Face of The New GM.

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GM's Cynicism Pays Off in Ignition Settlement

Edward Niedermeyer, an auto-industry analyst, is the co-founder of Daily Kanban and the former editor of the blog The Truth About Cars.
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General Motors has finally settled with the U.S. government over the criminal investigation into flawed auto safety switches that left at least 124 of its customers dead and many more badly injured. In case you think justice has finally been served, think again. From the moment General Motors announced last year that it was recalling defective ignition switches from its cars, it has managed one of the worst auto-safety scandals ever with steely-eyed cynicism. And now the strategy appears to have paid off. 

Barra's first appearance at a congressional hearing, last July, was a display of rhetorical evasion that earned a Saturday Night Live send-up. GM successfully endured subsequent hearings by holding out an "independent" report by a lawyer, Anton Valukas, whose firm has had a business relationship with GM since at least 2010.

Now the company has "accepted accountability" in exchange for a relatively modest $900 million settlement with the Department of Justice. And with one of the worst scandals in automotive history now largely behind it, it's tough to argue that GM's strategy hasn't worked depressingly well.

The most obvious example of the company's success was that it was able to settle with the the government for less than the $1.2 billion Toyota paid for its 2010 "sudden unintended acceleration" scandal.

Toyota's then-record fine was for a supposed defect that still has never been proved or even actually identified.  The "expert witnesses" supporting the alleged victims who testified at congressional hearings gave an explanation that defied basic mechanical logic. Investigations by the National Highway Traffic Safety Administration and NASA's Engineering and Safety Center ultimately found that the vast majority of the problems had been largely caused by "pedal misapplication" -- that is, drivers hitting the accelerator when they meant to brake. The most concrete failing by the company was that it was slow to try address a situation whose alleged cause rotated between sticky pedals, moving floor mats and a wide variety of even less-plausible threats.

In short, Toyota paid more in federal fines for dragging its heels on an imaginary problem than GM did for a defect its testers first noticed in 2004 and which has killed or injured 398 people by the firm's own admission. 

GM's favorable treatment is being justified by prosecutors on the strength of its "extraordinary cooperation" with their investigation. What's not clear is what GM actually did to cooperate, besides sharing the results of the Valukas investigation, the accuracy of which has been called into question by New York Times reporting and Senator Richard Blumenthal of Connecticut, who called it "the best report money could buy." 

As Barra explained it in a tweet on Thursday, "the Valukas report was reviewed by the AG and the fact that we dealt with issues in a compassionate way was a good step." I am not a lawyer, but hiring one of your own to investigate your lethal negligence seems more like retaining a defense attorney than cooperating with prosecutors. GM has successfully fought to conceal all of Valukas's notes on his investigation, even as lawyers representing GM victims  pursue "crime-fraud" exceptions to attorney-client privilege.

Not that any of this has stopped Barra from claiming that transparency, accountability and "culture change" are the order of the day at The New GM. Not only is it "complying with all laws," according to Barra, "GM is a different company" as a result of the scandal. Leaving aside the fact that every GM CEO has uttered some variation of those words since the 1970s, Barra's claim of transformation stands at odds with this summer's revelation that the NHTSA had to force GM to recall Hummer SUVs over fire risk, and that similar fires have been reported in still-unrecalled trucks. Additionally, about 40 percent of the defective ignition switches were still unrepaired as of April of this year, and several GM dealers have been caught selling unrepaired recalled vehicles. Barra's culture change has turned out to be exactly as much as you'd expect from someone who has never worked outside of General Motors.

As for accountability, GM's top managers are now compensated based in part on a metric which takes recall-related costs out of the firm's performance, meaning their bonuses are being calculated as if the scandal had never happened. If that's Barra's version of accountability, it's no wonder a Harris poll this year found that GM was the second-most-hated company in America, behind Goldman Sachs.

Having rewarded GM's decades of mismanagement with a bailout, the government has now responded to its lethal negligence with an astounding lack of consequences. Once upon a time, GM was a symbol of American pride. Now, after decades of market-share loss, a public bailout, and a dishonest PR campaign to avoid the consequences of the ignition-switch episode, GM is unmistakably a symbol of American decline.  

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Edward Niedermeyer at edward.niedermeyer@gmail.com

To contact the editor responsible for this story:
Tobin Harshaw at tharshaw@bloomberg.net