The GM recall: Ignition switches, big money

By Rod Meloni - Reporter, CFP ®

DETROIT - The GM ignition switch recall has Washington, D.C. frothing at the mouth, ready to jump on the company it controversially just paid out and lost billions reviving from receivership.

There, it's all about the power and how to wield it. The National Highway Traffic Safety Administration is under fire, too, for not picking up on what was happening in the now out-of-production GM cars that were stalling out. People were dying [a dozen is the current number] when their airbags failed to deploy after the key slipped from the run to off position. NHTSA depended on GM to make that connection and because it did not, NHTSA did not either.

There is your recall in a nutshell and there's your hot headline that's gone non-stop for a week now. NHTSA has long been a whipping boy for Congress because it is the agency that can put the most pressure on the car companies, and Congress and the auto industry have had a love-hate relationship for a century. Senators love having auto plants in their districts, those who don't hate the car companies, because they are big and powerful and in the decades prior to the 70s pretty much called the tune on what they would and would not do. Now that the car companies aren't so lofty because of foreign competition and poor management, Congress is happy to repay the old favors and apply the maximum pressure at any possible turn. Yet for all of the frothy sound bites, the breathless questions of the transportation secretary at hearings today, this is just political theatre. What's really playing out here in flyover country is something entirely different: big money.

View: GM report

One of the oft repeated questions in the GM ignition switch recall is whether GM is the new company or the old. Does its handling of this reflect the Rick Wagoner GM that went into "quick rinse" bankruptcy, or the modern era, forward-looking Mary Barra GM? While these small cars with balky ignition switches made by supplier Delphi were manufactured under Wagoner's tenure and Mary Barra is left cleaning up after the elephants on this one, the question may prove unfair. Ultimately this is all about product liability; as in civil trial lawyers looking for big paydays from a company making big profits. Should the companies use the similar bare knuckle defense against the onslaught of civil suits, the car companies are put in very tough spot. If they deserve the scorn these lawyers heap on them then they should have to pay. But what if they don't?

More: Detroit PR firm: GM has to act fast

The resulting publicity is devastating. There is an entire industry built around going after car companies for product problems. The lawyers have little trouble convincing juries to give clients multi-million dollar awards as they show gnarled, often blood stained vehicles next to pictures of the smiling deceased next to them. This is emotional stuff and juries often are left thinking while sitting in a jury box "there but for the grace of God go I." The car companies are cast as villains who deliberately put their customers' lives in jeopardy in order to make the quick buck.

But let's look at this as the car companies do. In the GM case the universe of vehicles is a million and a half. The original complaints about this problem numbered 260. The quick math on that shows a miniscule .0002 per cent of vehicles with problems. This is exceptionally delicate business though. There were 31 accidents [so far] attributed to this recall which is .00002 per cent of the total population.

Then there is the big kahuna: the deaths. The cold-hearted math says that is .000008 of the population. When the car companies start looking at accidents with their vehicles they usually know within a couple of weeks what cars were involved, what the problems were, where the fatalities were and then send entire teams out to investigate whether the company is at all at fault or more importantly liable. The findings are then brought to a committee whose decision it is whether to spend millions of dollars on a recall.

To make the case there needs to be a large enough problem and in the end a significant reason to give the green light. Because there is no way to put a price on a fatality, making a decision not to allow a recall looks very bad in retrospect. So what happens, as appears to have happened in this case, is car companies are loath to be forthcoming about much of anything or explain the intricacies of how these kinds of difficult cost benefit analyses and decisions get made.

The car companies and I do mean all of them -- stall as much as humanly possible because there is so much money and reputation at stake. They put their high-priced attorneys up against the other high priced attorneys and do everything they can to prevent lawsuits from getting out of hand or letting the figurative genie out of the bottle. Ask Toyota about its sticky gas pedals, ask Ford about the Bridgestone/Firestone tire problems. They know there is no way to look good with people dying in any numbers and there is no way to keep the lid on the runaway legal costs and litigation expenses that can come from situations like this one. More frustrating to the car companies is the very unseemly yet real question of whether a fatal crash was the vehicle's or the driver's fault. They often settle lawsuits and demand confidentiality agreements to that end. This is the old way of doing business and it is the current way of doing business. Product liability is all around us and it is entirely about the money, period!

NHTSA is not an especially well-known bureaucracy nationwide. It has a website to take complaints of car and truck owners and their myriad issues, but it doesn't receive that many. It therefore is dependent on the litigation-shy car companies to give its engineers the documents on these kinds of problems so they can look to see whether the companies are doing right by their customers. Squaring that circle is difficult when the regulators want to know but the car companies understand that legions of liability attorneys are combing this information looking for any opening. Thus the car companies are reluctant to give up a lot of their internal information without a fight, good, bad or indifferent.

The final chapter in this GM ignition switch recall is far from written. All of the cars are out of production; two of the three nameplates involved are history as a result of GM's bankruptcy. Most of the accidents happened before 2009 so the conventional wisdom is the new GM is not liable for any claims or lawsuits that happened before then. But it is entirely possible accidents happened after 2009.

Thus, GM is reluctant to help out lawyers in any litigation with its own documents. The questions Mary Bara is wrestling with now are how much do you release without imperiling the company, how do you take care of old customers you would certainly like to keep around? How do you stop the negative PR machine and how do you keep the company from looking like heartless bastards?

As of tonight, there seems little doubt GM will not escape an expensive fine here. In the Senate hearing today with Secretary Foxx the $35 million dollar number came up, that's the new fine congress set for automakers that don't pony up sufficient information in a timely fashion.

What's more, the Department of Justice is looking at GM now, just as it did with the Toyota sticky accelerator/sudden acceleration case. In my work on this story it came through sources Toyota is looking at the potential of a billion dollar fine. Mary Barra's ultimate question then is whether she can somehow stave off that kind penalty.

As the old saying goes heavy is the head that wears the crown! Heavy is the heart of the loved ones of those who perished because of a five dollar ignition switch.

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