Phil Biggs covers the automotive industry for NewsTalk 1340 WJRW
March 28, 2014 – 11:30 am ET
DETROIT, Michigan. – The enormous array of new technology aimed at the automotive industry coupled with the constant splintering of demographic segments and the ever-growing complexity of building the vehicle brings exciting challenges most days for the OEMs, suppliers and dealers. Even though sales have fallen the past two months, expectations are high for a return to solid volume in 2014, and likely through 2016.
But nobody who is a student of the automotive business ever thinks its future will be “easy” or that there will be a time to rest on the laurels of success, however significant that achievement is. Those of us who make our livelihood in Detroit know all too well that the city itself, while already making important steps to economic recovery, is suffering terrible pain as it goes through the paces of a new transformation. The city is dependent on the auto industry, and always will be, and thus relies on the automakers to shed the failures of the past and do things the right way or Detroit will pay the ultimate socio-economic penalty.
Soaking up the accolades of success one day while preparing for crisis the next. It was just a little over two months ago that General Motors was riding the crest of the ultimate wave: a double win at the Detroit Auto Show with the Chevy Corvette taking Car of the Year and the Silverado earning Truck of Year honors, and longtime GM executive Mary Barra rightfully wowing the industry as its first-ever female CEO. Sprinkle in impressive 2013 sales growth and record profits and, other than the lousy weather, you couldn’t script a better start to 2014 for GM. That is, until the news of the recall…
Enter the revelation of defective ignition switches installed in the Chevy Cobalt, Saturn Ion, and Pontiac Solstice models last decade that have resulted in at least 13 deaths, 31 crashes and this month a recall of 1.6 million GM vehicles. Just sixty days after basking in the glow of her ground-breaking achievement, today Mary Barra must shift to crisis management that has real survival implications for General Motors.
It’s always what you don’t see coming that smacks you. Safety and regulation have always been serious hallmarks of the auto business, and recalls are nothing new. But the current GM recall has even deeper, more far-reaching consequences. Despite very little chance that defendants could successfully challenge GM’s protection against pre-bankruptcy liabilities, this situation is more than just a public relations nightmare because of the thirteen car owners who died.
Further concern is mounting as new information surfaces that GM management may have had proven evidence of the defect as long ago as 2009, maybe even before then. Worse is the potential of a cover-up which is now being investigated largely because of internal mistakes that were made as knowledge of the ignition switch flaw became obvious last decade. The reporting of process discrepancies occurred when the defective part was first noticed and a change-out recommended. According to Automotive News, the “scant documentation of the (ignition switch) part change impeded GM’s years-long search for clues, and that was a breach of normal procedure.”
With technology on such a rapid trajectory and the need to create more vehicle safety requirements and redundancies mounting, engineering teams will be expected to do a better job of anticipating these kinds of situations to avert future tragedies. The pressure on OEMs and suppliers to catch this type of defect early in the design and development phase will be immense.
Perhaps most importantly, from a consumer perception standpoint, it is crucial for GM to properly resolve this recall if they ever want car buyers to trust them enough to remain loyal customers. CEO Barra knows the consequences of failing to act properly could bring about GM’s financial crash, not primarily from lawsuits but from consumer avoidance in the global marketplace.
It’s never easy to admit wrongdoing, but it is imperative to do things the right way. Toyota faced a devastating series of recalls several years ago which affected 17 million of its vehicles. Toyota Motor President Akio Toyoda restructured the company’s management to give more authority and autonomy to local regions. Culturally it was hardest to cede authority to non-Japanese leadership in North America, but it was the right decision and it has since paid off.
Mary Barra testifies before Congress April 1st, and she has vowed that the company will “do what’s right” for customers after all investigations are completed. There is plenty for GM to be worried about at the moment – a drop in the stock price, overseas re-structuring, and now this recall crisis.
But, as Detroit Free Press columnist Tom Walsh stated, the recall “may not prove to be a crushing blow for GM, if managed smartly with urgency and transparency.” He’s right, and the baptism by fire facing Barra could prove to be a positive, defining moment for her and the company. Her steady and thoughtful approach in this situation could pay dividends and set a standard for other CEOs to do things the right way when complex problems arrive at their door.
Phil Biggs is Executive Vice President for the Nashville, TN-based technology company NeXovation.
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