Will GM's Safety Recalls Force A Change In It's Culture? Don't Bet On It.

With 29 million cars now having been recalled by General Motors for safety problems -- which is substantially more than the 22 million recalled last year by all automakers combined --  it is easy to conclude that GM has learned little from its turbulent recent past, which has included hemorrhaging market share for decades because of a crappy product line and then a near-death bankruptcy averted by a taxpayer and labor union bailout just as it was beginning to make attractive vehicles not destined for rental-car fleets.

GM's product line today -- from entry level compacts to behemoth pickup trucks -- is as competitive as any vehicle manufacturer anywhere.  Its Cadillac brand is back from the dead and its overall fleet has been at or near the top in initial J.D. Power quality ratings in recent years.  Several of GM's most venerable brands have been put out to pasture, and with the company concentrating on fewer product lines its future looked bright and Mary Barra, the first woman to head a major global automaker, seemed like the right person for the job.

 Until its past began catching up to it in an extraordinary series of recalls, many of which were for safety issues that came to the attention of GM years ago but it failed to address head on. 
 

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I trace the beginning of General Motors’ downturn back to 1976 when a peppy little import called the Honda Accord first arrived in the U.S. The 1976 Accord had just everything that the GM cars of that era didn’t.  It was attractive, albeit in a cute sort of way. It was larger on the inside than it appeared from the outside, not the other way around. It had a rear hatch that opened to a collapsible back seat, offering lots of storage space. It handled well, had oomph and was economical, which was no small thing arriving as it did between the twin 1970s oil crises. A practical friend who had owned GM cars forever bought a metallic silver Accord and was hooked. I drove it and was hooked, too.

GM’s response to the Accord and successive waves of hot selling offerings from Honda and later Toyota and Datsun (Nissan) was to continue churning out formulaicly unattractive and uneconomical cars of dubious quality. In fact, GM’s only direct response to the so-called Japanese Invasion was an abomination called the Chevette.

The General’s fortunes briefly improved after Rick Wagoner took over as CEO in 2000 and GM's share price soared to a record $90. (It is $37 today.)  But beneath the gloss the same fundamental problems persisted, eating into the huge corporation like rust spreading through the underbody of a Cadillac Coupe de Ville.

These problems included overcapacity – too many assembly plants and not enough orders, sweetheart contracts with the United Auto Workers union, purchasing foreign car companies and then taking huge losses when GM couldn't make them work with their business model.  (What it did to Saab was unforgivable.)

But the biggest problem was that Wagoner’s GM was coasting along with pretty much the same tired product line as much of the rest of the automotive world was stealing a march on it with attractive and innovative products.

One GM brand was virtually undistinguishable from another. Calls to cut back on the duplication of models between brands and to even fold the lesser selling brands largely went unheeded. Most ominously for GM, Japanese automakers were opening U.S. plants and turning out cars (and later small trucks) that were as well made as those at their vaunted home plants while GM’s U.S. plants continued to produce poorly made vehicles.

In 1994, GM sold 35 percent of all cars sold in the U.S. Today it sells 18 percent. In 2005, it suffered its biggest loss ($10.6 billion) since the Depression, and its failure to shake off its old ways drove it to the verge of bankruptcy in 2008.  Waggoner took a hike at the behest of the Obama administration in 2009 as an unstated condition for its taxpayer-assisted bailout of the automaker, Pontiac, Saturn and Hummer joined Oldsmobile in going bye-bye, and while GM trails badly in hybrid technology, it finally seemed to be shedding all that rust as it introduced spiffy new models.

Yet it kept its old way of doing business.

In a blistering report last month prompted by the deadly Chevy Cobalt ignition switch problem that only scratched the surface of the GM culture, former federal prosecutor Anton Valukas described what he called the "GM nod."  That's when managers nod in agreement about a course of action but then do nothing.  Then there is the "GM salute." That's when managers, arms folded and pointed outward, indicate that the problem at hand is someone else's responsibility.
 

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In the wake of the record recalls, which now total 54 in all, much has been made of the fact that the turnaround of Ford, which alone among Big Three automakers did not need a bailout, can be traced to Alan Mulally, who became Ford's CEO in 2006 after a long career at Boeing, and not being a car guy, let alone beholden to longtime Ford executives as Waggoner and now Barra are, set out to change Ford's corporate culture.  Considering that Ford lost $12.7 billion in 2006 and made $8.6 billion last year, it would seem that he succeeded.

To give Barra credit, she came up in the product-development side of GM.  Her father was a toolmaker at Pontiac for 39 years.  She seems to have cooperated fully with Valukas; it was she who told him about the G.M. nod.  Most importantly, she seems to understand what is wrong with GM's deeply inbred culture, which punishes whistle blowers rather than heed them. 

But there is no indication that Barra knows how to change that culture, let alone an arrogance that has survived GM's long slide from being the world's largest automaker to its near-death experience and now the stunning series of recalls, many of which would have never come to light had it not been for the Cobalt crisis.  Mulally's vision eventually trickled down to middle managers.  What is Barra's vision and how is she going to make sure it trickles down?

Fifteen GM employees have been dismissed for their roles in allowing the original ignition defect to go unrepaired for more than a decade, while regulators imposed a $35 million penalty for failing to report the problem in a timely manner.  A wrist slap, to be sure, and it is highly unlikely there will be criminal prosecutions as a plan fashioned by compensation expert Kenneth R. Feinberg to swiftly pay fatal accident victims' families more than $1 million, and in some cases as much as $4 million, each goes into effect.

What makes Barra's job even tougher is that a precipitous drop in sales might have a sobering effect, but GM is selling cars like hotcakes despite the recalls, yet again confirming that P.T. Barnum was right.

GM registered a 12.6 percent increase in sales in May, significantly outpacing Ford's 3 percent growth, and eeked out a 1 percent increase in June as Ford sales fell 5 percent, while the many millions of dollars that will be paid out will be written off as the price of doing business.  

Like the 9/11 and BP funds administered by Feinberg, the GM fund is designed to keep victims from filing lawsuits.  They must be willing to waive the right to sue before they are paid.  And those millions to be paid do not include punitive damages, so taken in the most uncharitable light, GM is getting away with murder.