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GM Report Confirms Barra Didn't Know of Fatal Flaw Prior to Recall

June 5 (Bloomberg) -- Mary Barra, chief executive officer of General Motors Co., speaks about the findings of the automaker's internal investigation into delays around the recall of 2.59 million small cars linked to at least 13 deaths and actions being taken by the company. She speaks at an employee town hall meeting at GM's technical center in suburban Detroit. (Video courtesy of General Motors Co. Source: Bloomberg)

General Motors Co. (GM) blamed bureaucratic delays and a culture of incompetence for the botched handling of auto-safety complaints, and Chief Executive Officer Mary Barra ousted 15 employees for their roles in mishandling the recall of millions of fatally flawed vehicles.

Barra announced the dismissals after the company released the results of an internal investigation into why it took GM more than a decade to identify problems with a defective ignition switch linked to 13 deaths. The probe, led by lawyer Anton Valukas, blamed a lack of urgency in the engineering and legal departments but didn’t reveal any conspiracy to cover up facts. Barra herself was held blameless.

“This should have never happened,” Barra told about 1,000 employees at GM’s technical center in suburban Detroit. “It is simply unacceptable.”

The report marks a pivotal moment in Barra’s efforts to change the automaker’s culture after the biggest legal and public-relations challenge since its government-backed bankruptcy in 2009. Still, Congress and the Justice Department continue to investigate GM, and some critics asked whether the Valukas report -- commissioned and paid for by the company -- is sufficiently impartial because it spared the top leadership.

Source: General Motors, Steve Fecht

General Motors Co. Chief Executive Officer Mary Barra speaks during an employee town hall meeting to reveal the findings of the company’s internal investigation into delays around the recall of 2.59 million small cars linked to at least 13 deaths is being telecast to all of the company’s operations around the world, including factories. Close

General Motors Co. Chief Executive Officer Mary Barra speaks during an employee town... Read More

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Source: General Motors, Steve Fecht

General Motors Co. Chief Executive Officer Mary Barra speaks during an employee town hall meeting to reveal the findings of the company’s internal investigation into delays around the recall of 2.59 million small cars linked to at least 13 deaths is being telecast to all of the company’s operations around the world, including factories.

“I won’t be letting GM leadership, or federal regulators, escape accountability for these tragedies,” said Senator Claire McCaskill, who presided over an April 2 hearing in which Barra declined to answer many specific questions about what happened because the Valukas report wasn’t complete. “The families of those affected deserve no less.”

More Hearings

A follow-up hearing will address unanswered questions later this summer, the Missouri Democrat said.

“I’m going to reserve judgment until I can take a closer look at the report -- which I expect to find comprehensive and thorough -- and I’m looking forward to getting a full briefing from Mr. Valukas,” she said.

Representative Fred Upton, a Michigan Republican, said he plans to hold another hearing, too.

GM’s crisis erupted in February with the recall of some vehicles no longer sold, including the Chevrolet Cobalt, that have a defective ignition switch that could be jarred into the “accessory” position, disabling power steering and preventing air bags from deploying.

The National Highway Traffic Safety Administration has already fined GM $35 million, the maximum allowed, after finding systemic problems throughout the organization dealing with the recall. GM has already agreed with NHTSA to wide-ranging changes to how it reviews safety issues and decides on recalls.

Photographer: Mark Wilson/Getty Images

General Motors Company CEO Mary Barra speaks to the media after testifying during a House Energy and Commerce Committee hearing on Capitol Hill, on April 1, 2014 in Washington, DC. Close

General Motors Company CEO Mary Barra speaks to the media after testifying during a... Read More

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Photographer: Mark Wilson/Getty Images

General Motors Company CEO Mary Barra speaks to the media after testifying during a House Energy and Commerce Committee hearing on Capitol Hill, on April 1, 2014 in Washington, DC.

Barra Cleared

GM’s investigation confirmed Barra’s previous claims that she was previously unaware of the flawed switch. It also cleared GM’s top lawyer, Michael Millikin. Ray DeGiorgio, the engineer in charge of the flawed part, and Gary Altman, a program engineering manager, were ousted, said a person familiar with the matter. Bill Kemp, GM’s top lawyer on recalls, was also dismissed, said another person.

Barra also announced a compensation program for victims and their families to be administered by Kenneth Feinberg, who ran similar funds for victims of the Sept. 11 terrorist attacks and the 2010 BP oil spill. GM expects the program to cover the almost 2.6 million vehicles recalled with a potentially defective ignition switch. The program will begin accepting claims on Aug. 1, the company said.

