General Motors Co. (GM:US)’s internal investigation into why it took more than a decade to recall vehicles linked to fatal flaws will lead to employees being dismissed and clear Chief Executive Officer Mary Barra of wrongdoing, according to people familiar with the effort.
Barra will deliver Valukas’s findings at a 9 a.m. town hall meeting with employees today in suburban Detroit, she said today on Twitter. The investigation isn’t expected to contradict her previous claims that she was unaware of the flawed switch, said the people, who asked not to be identified because the matter is private. It will also clear GM’s top lawyer, Michael Millikin, while Ray DeGiorgio, the engineer in charge of the flawed part, will be among a number of employees to depart the company, said a person familiar with the matter.
The report marks a pivotal moment in Barra’s efforts to change the culture of America’s largest automaker after the biggest legal and public-relations challenge since its government-backed bankruptcy in 2009. Barra, who became CEO shortly before the scandal broke, has attempted to persuade Congress and customers that the safety woes reflect the so-called old GM not the financially healthy, post-bankruptcy version.
“This is a huge turning point for Mary in terms of getting it all out in the open, but it’s not the end,” said Michelle Krebs, senior analyst at AutoTrader.com. “Fixing this is going to take more than getting rid of some people and moving boxes around on the org chart. This is going to require culture change and an ongoing vigilance.”
A quick resolution will allow Barra and her team to capitalize on rebounding profits (GM:US) and the strongest sales since the collapse of Lehman Brothers. GM rose 3.6 percent to $36.52 at the close in New York yesterday, for the biggest one-day gain in more than half a year.
The probe, headed up by independent lawyer Anton Valukas, is based in part on 1 million documents also released to Congress, said a person who asked not to be identified because the matter is private. The trove of material shows the automaker was hobbled by engineers who failed to detect a flawed ignition switch and a dysfunctional review system that delayed a recall for 10 years, people familiar with the matter said.
Still, Congress and the Justice Department continue to investigate GM over why it took more than a decade to recall 2.59 million small cars with defects linked to at least 13 deaths. The defective ignition switch could be jarred into the “accessory” position, disabling power steering and preventing air bags from deploying. The failure to diagnose the problem was outlined in the documents turned over to Congress in recent weeks, the people said. The records show engineers struggling to address several issues with the vehicle’s ignition switch, some of the people said. There were problems starting the cars that were perceived as a bigger issue than the stalling, these people said.
Barra had suspended with pay DeGiorgio, the engineer responsible for the ignition switch, and Gary Altman, the program engineering manager for the Cobalt until May 2005, people familiar with the situation have said. Records released in April by the House panel investigating GM show that DeGiorgio signed off on changing the ignition switch in 2006 and didn’t change its part number, effectively hiding the change and making it harder for future engineers to pinpoint the problem.
GM has already reorganized its engineering department and named a new communications director and human-resources chief. Two senior engineering executives have announced retirements that GM said weren’t related to the recall.
Barra can use Valukas’s findings to push through painful changes in the engineering and legal departments while also being able to use it to defend the automaker going forward as it tries to put this issue behind it. Vindication of Barra and her top lieutenants is key to her ability to resolve multiple investigations, reorganize the legal and engineering departments to ensure future recalls aren’t delayed, and settle what may be billions of dollars in legal claims.
The National Highway Traffic Safety Administration has already fined GM $35 million, the maximum allowed. Regulators found systemic problems throughout the organization, NHTSA Acting Administrator David Friedman said at a news conference May 19.
“General Motors’ decision making, structure and process stood in the way of safety at a time when air bags were failing to work properly in millions of GM products,” Friedman said.
In addition to the fine, GM’s agreement with regulators includes “significant and wide-ranging internal changes” to how it reviews safety issues and decides on recalls, the Transportation Department said in a statement.
Lawmakers in Congress have signaled they plan to call Barra back to testify before them after the report is released for further questioning. During previous appearances before House and Senate panels, she declined to answer some questions, saying she needed to see the results of Valukas’ investigation.
Millikin, GM’s general counsel, co-led the investigation with Valukas, a former prosecutor who served as a U.S. Justice Department-appointed examiner of the downfall of Lehman Brothers Holdings Inc. The Wall Street Journal reported earlier that he would be cleared and that GM is expected to announce DeGiorgio’s dismissal.
GM’s legal department, which has already been making changes, is expected to face further overhaul following the Valukas report, people familiar with the matter have said. Transforming GM’s legal culture won’t be easy because in-house lawyers have spent their careers battling to keep potentially incriminating safety information out of the hands of trial lawyers.
Valukas had the remit to follow the facts where they lead and there are no sacred cows, a person familiar with the effort had said. Yet some of the lawyers helping Barra find out what went wrong have spent their careers at GM.
Millikin joined the GM legal staff in 1977 and was named associate general counsel in 2005, the same time many of the ignition-switch problems came to light. King & Spalding LLC, the law firm hired to help Valukas with the internal probe, also has a long history with the company, going back to fuel-tank litigation in the 1970s.
Valukas and his firm aren’t strangers to GM. They’ve worked for GM at least since 2004, when he was the company’s lead lawyer in a four-year Securities and Exchange Commission investigation of accounting inaccuracies and pension disclosures.
Old GM agreed in early 2009 to abstain from future misconduct, though it paid no fines, Bloomberg reported.
Robert Osborne was a senior partner at Jenner & Block who became GM’s general counsel from 2006 to 2009 and is now affiliated with the law firm’s corporate practice. He headed the legal teams behind new GM’s purchase of its bankrupt predecessor’s assets and stock sale to the U.S., according to the firm’s website.
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