U.S. Treasury Didn’t Know About GM Defect, Advisers Say

The U.S. government had no information about the General Motors Co. (GM) ignition-switch defect that’s been linked to 13 deaths, members of the team that oversaw the automaker’s restructuring said yesterday.

The Treasury Department team that worked to guide Detroit-based GM swiftly through its bankruptcy in 2009 never learned of the safety concern -- and would have had a hard time finding out, even if it had tried, said Harry Wilson, who had been a member of the government’s automotive task force.

“We didn’t know about anything like this,” Wilson, chief executive officer of restructuring adviser Maeva Group LLC, said at a Brookings Institution panel on the auto bailouts yesterday in Washington. “It seems to have been stuck in the mid-level engineering department. These are folks we never even met.”

Remarks yesterday by Wilson and by Steven Rattner are among the first about what the administration of President Barack Obama knew about the safety defect that led to the recall of 2.59 million small cars. GM last week agreed to pay a record $35 million fine as part of the U.S. Transportation Department’s probe into how the company handled the recall, which is still the subject of investigations by Congress and the Justice Department.

“Given how hard it was to get information out of the company at the time, even if we had asked a point-blank question, I doubt we would have gotten a straight answer,” said Wilson.

Lacking Transparency

GM CEO Mary Barra is working to change the culture, leading to increased recalls, which is good for consumer safety, said Rattner, who is now chairman of Willett Advisors.

Before the bankruptcy, he said, the automaker’s culture wasn’t transparent, making it “very plausible” that information about safety concerns and potential liabilities didn’t get shared with top executives or with the task force.

“As best we know, the senior people at GM didn’t know about it,” Rattner said. “They can’t tell you about something they didn’t know. We were not forensic accountants. We were not FBI investigators. We had about 40 days to do all this due diligence. We’re not going to find out about something like that.”

Marchionne Reflects

Speaking at the same event, Sergio Marchionne, CEO of Fiat SpA (F), said Chrysler, which filed for bankruptcy court protection one month before GM did, was in worse condition than he anticipated when he took control of the No. 3 U.S. automaker. Fiat started accumulating Chrysler Group LLC stock in 2009 as part of the task force’s rescue of the U.S. auto industry following the global recession and financial crisis.

“The state of disrepair of the house was such that the manufacturing environment had been neglected for years,” Marchionne said.

Under Fiat, Chrysler Group spent about $8 billion from 2009 to 2013 retooling engine lines, building paint shops and otherwise rejuvenating the infrastructure, Marchionne said yesterday. That investment has paid off. Chrysler has had 49 straight months of sales increases in the U.S. and provided most of Fiat’s income.

The Italian automaker took full ownership of Chrysler in January, and Marchionne plans to combine the two this year into Fiat Chrysler Automobiles NV, with a primary listing in New York and headquarters in London.

Marchionne said if he could do one thing differently, he would have given Chrysler and GM the same post-bankruptcy structure.

“The other guy got guaranteed survival,” he said. “He could not fail. The urgency to change came with the loans. We had to prove our right to exist. That urgency did not exist on the other side. When you’re broke you change your ways a lot faster.”

Process Review

In light of GM’s recall crisis, Chrysler has hired a consultant to examine its process for evaluating if and when to recall vehicles, Marchionne said later in the day at a Brembo SpA (BRE) plant opening in Michigan. It will take a few months to complete that report, he said.

One thing that won’t change is his involvement in deciding about recalls. Executives with profit and loss responsibility are kept out of the recall review and evaluation process to ensure financial factors don’t influence the decision, Marchionne said.

“The likelihood that that would change is between zero and less than zero,” he told reporters.

To contact the reporters on this story: Jeff Plungis in Washington at jplungis@bloomberg.net; Mark Clothier in Southfield, Michigan, at mclothier@bloomberg.net

To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net Romaine Bostick

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