A quick resolution will allow Barra and her team to capitalize on rebounding profits and the strongest industrywide sales since the collapse of Lehman Brothers. GM slipped 0.7 percent to $36.27 at the close in New York. The shares slid 11 percent this year.

‘Deeply Troubling’

Valukas’ team interviewed more than 230 witnesses and collected more than 41 million documents. The volume of data was estimated at 23 terabytes, the report said.

The report found that GM selected a switch that was below the company’s specification and that subsequent engineers tasked with fixing the problem didn’t understand the most fundamental consequences of the failure. It also details numerous missed opportunities over the years to address the issue.

“From beginning to end, the story of the Cobalt is one of numerous failures leading to tragic results for many,” the Valukas report said. “Throughout the entire 11-year odyssey, there was no demonstrated sense of urgency, right to the very end. The officials overseeing the potential fixes and investigations did not set timetables, and did not demand action.”

December Delay

The report even noted that in December last year, GM’s recall committee deferred a decision to recall vehicles for another six weeks in order to gather more information “in part because the presentation provided to them failed to alert them to fatalities.”

Outside attorneys warned the automaker as early as 2011 that failing to recall Cobalts could become a large liability, the report said.

Barra said it was “enormously painful to have our shortcomings laid out so vividly” in the Valukas report. Senator Richard Blumenthal, however, called Valukas’s findings “the best report money can buy” and said it “absolves upper management, denies deliberate wrongdoing and dismisses corporate culpability.”

Lance Cooper, a lawyer for crash victims, said the report can help draw out more details in civil cases.

“It was disappointing that the emphasis in the remarks was, this was a case of incompetence and neglect, this was negligence on the part of company employees, but then highlighting the fact that she says there was no evidence of a trade-off in safety and cost.”

Unusual Moves

The Valukas report couldn’t rule out the effect of the company’s cost-cutting in early 2000s as the automaker headed toward eventual bankruptcy. While the investigation found no evidence that any employee made an “explicit trade-off between safety and cost,” the investigators couldn’t conclude that the atmosphere of cost cutting didn’t play a role. “When belts are tightened, most functions are impacted in some way and we cannot assume that safety was immune,” the report said.

DeGiorgio, for example, held a position that was given added responsibilities to decrease engineering headcount, the report said.

“Witnesses stated that the reduction in force created a difficult environment in which people were overworked and the quality of work suffered.”

Barra noted throughout the day that the report didn’t find evidence that employees made a trade-off between cost and safety.

Crisis History

In February, GM recalled 778,562 Chevrolet Cobalt and Pontiac G5 sedans in North America. GM subsequently expanded its recalls to the Saturn Ion and other models, covering 2.59 million small cars, including almost a million that were assembled with a better switch that could’ve been replaced with faulty ones. The company had linked 13 deaths and 47 crashes to the issue as recently as May 24. The Valukas report increased the crash total to 54.

The recalls came less than a year after GM settled a wrongful death lawsuit with the family of 29-year-old Brooke Melton, who died in 2010 when her 2005 Chevy Cobalt lost power in a crash linked to the defective switch. The lawsuit revealed that the faulty part had been changed at some point without the part number being changed.

Records released in April by the House panel investigating GM show that DeGiorgio signed off on changing the ignition switch in 2006 and didn’t change its part number, effectively hiding the change and making it harder for future engineers to pinpoint the problem.

Defending Car

The Valukas investigation found that GM lawyer Kemp had worked to blunt a report of an upcoming Cleveland Plain Dealer story in 2005 about the Chevrolet Cobalt stalling, suggesting they give the columnist a videotape demonstrating the remoteness of the risk of it occurring. Another lawyer responded that she wasn’t optimistic they could come up with something compelling.

“We can’t stand hearing, after the article is published, that we didn’t do enough to defend a brand new launch,” Kemp wrote in an e-mail timed 5:18 a.m. on June 23, 2005.

The investigation also found that former CEO Rick Wagoner may have viewed a presentation that included a description of stalling issues with the Cobalt about three weeks before he was ousted by President Barack Obama’s automotive task force. The slide Wagoner may have seen focused exclusively on warranty costs and didn’t characterize the matter as a safety issue, the report said.

GM, which has already announced about $1.7 billion in charges this year tied to recalls, today said it may see further related costs this quarter. The charges, which could be material, will be “unknown until we have completed our work,” according to slides posted on the automaker’s website.

Senator Jay Rockefeller, the West Virginia Democrat, expressed admiration that Barra fired 15 people.

“Not just one or two people, but 15,” he said. “She had to reach down into it.”

To contact the reporters on this story: Tim Higgins in Warren, Michigan, at thiggins21@bloomberg.net; Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net; Jeff Plungis in Washington at jplungis@bloomberg.net

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

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