until “a few weeks ago,” she wrote March 4. Company documents show that during that period, multiple layers of engineers and corporate committees analyzed and failed to fix a flaw that led to the deaths of 13 people. GM told authorities that before announcing the recall, the company engaged in several internal probes featuring an array of committees that left federal bureaucrats baffled.

Now, as it tries to shake off a humbling bankruptcy and period of government stewardship, GM is grappling with a damaging recall of 1.6 million cars. In the coming months, the world’s second-largest automaker will replace switches that could slip out of the “on” position when jarred or used with heavy key rings, cutting off power and deactivating air bags.

Related:

  • Justice Starts Probe Into GM’s Handling of Switch Recall
  • GM Ignition Probe Puts Lehman Investigator on a Deadline
  • Audi Passes BMW in Sales to Take Lead in Luxury-Car Sales

“At the old, lethargic, slow-moving GM, people didn’t want to push bad news upward,” said George Cook, a former Ford Motor Co. (F:US) executive who is now an executive professor of marketing at the University of Rochester’s Simon Business School. “They laid on it way too long. You can’t gamble with people’s lives.”

House Committee

The House Energy and Commerce Committee will explore whether the automaker or the National Highway Traffic Safety Administration missed “something that could have flagged these problems sooner,” Fred Upton, the panel’s chairman and a Michigan Republican, said last night in a statement. GM said it will fully cooperate with the panel.

In the Senate, Jay Rockefeller, a West Virginia Democrat, has asked for a subcommittee hearing on the matter from Claire McCaskill, a Missouri Democrat, said a person familiar with the matter. The Detroit News reported the request earlier.

For Barra, the recall poses a challenge: Can the new CEO change the culture at a company where she has worked for 34 years? The recall, issued a month after she became CEO on Jan. 15, risks harming GM’s reputation just as it tries to shake the “Government Motors” tag from its federally funded bankruptcy.

Show Change

“We’re looking for evidence that they can move more quickly,” said Brian Johnson, an auto analyst for Barclays. “The committee culture of the old GM was rooted in organizational paralysis and characterized by a lack of accountability.”

Still, while the cars involved were built before the 2009 bankruptcy, the slow-motion investigation into the ignition switches continued after GM was reborn as a supposedly leaner organization. The cars recalled were the 2003-07 Saturn Ion, 2005-07 Chevrolet Cobalt, 2006-07 Chevy HHR, 2006-07 Pontiac Solstice, 2007 Saturn Sky, 2007 Pontiac G5, 2005-06 Pontiac Pursuit in Canada and 2007 Open GT in Europe.

Greg Martin, a spokesman for GM, said the automaker had “nothing further to add to the previous statements” it made on the recall.

Barra has a responsibility to explain what took so long, said Joan Claybrook, a former NHTSA administrator and a longtime consumer advocate.

Claybrook said it suggests “a failure of communications at General Motors on a massive scale, so that the various sections of the company didn’t talk to each other about the need for a recall.”

GM’s Timeline

GM’s own timeline that it submitted to NHTSA shows how its investigation wound through a complex committee structure with an alphabet soup of acronyms. In 2011, for example, the automaker said the probe moved through a Field Performance Assessment (FPA), which conducted a Field Performance Evaluation (FPE) and assigned a Field Performance Assessment Engineer (FPAE). The engineer then presented findings to a Field Product Evaluation Recommendation Committee (FPERC), which may or may not be the same as the Field Performance Evaluation Review Committee (also FPERC), which received additional findings last year.

107 Questions

NHTSA asked GM to explain the difference, if any, between the two committees with the same acronym in a 27-page federal filing last week that included 107 questions the automaker must answer under oath.

“Are these two different committees?” wrote O. Kevin Vincent, NHTSA’s chief counsel. “If yes, describe the purpose of each committee. If no, explain the reason GM’s chronology uses two names for this committee.”

Barclays’s Johnson said he was amazed that “even the government bureaucrats” couldn’t understand GM’s plodding processes. Barra, an engineer who previously ran GM’s product development and human resources, needs to streamline its culture, he said.

“Someone who came from both an engineering and an HR background should be paying more attention to creating organizational processes that actually worked,” Johnson said. “But it’s too early to tell.”

GM fell 5.1 percent, the most in two years, to $35.18 at the close in New York. The shares have fallen 14 percent this year, while the Standard & Poor’s 500 Index gained 1 percent.

