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GM’s image problem worsens

Rick Newman
Senior Columnist
Daily Ticker

“We will be fully transparent,” General Motors (GM) CEO Mary Barra promised when she testified before Congress in early April. She might have added—just not yet.

GM’s recall woes have now worsened, with the government’s auto-safety regulator blasting the company for stonewalling in its response to 107 questions the government asked about the 2.6 million vehicles GM has recalled for faulty ignition switches. GM says the problem has been linked to at least 13 deaths. The biggest question is why GM waited so long to recall the vehicles, given that it knew of the problem at least a decade ago. Given GM’s incomplete answers, the government is fining the automaker $7,000 a day indefinitely, and the Justice Dept. could end up pressing criminal charges.

There’s a bit of predictable role-playing going on in the public standoff between GM and the government. The National Highway Traffic Safety Administration has come under criticism itself for doing nothing to force GM to recall the dangerous cars, even though it had some information indicating a problem. Many recalls involve some sort of behind-the-scenes negotiating between automakers and safety regulators.

The ignition problem is now different because it quickly snowballed into a major safety scandal involving deaths and injuries, and there’s also the powerful odor of a coverup somewhere along the way. So NHTSA is now flexing its muscles in an effort to show the public—plus its Congressional overseers—that it’s on the case.

Those muscles aren’t all that beefy. The $7,000-per-day fine—the biggest allowed under NHTSA’s rules—is so tiny that if it went on for 10 years, it would still amount to less than 1% of GM’s 2013 profit. Criminal charges, should the Justice Dept. pursue them, would be a much bigger problem. The bad publicity is also troubling for GM, since the image of a corporate bully that is [re] emerging could quickly undo the good will GM has struggled to build with taxpayers since its 2009 bankruptcy filing and government bailout.

Related: Mary Barra’s strong leadership will lead GM beyond recall drama 

There’s reason to expect GM to become more cooperative, on account of two unusual steps it has taken. First, it hired an outside law firm to investigate what happened and produce a thorough report. As long as GM makes that report public and there’s no obvious whitewashing, that ought to answer a lot of the questions GM has been dodging. The thorniest issue may be fingering executives responsible for averting a recall around 2006 or 2007, which GM seems extremely reluctant to do.

Second, GM has retained victim-compensation expert Ken Feinberg to assess how it ought to deal with victims of crashes in faulty cars, and their families. Feinberg has generally helped broker outcomes that seem fair in other corporate controversies, and he could help repair GM’s image. All of this could easily take a couple of months, however, and until then GM and NHTSA will probably keep growling at each other.

One modest break for GM has been a huge recall by Toyota, which serves as a reminder that GM isn’t the only automaker trying to fix widespread problems. Toyota has recalled 27 different models totaling 6.4 million vehicles worldwide, including 2.3 million cars in North America. Toyota hasn’t provided a complete breakdown of which models are affected, but the recall will involve some model years of the RAV4 crossover, Highlander SUV and Corolla compact, among others. Toyota says the problems involve 5 different components and aren’t an urgent safety issue. Owners of the vehicles in question should simply do what Toyota recommends, which for the most part will involve taking the car to a dealer for a free fix once a recall notice arrives in the mail.

Auto recalls happen all the time, but there have been more of them in recent years as tracking methods have gotten better and automakers have become more diligent about long-term quality. Automakers have also become more efficient by spreading similar parts across many different models, which cuts costs—but can also lead to more expansive recalls, if a universally used part turns out to be defective. That may be part of the reason the Toyota recall is so large. Before long, dealing with a recall could become a routine rite of passage for car buyers.

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