GM’s Missed Opportunity
General Motors has had it rough lately. The company that gave birth to the Corvette has recently emerged from bankruptcy and is now facing massive recalls over cars that can shut off unexpectedly. It is hard to feel bad for GM, or its new CEO, Mary Barra, when the company failed to correct a problem it knew about since the early 2000’s. The company’s problems stem from something more endemic than technical glitches: valuing legal liability over reputational liability. Recalls are crises with opportunity, where brands can become human and ask for forgiveness. Sadly, GM has missed the opportunity part and is only showing us why we they are not deserving of forgiveness yet.
Car recalls happen. Modern cars are complicated machines with hundreds of thousands of parts made all across the globe. Every retailer selling cars in the U.S. has faced recalls covering all manner of parts and problems. Car companies have become famous—and infamous—for recalls in the past. When Toyota launched the luxury brand, Lexus, in 1989, the company faced issues with defective wiring. Toyota sent technicians to pick up, repair and return customers cars, even going so far as to fly technicians to remote areas and rent garage space. This was the Lexus way of providing premium service. Even though few Lexus cars were on the road at the time, the stories surrounding the recall cemented the brand in the American psyche as a sign of luxury.
In contrast, we have GM’s recall. As of this writing, the recall has not been made mandatory by a judge and is still only voluntary. That said, GM CEO Mary Barra has reportedly said she would only trust her daughter to drive one of the vehicles affected if her daughter had no other keys on her key ring. The call is perhaps best summed up by Comedian Jon Stewart, as seen in the video below.
The recall over a 57-cent part was never issued because of cost and the lack of “an acceptable business case” for doing so. GM acknowledges the defect has likely killed 13 people. The company was aware of the issue in 2004, when engineers examined the ignition switches for possible defects. In 2006, a technical service bulletin was sent to dealers detailing the defect. Rather than fix the problem, the company merely advised people to remove other keys and heavy objects from key rings.
The issue here is a classic: there is often an acceptable level of risk, usually based on the average cost to settle wrongful death lawsuits, that determines how many crashes or fatalities are required before it makes financial sense to issue a recall. This is a callous business calculation that fails to take into account reputational risk for the brand.
For GM, we can expect to see full lots of cars without many customers for the next few years as word grows about the history behind the recall. More than ten years’ worth of cars being recalled after a black eye from a government bailout from bankruptcy has torn and tarnished the once valiant brand. General Motors is trying to emerge from a dark and frightful past only to see it reemerge and drag the company back down. This is the last thing GM needed.
GM had a grand opportunity to do the right thing eight years ago and fix a problem. The company could have fixed the part, voluntarily issued a massive recall, taken the hit to the reputation and worked tirelessly to provide exceptional service for any future recalls. The problem didn’t get better with age and now it threatens to reduce demand for a company that just emerged from bankruptcy. The legal risk of a recall was always high, but the reputational risk only increased over time. At the end of the day, the accountants in Detroit may finally recognize the hit to the brand is worse than the costs of the recall. It is time we see the new GM, or there won’t be a reputation for the company to stand on going forward.