By Katie Burke, Managing Editor
Published July 23, 2014
This is a piece for the Detroit Beat, a new blog at The Daily. Look for the Detroit Beat link on our website in the fall.
General Motors CEO Mary Barra began the summer in the Big House, delivering a speech to University graduates that offered advice for the future.
Last week, she appeared in front of Congress for the fourth time in four months, addressing an audience that was much less welcoming than the class of 2014.
Barra did not mention GM in her commencement address in May, even though the company was in the midst of a crisis that would call into question the culture of one of Detroit’s major automakers.
Detroit has been home to American automakers since Henry Ford and William Murphy founded the Detroit Automobile Company in 1899. Since then, three have emerged as the foremost U.S. automakers: Ford Motor Company, Chrysler Group LLC and General Motors.
The three automakers have weathered a number of storms over the past decades, from the oil crises in 1973 and 1979, to the Ford tire failure controversy in 2000, to the GM and Chrysler bailouts of 2009, all of which have had ripple effects on their home city.
The most recent jolt to the industry began Feb. 13, when GM recalled 619,122 Chevrolet Cobalt and Pontiac G5 models, both cars that sold well when they were on the market.
What began as a routine recall notice — 714 recalls affecting 27,957,339 vehicles were issued in 2013, according to the National Highway Traffic Safety Administration — quickly led to the public revelation of a faulty ignition switch linked to 13 deaths and 54 accidents.
One month earlier, Barra had assumed office as the first female executive of a major automaker. According to GM, she was notified of the defective ignition switch Jan. 31, two weeks later, leading to the initial recall. By March 17, 2.6 million vehicles had been recalled and three days later, the U.S. House of Representatives Energy and Commerce Committee announced its first investigative hearing into the issue.
This is the second major auto company recall this decade following a 2010 Toyota recall sparked by unintended acceleration in the Prius and other models. The company eventually recalled 15.43 million vehicles worldwide, and was fined $17.4 million by the U.S. Department of Transportation.
While the Toyota recall occurred on a massive global scale, the implications of the GM crisis hit much closer to the Motor City.
How the switch came to be
In pursuit of a smoother ignition switch, GM engineers began working on a new design in 1997. Between 1999 and 2001, an engineer named Ray DeGiorgio was given control of the design and was ultimately in charge of approving the final design specification in March 2001.
After its initial design approval, the switch had proven problematic in testing. There were multiple reports of the switch slipping from “run” to “accessory” modes, as well as electrical issues. By design, when the ignition switch is no longer in “run” mode, airbags will not deploy.
DeGiorgio and his team attempted to address these problems in time for the vehicle launches of the Saturn Ion and Chevrolet Cobalt. In internal emails, DeGiorgio referred to it as “the switch from hell.”
According to an internal investigation, in 2002 DeGiorgio approved the switch design for production, even though it had not yet met torque requirements. Reports of vehicle stalling continued to be brought to the engineer’s attention in the following years of product testing, though no action was taken.
When the Cobalt began production in 2004, similar issues were reported by engineers and were subsequently classified as a “convenience” issue rather than a safety issue, failing to prompt an immediate response from GM.
Most of the identified deaths were reported in 2005 to 2007 Cobalt models, where airbags did not deploy when the cars collided due to a slipped ignition switch.
Barra traveled to Washington, D.C. on April 1 for the first of what would be four separate Congressional hearings in the ignition switch investigation. Investigators were merciless.
“You don’t know anything about anything,” Sen. Barbara Boxer (D–Calif.) told Barra, who had admitted there was still much to learn about how the switch made it to production.
Barra also met with families of the crash victims while in D.C., listening to their stories of losing loved ones.
At the time of the first hearing, the CEO commissioned lawyer Kenneth Feinberg to implement a compensation plan for victims and their families. Feinberg had previously handled compensation for Sept. 11 and Boston Marathon victims and families as well. He is set to begin accepting claims Aug. 1.
On May 16, GM agreed to pay a $35 million fine — the maximum penalty for failing to disclose safety problems promptly — to NHTSA for its delayed handling of the ignition switch recall.
In the coming months, GM continued to issue recalls for its vehicles. The notices covered older models and recently released vehicles, for parts ranging from seatbelts and airbags to key fobs, as part of a renewed effort to ensure product safety.
Back in March, Barra commissioned lawyer Anton Valukas, who investigated the 2008 collapse of Lehman Brothers, to produce an internal report on the fatal ignition switch. In June, Valukas published his 325-page findings, revealing a corporate culture of looking the other way. The report led to the dismissal of 15 GM employees, including DeGiorgio.
In interviews with GM employees, the lawyer learned of the “GM nod” and the “GM salute,” which were common executive behaviors. The “nod” was used when a problem was brought up. Executives in the room would all acknowledge that it needed to be addressed, but no further action would be taken. The “salute” was a crossing of the arms followed by pointing outward, indicating responsibility lay elsewhere.
This culture of inaction was a byproduct of the 2009 GM bankruptcy. As part of its bailout agreement, incidents caused before the bankruptcy lay under the responsibility of the “Old GM,” absolving post-bankruptcy “New GM” of liability.
The agreement was brought by Steven Rattner, the former auto czar for the Obama administration who handled the bailouts of GM and Chrysler.
“By taking away the company’s liability, (Rattner) was encouraging them to have a wink and a nod and a salute,” Joan Claybrook, former head of NHTSA, said.
Despite Barra’s challenges this summer, GM has been experiencing month-over-month sales growth. However, she isn’t letting the good news distract from acknowledging the bad.
“This is not just another business crisis for GM,” the CEO said in a speech to employees in June. “I never want to put this behind us.”
At a shareholder meeting the following week in Detroit, protestors and family members of crash victims stood outside in an attempt to ensure that investors did not forget about the ignition switch.
Barra made history as the first female automaker CEO. She did it again when she found herself at the helm of one of the most catastrophic recalls in automotive history. Now, she faces a new challenge: to turn an entrenched corporate culture around and form a new reputation for the industry that was born and raised in Detroit.