Bloomberg News

Barra Seeks to Distance GM From Old Cost-First Culture

April 02, 2014

General Motors Co. (GM:US) Chief Executive Officer Mary Barra pushed yesterday to separate herself from an old GM that weighed the costs of improved safety, insisting she’s the face of a new GM that puts customers first.

In more than two hours of testimony that was long on apologies and short on detailed answers, Barra assured members of the House Energy and Commerce Committee she’d find out why the automaker took more than a decade to recall 2.6 million cars for faulty ignition switches linked to 13 deaths.

When pressed to give more detailed answers, Barra said she had to wait for the results of an internal investigation led by Jenner & Block LLC Chairman Anton Valukas. Barra also said GM hired Kenneth Feinberg, the lawyer who managed funds for victims of the Sept. 11, 2001, terrorist attacks.

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During the hearing, a lawmaker read out an internal company e-mail saying that a 90-cent per-piece increase that would have fixed the flawed part wasn’t justified by the offsetting 10 cents to 15 cents in warranty savings. Barra, 52, said the GM she inherited three months ago would never condone executives opposing fixes that might have saved lives because they’re too expensive.

“Today, if there is a safety issue, we take action,” she said as families of people killed in GM vehicles listened from the back of the hearing room. “We’ve moved from a cost culture to a customer culture.”

Seeking Answers

Lawmakers were seeking explanations for why GM and its main U.S. safety regulator chose multiple times not to open a formal investigation or declare a recall to address the flaw that could cause the ignition switch to shut off when jarred. That in turn could cause the engine to shut off and deactivate the air bags.

“I did think we were going to hear more,” Representative Marsha Blackburn, a Republican from Tennessee, said in a Bloomberg TV interview after the hearing. “And I think all of us were a little disappointed that she continued to say we have an ongoing investigation and we’re not exactly sure what happened.”

The committee also sought to learn why GM didn’t immediately know about a change its parts supplier made in the switch in 2006 and why the part wasn’t then assigned a new number that would have shown it was different.

Ken Rimer, the Hammond, Wisconsin, stepfather of Natasha Weigel, who died as a passenger in a Wisconsin crash in October 2006, criticized Barra for not being able to answer lawmakers’ questions during the hearing.

“They’re the new GM, but they’re really slow on things,” Rimer said. “With their legal team, you’d think they could get answers in a heartbeat, unless they don’t want to.”

Rejected Fix

Rimer said he was particularly put off upon learning from another company memo that GM managers rejected potential ignition-switch fixes because it would have cost 57 cents per unit.

“Saving 57 cents on a part that could have saved maybe 10 lives, it’s just unconscionable,” he said.

Representative Gregg Harper, a Republican from Mississippi, asked Barra about a 2005 internal GM e-mail that involved an engineering group manager discussing the decision not to make changes to the ignition switch in model year 2008 vehicles.

The e-mail went to Lori Queen, an executive on GM’s small car program at the time, and other GM employees, he said, and explains that a more robust ignition switch wouldn’t be implemented because the price could not be offset with warranty savings. The e-mail said the increased cost would be 90 cents apiece while the warranty offset was 10 cents to 15 cents, he said. The e-mail suggests instead that a smaller hole in the key, which would allow less weight on the key, was sufficient.

Safety Issues

Representative Kathy Castor, a Democrat from Florida, asked how Barra didn’t know about safety issues with Chevrolet Cobalts when they were written about the in the New York Times in 2005.

“I find it baffling that not only did GM know about this serious problem over a decade ago, but that it was discussed on the pages of the New York Times, and when GM responded publicly, it essentially told drivers, ‘No big deal; engines cut off all the time,’” she said. “When your engine suddenly cuts off when you’re driving on the highway, would you consider this a safety issue?”

It wasn’t surprising that lawmakers wanted to know how Barra was unaware of the safety issues, said Davia Temin, of the Temin & Co. crisis-management firm in New York. “And that it’s the $1 billion question. Who did know? Who didn’t know?”

GM says Barra was in vehicle manufacturing engineering during much of the 2000s, a role that didn’t give her any oversight of product design or the recall of defective vehicles.

More Information

Asked by reporters if she could’ve shared more information in the hearing, she said she couldn’t. Asked how she couldn’t have known about the switch defect until two months ago, she said, “I’m telling you the truth.”

Feinberg was brought in as a consultant to begin assessing how GM might compensate victims of the defective switch, Barra said. She said she couldn’t commit to any compensation at this time.

A Barclays analyst last week estimated GM may need to create a fund as large as $3 billion to pay claims associated with the recall even though the automaker is shielded, under its July 2009 U.S.-backed bankruptcy reorganization, from liabilities of the old GM, which sold the cars.

In a March 27 letter to Barra, U.S. Senator Richard Blumenthal, a Democrat from Connecticut, urged GM to establish a fund to compensate victims. Blumenthal is a member of the Senate Commerce Subcommittee on Consumer Protection, Product Safety and Insurance, which will hold a hearing today on the GM recalls.

Now Profitable

Barra’s portrayal of the “old GM” contrasts sharply with the company she inherited as the first woman CEO of a major carmaker. Freshly scrubbed from government ownership, GM is now a profitable company with the newest and highest-quality vehicles in a generation. Yesterday the automaker reported that sales last month rose 4.1 percent, beating analysts’ predictions of a 0.8 percent rise, a sign that the recalls hasn’t hurt its business.

Barra’s performance yesterday was just a start, said Anne Doyle, author of “Powering Up! How America’s Women Achievers Become Leaders” and a former Ford communications executive during the Ford Firestone recall. She was in the hearing room when former Ford CEO Jac Nasser was called before the same committee in 2000.

“They nailed her on the statement ‘We have changed our core values,’” Doyle said. “She’s going to have to demonstrate to Congress and the public how the new GM is different on her watch. They’re going to hold her to her words.”

To contact the reporters on this story: Tim Higgins in Detroit at thiggins21@bloomberg.net; Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net; Jeff Plungis in Washington at jplungis@bloomberg.net

To contact the editors responsible for this story: Robin Ajello at rajello@bloomberg.net Stephen West


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