GM's challenge: 'Reassure the world'

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General Motors could face a decade of lawsuits and regulatory headaches over its delayed U.S. recall of 1.37 million vehicles with suspected faulty ignition switches.

But GM CEO Mary Barra’s more urgent challenge will be convincing the public that her company is taking responsibility for the problem, said Richard Torrenzano, a reputation and crisis-control consultant.

At stake is GM’s refreshed post-bankruptcy image as a carmaker with a new sensitivity to its customers, Torrenzano and other outside industry experts say.

The image had been cultivated by Barra herself before she took over as CEO two months ago. And she is spearheading an internal review to provide "an unvarnished report” of what happened in the years leading up to last month's recall of the Chevrolet Cobalt, Saturn Ion and four other nameplates to replace ignition switches that can be jostled out of position, cutting off power to the engine and airbags.

External matters

“Barra is taking all the right steps to deal with this issue internally at the corporation -- but not externally yet,” says Torrenzano, CEO of the Torrenzano Group in New York, who has no ties to the issue. Only “saying she didn’t know about this isn’t going to fly. She needs to be completely transparent on who knew what, when they knew it, and what prevented the problem from being addressed.

“Corporate legal departments hate that sort of transparency. But GM needs to face facts. There will be no getting around the disciplinary and financial repercussions that GM and some of its executives are going to face from this,” he added.

“GM’s investors, market analysts, people who own unaffected GM cars and people who are future customers all want to know what went wrong and who is to blame.”

The recall covers 2003-07 models. The problem has been blamed for at least 12 deaths and 31 frontal crashes in which airbags did not deploy.

A key issue is whether GM executives knew of the safety issue and failed to act. Documents released Wednesday by the National Highway Traffic Safety Administration show that GM engineers noted the flaw in a preproduction Saturn Ion in 2001, three years before the first sign of a defect disclosed previously.

Other outside commentators agree that as costly as GM’s legal fallout will be, saving its reputation is a more immediate concern just five years after its U.S. government bailout and emergence from bankruptcy as the new GM.

Most of the deaths that GM has linked to defective switches covered by the recall occurred before the July 2009 bankruptcy exit. The terms of GM’s bankruptcy shield it from liability for crashes that occurred before that date.

While that means GM could face no additional legal exposure related to the deaths it is aware of currently, the company has said its principle throughout the process will be to put the customer first.

‘The world is watching’

“The world is watching to see if GM’s culture has really changed from the old days,” says Jim Olson, executive professor of management at Winthrop University in Rock Hill, S.C., and formerly the senior executive in charge of Toyota’s U.S. public affairs.

“I teach my students that you have to embrace problems to learn from them -- not try to bury them. The old GM would have tried to distance itself from this crisis.

“But there is opportunity there for GM,” he says. “It’s a chance to demonstrate to the public who they are now -- a company that handles these problems better than in the past.”

Olson, who assigns his graduate students a research study specifically on GM each semester, guided Toyota through a number of public image crises in the 1980s and 1990s, including government investigations into whether Toyota was involved in unfair trade practices.

He retired from the company in December 2003, well before its biggest crisis: the recall of more than 10 million cars worldwide after complaints of unintended acceleration starting in 2009.

That crisis is still being resolved. Toyota currently is negotiating a $1 billion settlement of a U.S. criminal investigation of the matter, according to press reports. Last year Toyota agreed to pay $1.6 billion to settle hundreds of class-action and individual consumer lawsuits arising from the trouble.

Olson and others say GM must make it evident that the company is genuinely remorseful about any mistakes it has made. GM took a step in that direction when the recall widened to 1.6 million vehicles globally in late February.

“We are deeply sorry, and we are working to address this issue as quickly as we can,” said Alan Batey, president of GM North America.

Responsible mea culpa

New York product liability lawyer Susan Dwyer called the apology a responsible act of mea culpa. But she also said GM should say no more until its internal investigation is complete.

“They’ve essentially said they are responsible,” says Dwyer, a partner in litigation at Herrick, Feinstein LLP who spent years representing Bridgestone against lawsuits after the mammoth Ford Explorer-Firestone tire recall of 2000.

“That apology already exposes the company to millions of dollars of potential liability for violation of the TREAD Act.”

The TREAD Act of 2000, which resulted directly from the Ford-Firestone case, requires auto companies to immediately report knowledge of safety problems to the National Highway Traffic Safety Administration or face criminal prosecution.

“It’s a very damaging statement for the company. But it couldn’t be more responsible for the company, and the public should see it that way.”

On Wednesday, GM also said it would offer any concerned owners $500 in bonus cash toward the purchase of a new GM vehicle.

Journalist and author William Holstein says GM is taking the right steps to resolve the crisis. He sees that as evidence that the automaker has a new approach to customer relations.

“Considering everything GM has been through in the past five years, the changes in management and the restructuring, you could see something like this getting lost in the cracks” says Holstein, whose 2009 book, Why GM Matters, made an argument for saving the biggest U.S. automaker.

“But Mary Barra can’t make excuses,” he said. “They have to get to the bottom of this to reassure the world.”

You can reach Lindsay Chappell at lchappell@crain.com.

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