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GM's recall report shows how lemons are built

There are profound lessons for CEOs and managers in the GM recall report, but also for consumers intent on ensuring they spend their money wisely when buying something as costly as a car.

Shortly after the 2005 Chevrolet Cobalt was introduced, for intance, the New York Times ran an article in which the reviewer explained how a Cobalt his wife was driving stalled when her knee bumped the key ring. After that story ran, another reporter, Christopher Jensen of the Cleveland Plain-Dealer, called General Motors (GM) to ask if they had anything to say about such a bug. GM issued a statement explaining that, under rare circumstances, bumping the key ring could cause the engine to shut down — but it wasn’t considered a safety problem.

“It is pretty funny to hear somebody pretend that turning off the engine by mistake isn't a safety issue,” Jensen wrote. That was nearly 10 years before GM initiated a vast recall relating to the very same problem.

Google (GOOG) existed back then, which means anybody considering buying a Cobalt could have found the Times or Plain-Dealer articles, or others like them. Apparently many didn’t bother. The Cobalt, which GM sold from 2005 to 2010, got middling reviews at best, yet consumers purchased several million of them, plus hundreds of thousands of similar Pontiac and Saturn models. While it wasn’t clear back then that the ignition defect would pose a deadly safety problem, it wasn’t hard to figure out the Cobalt and its cousins were duds.

Fatal consequences

The Cobalt ended up having much bigger problems, of course, and is now the focus of a safety scandal involving more than a dozen fatal crashes and somewhere between 12 and 75 deaths.  Wednesday's report  by former prosecutor Anton Valukas finds that a “history of failures” at GM led the automaker to repeatedly ignore signs of a deadly problem and dither for a decade before issuing a recall. While the report absolves GM’s current CEO, Mary Barra, of any direct knowledge of the problem until late last year, it identifies several other executives who could have intervened but didn’t. And even though GM ordered the Valukas investigation, his report reveals numerous oversights that had deadly consequences and could add to a GM legal bill that’s already sizable.

Like every automaker hyping a new model, GM portrayed the Cobalt as a must-have vehicle when it introduced it late in 2004 (as a 2005 model). By then, GM had grudgingly acknowledged that the small cars in its lineup, such as the Chevy Cavalier and the Pontiac Sunfire, were dogs it spent little money to develop and produced mainly to earn gas-mileage credits from the government. GM earned virtually all its profits on pickup trucks, SUVs and large sedans. But with gas prices rising, GM needed better small cars able to compete with models such as the Honda Civic and Toyota Corolla and draw younger buyers who might someday trade up to higher-priced GM offerings.

The Cobalt’s mission was to draw those buyers. Yet the vehicle was developed at the same time GM was beginning to suffer from deep problems that would ultimately lead to bankruptcy. The Valukas report details what was going on inside GM even as marketers were touting the Cobalt as the latest and greatest: The automaker laid off hundreds of engineers and gave those who remained — including those on the Cobalt team — more work. Parts contracts went to the lowest bidder, regardless of quality. There was pressure to bury issues that might delay the launch of a vehicle such as the Cobalt and cost GM money. Intense cost-cutting “created a difficult environment in which people were overworked and the quality of work suffered,” the Valukas report concluded. On the Cobalt, engineers noticed problems with the defective ignition switch before the vehicle even went on sale, but did nothing to fix them — the epitome of poor quality.

The Cobalt was better than its predecessor, the lowly Cavalier, but it was hardly a standout. Consumer Reports called it “lackluster.” Car and Driver reported that “the new Chevrolet Cobalt has ho-hum written all over it.” Chevrolet in general ranked below average in J.D. Power’s quality rankings for 2005.

Not a safety issue?

A mediocre car isn’t the same thing as a deadly one, and the Cobalt would mostly be forgotten if GM had acted on the ignition problem when it should have. Here’s why it didn’t: For reasons that still aren’t clear, GM categorized the ignition defect as a convenience issue rather than a safety issue. Had the problem been dropped in the safety bucket, it would have rated a much higher priority, and probably would have gotten fixed far sooner. But apparently GM was willing to let a “convenience” problem go unresolved, even though the total cost of a repair was less than $1 million — a pittance for a high-volume vehicle like the Cobalt.

When auto reviewers and other industry experts evaluate the quality of a vehicle, they tend to look for evidence that engineers and executives sweat the small stuff — the gaps between panels, the feel of interior plastics, the movements of a hinge. On the vehicles that rank highest — even inexpensive ones — it’s evident that care went into many aspects of the car ordinary drivers might not even notice.

GM didn’t do that on the Cobalt, or on other subpar vehicles that came and went as the automaker descended into bankruptcy. Poor quality obviously became an explosive problem on the Cobalt, but it was evident in other ways before anybody knew of a safety problem. Car buyers who did their research would have known that.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.