CEO’s Pledge

Barra pledged to personally take control of the recall in her March 4 Web posting to employees. That includes “an internal review to give us an unvarnished report on what happened,” Barra wrote. “We will hold ourselves accountable and improve our processes so our customers do not experience this again.”

Barra’s promise came after GM issued a public apology for the recall and acknowledged its own investigation “was not as robust as it should have been.”

Such an admission opens GM to further lawsuits for the failed ignition switch, said Jon Harmon, a crisis communications consultant. Indeed, NHTSA asked GM to “describe in detail the ways in which” the internal investigation fell short and how that will change in the future.

“You’ve got to balance between the legal jeopardy of taking away some of the tools of your legal defense and the positives you get from owning up to it,” said Harmon, who handled media relations at Ford during the 2000-2001 recall of Ford Explorers with shredding Firestone tires. “If you know that there has been a misstep, you ought to own up to it as soon as possible.”

Reputations at Stake

Reputations can be ravaged by poorly handled recalls, Harmon said. And that will cost an automaker more in sales and profits than lawsuits will in jury awards.

Toyota Motor Corp. (7203)’s gold-plated image for quality was marred by a recall of more than 10 million vehicles in 2009 and 2010 for incidents related to unintended acceleration, said Tom Libby, an analyst for IHS Automotive. Toyota’s U.S. retail market share fell from 16.3 percent in 2008 to 13.5 percent last year, according to data provided to Bloomberg by IHS using Polk vehicle registration records.

As far back as 2004, GM had an opportunity to avoid a recall crisis, according to its timeline. Late that year, GM learned of a Chevy Cobalt losing engine power because the car key moved out of the run position in the ignition switch. Engineers identified the flaw and came up with solutions to fix it. Yet “after consideration of the lead time required, cost, and effectiveness of each of these solutions” GM closed the investigation without taking any action, the automaker said.

More Fixes

Engineers came up with another solution to the flaw in 2005 that “was initially approved, but later canceled,” GM said. Instead, the automaker issued a “service bulletin” to dealers to fix the fault if customers asked about it. Dealers fixed it on 474 cars, GM said.

The automaker came up with a third fix in 2006, yet didn’t believe the new switch design had been implemented because the part number from its supplier, Delphi Mechatronics, didn’t change. GM now says the supplier, a unit of its former parts division Delphi Automotive Plc (DLPH:US), made the change “at some point during the 2007 model year” without informing the automaker.

During the first nine years of GM’s investigations and proposed fixes, the fault never rose to the executive level, according to the timeline.

That finally occurred on Dec. 17, 2013, when the Field Performance Evaluation Review Committee presented its findings to the Executive Field Action Decision Committee (EFADC), GM said. On Feb. 13, 2013, GM issued a recall for 778,562 models, which 12 days later was expanded to 1.62 million cars.

Last to Know

Top executives are usually the last to know of internal recall investigations because engineers are always running down reports of flaws resulting from accidents, said Tom Stallkamp, a former president of Chrysler when it was part of DaimlerChrysler AG, who left the automaker in 1999.

“If you tried to react to every single issue coming in, or every dozen issues spread over a dozen cars, you’d go crazy,” Stallkamp said. And “there’s always a little tension between the quality and safety offices and the engineering offices because they’re kind of looked at as the cops watching over them.”

The lack of executive involvement until the end of GM’s investigation is not evidence of a coverup, said independent auto analyst John Wolkonowicz, a former Ford product planner who worked as a consultant to GM. It’s just GM’s corporate inertia.

“The GM bureaucracy is so convoluted and deep, it could take 10 years because there’s so many spots in the company where somebody can say, ‘Oh, this doesn’t matter,’” said Wolkonowicz, who is based in Boston. “This is the most complicated company I’ve ever encountered. And I don’t think it got fixed after the bankruptcy. It’s still at least a version of what it was.”

To contact the reporters on this story: Keith Naughton in Southfield, Michigan, at knaughton3@bloomberg.net; Jeff Plungis in Washington at jplungis@bloomberg.net

To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net; Bernard Kohn at bkohn2@bloomberg.net


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • GM
    (General Motors Co)
    • $33.65 USD
    • 0.21
    • 0.64%
  • F
    (Ford Motor Co)
    • $15.39 USD
    • 0.10
    • 0.62%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus