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Why Did GM Delay Recalls? The Billion Dollar Question

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Why did GM wait so long before issuing a recall? It is the question everyone is asking. Perhaps it is the cost of fixing the faulty ignition switch; according to a story in the Washington Post it would have cost about $10 for parts and taken roughly an hour to install. When one multiplies that cost times several million, including the man-hours taken to make the repairs (from scheduling to repairing and getting the car out of the shop), those numbers start running into many, many millions of dollars.  But, looking back, GM will likely find that price is small compared to what it will be paying after this is all over.  Many estimates place the cost of the various GM recalls currently ongoing at well over one billion dollars!

Any successful business owner, from Mom and Pop to the CEO of a large consumer-oriented business, will tell you that customer service is vital to growth and stability. They live for the return business, the word-of-mouth endorsement, the tip, the good Yelp review, and everything else that comes from taking care of customers.

GM forgot about all of that. Or maybe it thought it was  impervious to public opinion?  (Too big to fail?)

The Washington Post had this to say, “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.”

What seemed “reasonable” to GM in 2005 has turned out to be an unwise move – a disaster of near epic proportions perhaps – that will undoubtedly cost GM millions of dollars with additional losses coming from bad press, consumer skepticism and stockholder dissatisfaction.

We live in a society that loves to revel in bad news. . .  when it’s someone else’s bad news. GM experienced what many of us grapple with, how do we admit to our mistakes (or do we). How do we say, “I screwed up. And, here’s how I’m going to make this right.” Because we all know that is the right thing to do.  If GM had talked about the ignition switch in 2005 and shown its commitment to safety by taking action,  lives would have been saved and the company would not be making headlines (bad ones) daily in 2013 and 2014.

Should corporations feel the responsibility to be transparent? Let’s not talk about lawsuits and the costs of recalls, let’s instead talk about responsibility to individuals – corporate responsibility, which is akin to “personal responsibility”.  Or business ethics. Would there have been a backlash? Maybe.  Perhaps it is hard to look back and draw conclusions with 100% accuracy, predicting what may have occurred had a different strategy been implemented – i.e., telling the truth.  But it is easy to conclude that the current federal investigation, millions of dollars in lawsuits, possible criminal charges, and intense public scrutiny are far more than GM bargained for when it made the decision to hide the faulty ignition switch problem.

Maryann N. Keller is an independent consultant who wrote a book about GM. She observed that GM has a history of hiring ‘the best and brightest’ and then insisting on conformity. She goes on to say of the investigation,  “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.”  (Wash. Post, 3/31/14)

Recalls have become a way of life. “More than 10 million vehicles were recalled last year because of safety-related issues, the most since 2009, according to the study of automaker and National Highway Traffic Safety Administration recall data by the financial advisory firm Stout Risius Ross Inc.”

One report states that roughly 54% of first year models are recalled. It’s not unexpected that GM vehicles would have problems requiring recalls. The problem lies in the old GM corporate culture that valued image and money more than consumer safety. It appears as if new CEO Mary Barra is attempting to change that culture and make accountability – and corporate responsibility –  a high priority. But the damage is done and with each passing day more stories of problems at GM are being revealed. Rebuilding trust may take a very long time.

GM is telling consumers these dangerous vehicles are safe to drive as long as drivers only use the key, with no fobs or extra objects placing weight on the ignition switch.  Last week Senator Richard Blumenthal, of Connecticut, sent a message to GM, “I urge you to issue a stronger warning to drivers of recalled vehicles of the acknowledged risk they are facing, including a warning not to drive recalled cars,” he wrote. “This warning should be issued as soon as possible – in advance of your testimony before the sub-committee.”

I agree with Senator Blumenthal. Do not take the chance. If you have one of the recalled models, stop driving your car and go to a GM dealership where they are giving out loaners, free of charge—all you have to do is ask.  In the interim, maybe GM will make this right with the American public, fix the problem, and learn valuable lessons.  Given history, however, that is unlikely.