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Growing list of recalls may be more than a bump in the road for GM’s reputation

May 21, 2014 at 6:35 PM EDT
The latest safety recall by General Motors is for a dashboard lighting module that could overheat and catch fire, adding to a growing list of problems that has affected nearly 14 million vehicles. This slew of recalls was prompted by ignition switch defects linked to 13 deaths. Jeffrey Brown talks to Daniel Hill of Ervin-Hill Strategy and Erik Gordon of the University of Michigan.
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TRANSCRIPT

JUDY WOODRUFF: General Motors announced yet another vehicle recall today. It’s part of what has become a wave of safety alerts the company has issued in recent weeks.

Jeffrey Brown has the story.

JEFFREY BROWN: The latest addition to GM’s ever-growing list: 218,000 Chevrolet Aveos recalled just this morning. They have a dashboard lighting module that could overheat and catch fire.

A day earlier, the company told customers to bring in nearly 2.5 million vehicles for seat belt, gear shifter, and other mechanical problems. It all started in January, with nearly 2.6 million vehicles recalled, for ignition switch defects going back a decade, and linked to 13 deaths.

GM’s new CEO, Mary Barra, faced senators in April.

MARY BARRA, CEO, General Motors: Sitting here today, I cannot tell you why it took years for a safety defect to be announced for this program, but I can tell you we will find out.

JEFFREY BROWN: By now, GM has called back nearly 14 million vehicles, the most ever in a single year. The 29 separate actions include last Thursday’s recall of 2.7 million Chevrolet, Saturn and Cadillac models for taillight and other malfunctions, the March 13 recall of 1.7 million Buick, GMC and Chevrolet vehicles for brake and air bag problems, and the March 31 recall of 1.3 million Chevrolets, Saturns and Pontiacs for power steering issues.

Last Friday, the government fined GM $35 million for concealing the ignition switch problem.

Transportation Secretary Anthony Foxx:

ANTHONY FOXX, Secretary of Transportation: What we cannot tolerate, what we will never accept is a person or a company that knows danger exists and says nothing. Literally, silence can kill.

JEFFREY BROWN: The company’s new safety chief, Jeff Boyer, acknowledges the investigation prompted the avalanche of other actions. He told the Associated Press: “We’re not waiting for warranty trends to develop over time.”

In the meantime, GM has conducted its own investigation of the ignition switch issue. That’s expected to be released in the coming weeks.

And we look at the recalls and the impact on GM with Erik Gordon, a professor at the University of Michigan Ross School of Business, and Daniel Hill, president of Ervin-Hill Strategy, a public relations firm here in Washington.

Erik Gordon, let me start with you. What are we to make of this run of recalls, some of them even very small? What’s happening from a business perspective?

ERIK GORDON, School of Business, University of Michigan Ross: Well, it’s a disaster for General Motors.

It’s damaging their reputation. It will end up damaging their sales. It will hurt their stock price, and I think the damages will last a long time.

JEFFREY BROWN: And what do you see them doing in drawing out these recalls at the moment?

ERIK GORDON: You know, I think the game of drawing out the recalls and, you know, announcing recalls in a way they hadn’t previously done is to try to get everything out and over with and to avoid having more explosions.

And I think the thing that makes GM Look the worst is not that there are problems with cars. The cars are big, complex things. There are going to be problems with cars. It’s the idea that GM has been covering things up. So the last thing GM wants is to have another — another event come up that they haven’t disclosed. It just makes them look terrible.

JEFFREY BROWN: Daniel Hill, how do you see what is going on from a public perspective here?

DANIEL HILL, Ervin-Hill Strategy: Well, the reputational toll is going to be huge. And this is going to carry on for years.

Toyota is still dealing with litigation from their issues in 2009 and 2010. The scale of this, the impact it’s had on the public, the inconvenience, the safety issues, it’s going to take GM many, many years to overcome this.

JEFFREY BROWN: Well, I was wondering about the Toyota example. I mean, reputation-wise, years later, is that still how Toyota is seen? It that the potential impact for GM?

DANIEL HILL: Well, the difference between the two is that Toyota started with a better reputation to begin with.

They were seen as a quality automaker at the time of their crisis. GM was on the recovery to that, and its brand and reputation had improved dramatically, but people can still remember the old GM, where safety and quality were not as good. And so people start defaulting — consumers start to defaulting to that old GM When they think about this — quote, unquote — “new GM.”

