CEO Barra Faces Tough Time Shedding Old GM
“That is not how GM does business.”
With statements like that, new CEO Mary Barra is trying to distance the General Motors she now leads from the overly bureaucratic company whose inattention to its customers helped land it in bankruptcy in 2009.
But it’s clear from her appearance before Congress this week that she faces a difficult task. Documents submitted by GM ahead of a House subcommittee hearing Tuesday show that cost was a major consideration when the company declined a decade ago to implement fixes to an ignition switch used in small cars.
That switch is now linked to 13 deaths, and Barra, less than three months after taking over as CEO, finds herself thrust into one of the biggest product safety crises Detroit has ever seen.
Since February, GM has recalled 2.6 million cars — mostly Chevrolet Cobalts and Saturn Ions — over the faulty switch, which can cause the engine to cut off in traffic, disabling the power steering, power brakes and air bags and making it difficult to control the vehicle. The automaker said new switches should be available starting April 7.
At a hearing on Capitol Hill before a House subcommittee, Barra acknowledged under often testy questioning that the company took too long to recall cars equipped with the switch. At a press conference after the hearing, she said it “angers me that we had a situation that took more than a decade to correct.”
Barra promised changes at GM that would prevent such a lapse from happening again. “I think we in the past had more of a cost culture,” she said, adding that it is moving toward a more customer-focused culture.
Barra will be back before Congress Wednesday, this time testifying before a Senate subcommittee.
As relatives of the crash victims looked on intently, Barra told committee members that she didn’t know why it took years for the dangerous defect to be announced. And she deflected many questions about what went wrong, saying an internal investigation is underway.
Barra did acknowledge, however, that GM used the ignition switch even when it knew the part didn’t meet its own specifications. When she tried to draw a distinction between parts that didn’t meet specifications and those that were defective and dangerous, Rep. Joe Barton, R-Texas, shot back: “What you just answered is gobbledygook.”
Committee members repeatedly asked about decisions that prevented GM from recalling the cars much sooner.
GM has said that in 2005, company engineers proposed solutions to the switch problem, but the automaker concluded that none represented “an acceptable business case.”
“Documents provided by GM show that this unacceptable cost increase was only 57 cents,” Rep. Diana DeGette, D-Colo., said.
The 57 cents is just the cost of the replacement switch. The figure does not include the labor costs involved in installing the new part.
Barra testified that the fix to the switch, if undertaken in 2007, would have cost GM about $100 million, compared with “substantially” more now.
Under questioning, she said the automaker’s decision not to make the fix because of cost considerations was “disturbing” and unacceptable, and she assured members of Congress that that kind of thinking represents the old General Motors.
David Friedman, head of the National Highway Traffic Safety Administration, also testified Tuesday. He blamed GM for what he said was its failure to provide adequate information to the government.
“It’s my understanding that we did not have that information,” Friedman said. In one example, GM didn’t tell the agency that the switches didn’t meet the company’s specifications, he said.
Committee members questioned Friedman about why the agency didn’t investigate the cars based on the information it did have. At one point, Rep. Barton was incredulous when Friedman acknowledged that NHTSA didn’t fully understand how the air bags in some of the GM cars worked.
Some current GM car owners and relatives of those who died in crashes were also in Washington seeking answers. The group attended the hearing after holding a news conference demanding action against GM and stiffer legislation.
Owners of the recalled cars can ask dealers for a loaner vehicle while waiting for the replacement part. Barra said GM has provided more than 13,000 loaners.
Barra announced at the hearing that GM has hired Kenneth Feinberg — who handled the fund for the victims of 9/11, the Boston Marathon bombing and the BP oil spill — to explore ways to compensate victims of accidents in the GM cars. It’s an indication that GM is considered some kind of compensation fund for victims, although Barra stopped short of saying that.
GM shareholders are also watching Barra. GM stock is down $2.75, or 7.4 percent, since March 11 when committees in the House and Senate said they would hold hearings on the recall and word leaked out that the Justice Department was investigating the company’s handling of the issue.
On Tuesday, GM stock closed down 8 cents, to $34.34, after rising as high $35.14 prior to Barra’s appearance
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