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Five takeaways from the GM safety debacle

By Dr. Peter Morici
web posted April 14, 2014

Mary Barra, CEO of General Motors, was called before Senate and House Committees earlier this month to explain why a faulty ignition switch, responsible for at least 13 crash deaths, was not recalled for several years in vehicles manufactured by GM.

Barra, who served as Executive Vice President for Global Product Development, Purchasing and Supply Chain until January, told members of Congress that she had no knowledge of the switch problem prior to the recent recalls.

Members of Congress were left frustrated. Neither Barra nor federal regulators provided good answers as to why the vehicles were not recalled sooner and the faulty part continued to be installed in GM vehicles for so many years.

Here are five takeaways from the hearings and what we know so far from the actions of GM and government officials.

1. The GM bailout failed and $10 Billion in Taxpayer Money has been squandered

Starting in 2009, the U.S. Treasury put $51 billion into General Motors—through loans and stock purchases—and ultimately lost $10 billion. Part of President Obama's strategy to put GM through "quick wash" bankruptcy, this left most of the existing management in place.

Managements' mediocre commitment to quality and safety helped put GM into financial trouble a decade ago, and now we see that problem continues unabated.

Had GM been forced through conventional bankruptcy reorganization, private investors would have replaced much of the existing senior management with more customer focused leadership. Better quality control systems to guard against episodes like the ignition switch scandal could have saved lives.

2. GM's culture is broken. The company can't make reliably safe cars

GM has heavily layered and highly compartmentalized management and product design structures. Problems like the ignition switch can be discovered by GM engineers—as the result of customer complaints or tragic accidents—but go unnoticed by other units and senior leadership.

All this results in top management left unaware of tragic defects, and the public driving unsafe vehicles that should have never been put on the road.

3. There's not much accountability for bureaucrats at the Obama White House

The National Highway Traffic Safety Administration was aware of the ignition switch problem as early as 2007 but took no concrete action to protect drivers and passengers.

President Obama was quick to hold investors and company officials accountable after the 2010 BP Horizon disaster, but not nearly enough happened to the government officials charged with overseeing the project and who turned a blind eye or were simply lazy.

Now, members of Congress from both parties are livid with NHSTA about its lax response to the GM ignition switch problem, but the White House is not rushing to get to the root of accountability at NHTSA or replace the administrator.

4. The safety of all GM vehicles is now in question

The first three months of 2014, more than six million GM vehicles were recalled to repair product defects. Of 23 auto brands ranked by Consumer Reports for quality—Chevrolet and Cadillac are 19 and 20. And the consumer watchdog only recommended for purchase about one-quarter of models produced under those nameplates, even before this scandal broke.

If Barra did not know about the ignition switch problem in her position heading product development, purchasing and global supply chain management, what other safely issues is she unaware—or is she aware but not yet revealing?

Until she can certify all GM products are free of suspected but unpublicized safety defects, it is irresponsible to put a child in a GM vehicle.

5. US media bias is whitewashing the president's culpability

In 2008, I testified before the Senate Banking Committee that a federal bailout of the automakers would be a grave mistake.

Subsequently, after the industry recovered to profitability, I was repeatedly called by journalists asking if I would care to recant my statements.

Now, the failure of the bailout to break the GM culture of complacency toward poor quality and inattention to safety has been fully demonstrated by the ignition switch scandal. But I am not hearing from those progressive advocates of the Obama administration in the Fourth Estate.

Markets, not government ministries, should be left to discipline incompetence but that does not seem to happen in Barack Obama's America. Instead, we simply "quick wash" insolvent companies, subsidize them and let incompetent managers continue to prey on consumers. ESR

Peter Morici is an economist and professor at the University of Maryland Robert H. Smith School of Business and a widely published columnist. He tweets @pmorici1






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