Will Bankruptcy Provide Airbag for GM Recall?
I've been slow to write about General Motors Co. 's recall problems, because auto companies do recalls all the time, and most don't amount to much. But this one has risen to the level of at least a moderate corporate emergency: GM now says that the company has known about the problems with its ignition switches -- which contributed to accidents that resulted in the deaths of 12 people over the last decade -- since 2001. The opening of a criminal investigation into GM's handling of the defect is going to severely complicate Chief Executive Officer Mary Barra 's drive to advance the company's turnaround efforts.
The defects themselves aren't such a problem -- 12 deaths over a decade, with millions of cars on the road, is a risk that's statistically indistinguishable from zero. These sorts of problems are inevitable in a complex machine, and the company can be forgiven for the mistake.
The publicity, however, is a disaster. Consumers aren't as forgiving as I am about defects. And they are especially unforgiving when the company knows about a problem and ignores it -- and, worse, when it apparently could have fixed the flaw pretty cheaply. Can the company demonstrate that this was an aberration it's determined to change?
Ironically, the bankruptcy may help them a bit there. In fact, it could help in two ways. The first is that the company is effectively shielded from liability for any accidents that occurred before it emerged from bankruptcy in 2009. So the flood of lawsuits that might have been expected after a revelation like this will be at least partially dammed.
The second is that the bankruptcy draws a mental line, as well as a legal one, between Old GM, with its dubious reputation for quality, and New GM. The CEO title has changed hands multiple times since the financial crisis, and whatever else consumers may think about the bankruptcy, they understand that it was a catastrophic and transformative event in the company's history.
However, the company is at least partially hampered in this by the past of Barra, who was the executive director of vehicle manufacturing engineering before the bankruptcy. Given that, it's going to be hard to simply say, "Well, Old GM didn't care about quality, but now we're different," which would otherwise be the most effective way to handle the crisis.
This is far from a fatal blow: Toyota Motor Corp. survived much worse with all the "unintended acceleration" claims a few years back. However, Toyota went into that crisis with two key advantages: It had a sterling reputation for reliability, and most of the claimed incidents were actually due to driver error, not the fault of the company.
GM, on the other hand, really did do something wrong here. And it has a reputation for building cars of indifferent quality, which it is only beginning to shed. The number of deaths linked to this defect may be small. But the potential impact remains enormous.
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(Megan McArdle writes about economics, business and public policy for Bloomberg View. Follow her on Twitter at @asymmetricinfo.)
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