JEFFREY BROWN: Erik Gordon, what about the response so far? I don’t know how much you can tell at this point, but the response to changing some of the safety issues that they have talked about at the company?

ERIK GORDON: I think they have done some things well and I think they have done some things not so well.

What they have done well is, they have stepped forward and said, we will take responsibility for accident victims, even though it’s not clear that they have the legal responsibility. They have stepped up to the moral responsibility. I think they have done that well.

I think what they haven’t done so well is, they haven’t acted like a new GM. They refer to themselves as the new GM, but they act more like the old GM. They are not acting transparently. The CEO is unable or refused to answer questions in Congress. They won’t answer questions until their own internal investigation is done. So they have got part of it right, and I think they’re botching up part of it.

JEFFREY BROWN: Well, Daniel Hill, and, in fact, inevitably, the new CEO — and she’s first woman to head the company — is much of the focus of this.

DANIEL HILL: Yes.

And I think they actually made a calculated risk that is going to backfire, and that was putting her out in front of this crisis very early on. If I were advising the company, I would have said, she should have appointed someone to oversee that part of GM, while she works on the future and leading the company going forward.

Now she’s dragged into this crisis so much, it’s going to be hard for her to do the other thing. So it’s a huge distraction on top of all the challenges that the situation brings.

JEFFREY BROWN: Well, as the new person, doesn’t she have to be out there as leading and especially responding to the public in a moment like this?

DANIEL HILL: I think she can do that and also not drag herself into the day-to-day morass that crises cause for companies, and give herself just enough distance, while still doing the right thing in terms of owning it for the company.

JEFFREY BROWN: Erik Gordon, you started to talk a little bit about this, but put it in the larger perspective of GM over recent years. We have had of course the bankruptcy and we had the government help, and the story certainly we have covered on this program over the last number of years is a largely positive story about GM and the American auto industry, until this.

ERIK GORDON: You know, it’s really sad.

It was like GM was a Corvette convertible going down the road at a nice clip, sunny day, the wind in your hair. Things were looking pretty good, and then all of a sudden the wheels fall off and you’re in the ditch. I think it’s going to be hard for GM to get that momentum back, because the more recent history hasn’t been so pleasant. The timing couldn’t be worse for General Motors.

JEFFREY BROWN: In what way?

ERIK GORDON: Well, you want to build on that momentum. You want to put the bankruptcy behind you, you want to put the image of the old GM behind you. You want to bring out new cars.

You have a new CEO. You really wanted things to build up, not to stall, I mean, literally and figuratively, for the company. And, I mean, how many new GMs can you take in a couple of years? It’s going to be hard for them to get that, oh, we’re a new company image back, and I think it’s going to be hard for them internally to get that kind of momentum going again.

JEFFREY BROWN: What do you think of that, Daniel? How many new GMs can one take, can the public take?

DANIEL HILL: Right. Well, they could try new GM 2.0.

Or what I think they will try to do is, they’re going to try to convince the public that the new GM that we’re seeing today is actually the old GM, and they’re going to try to kind of roll this one under the bus, if you will, and start fresh once they get these recalls out of the way.

And the problem with the recall situation they face now is that they want to take this rip-the-Band-Aid approach, where — get it all out of the way, but they’re ripping the Band-Aid off too slowly. So it’s not really as effective as I think they would like, and I don’t think we have seen the end of it yet.

JEFFREY BROWN: Well, and speaking of the end of it, what is next? There are some lawsuits out there. There’s their own internal investigation we talked about, which apparently could come within a few weeks.

DANIEL HILL: And one big one is the looming criminal potential, that there would be a big criminal fine from the government, the same way that Toyota faced, and then also the potential of a political issue. Do candidates running for office start tying the GM crisis into the health care discussion? This is what you get when government interferes in private sector business.

JEFFREY BROWN: Oh, you think it could play out like that?

DANIEL HILL: I do. I can see Republicans making an issue in this in the midterm election, and saying the administration intervened in this company, and this is what you look forward to with your health care going forward. So, this could drag on for quite a while.

JEFFREY BROWN: All right, certainly more to come.

Daniel Hill and Erik Gordon, thank you both so much.

DANIEL HILL: Thank you.