Even before General Motors CEO Mary Barra took the stand on Capitol Hill to begin the first of two days of testimony, the embattled maker was already taking a series of body blows from federal safety regulators and the families of some of the 13 people whose deaths have been linked to defective GM ignition switches.
The maker also received a stinging letter from an assortment of consumer groups and advocates – including longtime GM critic Ralph Nader – demanding it set up a fund to cover “victims of GM product defects, whose legal rights were extinguished by GM’s 2009 bankruptcy.”
The maker has responded by hiring Kenneth Feinberg, who oversaw victims’ compensation funds for the 9/11 attacks, the Boston Marathon bombing and the BP Gulf oil spill to “explore and evaluate options” for a compensation fund.
Barra faces separate hearings on the House and Senate sides of the Capitol this week but the subject is the same: when did it learn about the problem with faulty ignition switches now linked to at least 13 deaths and 31 crashes, and why did it take so long to respond to the deadly problem? With the addition of more than 900,000 vehicles late last week, GM has now recalled about 2.6 million cars and crossovers equipped with the switch, which can inadvertently turn off, stalling out a vehicle’s motor and disabling its airbag system.
The maker isn’t the only one taking heat, however. The National Highway Traffic Safety Administration is also under fire for not having caught the problem earlier and for failing to press GM for a recall.
"GM had critical information that would have helped identify this defect," Acting NHTSA Administrator David Friedman said before facing a Congressional subcommittee Tuesday.
NHTSA was supposed to have gained the muscle it needed to prevent such problems from slipping through the cracks with the passage of the so-called TREAD Act more than a decade ago. While Friedman went on to defend the agency’s record, declaring, "We believe our defects investigation program and recalls process has functioned extremely well," he backpedaled a bit, adding that, “we continually seek ways to improve."
It’s not the first time NHTSA has been faulted. The safety agency also came under the microscope during Congressional hearings in 2010 that looked at the way Toyota handled several recalls related to its so-called sudden acceleration problem. An internal company document showed the Japanese maker crowing about how it had convinced NHTSA to scuttle an earlier recall plan. Following those 2010 hearings, NHTSA officials had promised to toughen their efforts to prevent safety defects from slipping through – a pledge now being challenged by the GM ignition switch debacle.
Even before Congressional leaders began Tuesday’s hearings the noise level was amping up outside the Capitol, where family members gathered to call attention to the human side of the crisis. That included Laura Christian, the birth mother of Amber Marie Rose, who was killed on July 29, 2005.
"Our husbands, wives and children, our loved ones were the cost of doing business, GM style,” Christian said tearfully.
Exactly how much the maker saved by avoiding an earlier recall is unclear, but industry sources have suggested that a replacement ignition switch would have cost as little as $2, noted Congressman Edward Markey, a Massachusetts Democrat who joined the family members outside the Capitol.
GM finally did try to replace the faulty switch with the start of the 2008 model-year, adopting a modification that made it less likely to shift from “on” to “off” or the “accessory” position due to a heavy key ring or a jouncy road. Ironically, it now appears GM failed to completely cast off the defective ignition switches and the latest extension of the recall announced Friday was caused by the maker’s uncertainty about which vehicles might have continued using the faulty part.
Barra said during her testimony Tuesday that the company has "moved from a cost culture after the bankruptcy to a customer culture,” adding the focus on the customer includes ensuring GM vehicles are safe. “The cost is not the issue that we look at to see what will make the vehicle safe,” she said. “We don’t look at cost. If there is a safety issue, we make the change.”
With more than 2.5 million vehicles now subject to the ignition switch recall, costs are mounting – and they also include the labor at GM dealerships, which will certainly exceed $2 a vehicle, according to various sources.
But the repairs will likely be an insignificant part of the overall financial hit. GM faces a strong likelihood of eventually having to pay fines for delaying the recall. The maximum penalty NHTSA can levy now is $32 million per incident. Then there’s a potential fine if the Justice Department moves forward with the preliminary investigation it launched last month. The agency’s recent $1.2 billion settlement of Toyota’s unintended acceleration scandal is being seen as a potential model for any resolution of the GM flap.
What’s less certain is the cost to victims and their families. Under terms of the GM bankruptcy settlement, the maker is no longer legally liable for incidents that occurred prior to its July 2009 emergence from Chapter 11. But there has been a growing chorus of critics, all demanding GM find a way around that waiver.
“We now know that GM failed to disclose information about the massive faulty ignition defect while negotiating for its immunity, including settling cases confidentially so no one would learn of GM’s responsibility for causing these fatal crashes. The company now has had 16 consecutive profitable quarters, with a $3.8 billion profit in 2013. GM can well afford to help its victims and it has a moral obligation to do so,” declared a letter sent to Barra and signed by safety advocates including Nader, former NHTSA Administrator Joan Claybrook, the Center for Automotive Reliability and Safety, and Consumers Union, publisher of the influential Consumer Reports magazine.
Barra appears to be buckling on the compensation issue, announcing the hiring of consultant Feinberg prior to her Tuesday testimony.
“My mandate from the company is to consider the options for dealing with issues surrounding the ignition switch matter, and to do so in an independent, balanced and objective manner based upon my prior experience,” said Feinberg.
-The Detroit Bureau's Michael Strong contributed to this report.
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