• Guest Post From Eric Starkman: The “Unvarnished” Truth About General Motors

    By • Apr 6th, 2014 • Category: Food for Thought, Pure Content

    I was deeply saddened to hear about the latest General Motors scandal. But not too surprised…

    From Reuters on April 1, 2014:

    GM first learned of a problem with its ignition switches on Chevrolet Cobalts, Saturn Ions and other models in 2001, documents have shown, but took no steps to recall any cars until this past February.

    Lawmakers are investigating why GM and regulators missed or ignored numerous red flags that faulty ignition switches could unexpectedly turn off engines during operation and leave airbags, power steering and power brakes inoperable.

    She had few answers for lawmakers wanting to know who made the decision to quietly revise the design of the faulty switch in 2006, and why GM did not take more seriously dozens of reports of keys unintentionally moving to the “off” position, sometimes at high speeds.

    Barra said she will learn more from an internal probe led by Anton “Tony” Valukas, who chairs the law firm Jenner & Block.

    “We will learn from this and we will make changes and we will hold people accountable,” she said.

    Under intense grilling by lawmakers, Barra said she found employee statements “disturbing” that cost considerations may have discouraged the prompt replacement of faulty ignition switches now linked to at least 13 fatalities and the recall of 2.6 million vehicles.

    An earlier report from the New York Times says, “a new review of federal crash data shows that 303 people died after the air bags failed to deploy on two of the models that were recalled last month.”

    One of the most compelling arguments for bailing out GM when it teetered was that to allow GM to go completely out of business would have had a devastating effect on Detroit and the surrounding area. Detroit filed bankruptcy anyway. So much for some positive spillover effect from our tax dollars…

    I’ve written quite a bit about GM, primarily about its financial problems, lawsuits, internal control weaknesses, bankruptcy and its loyal auditor Deloitte. (Deloitte has served as GM’s auditor, in an out of lawsuits and bankruptcy, for almost 100 years.)

    An Update On The GM IPO: The Numbers Don’t Add Up September 11, 2011

    (There are claims that lawmakers squelched calls for investigations of the faulty ignition switch problem sooner for fear it would dampen the results of the governments resale of GM stock it took during the company’s financial crisis bailout.)

    Deloitte, Delphi, and GM: Duped or Duplicitous? November 21, 2010

    GM’s Gigantic IPO: Investors Bet An Old Dog Can Do New Tricks At Forbes, November 18, 2010

    (Defective Delphi parts, ones Delphi claims it warned GM were substandard, play a role in the tragedy.)

    GM’s Audit Flubs: A Video For The Street.com November 10, 2010

    The GM IPO: Are You Buying It? At Forbes, November 4, 2010

    GM Better Off Bankrupt? A Rebuttal From Ron Silberstein March 12, 2009

    GM Better Off Bankrupt? My Opinion March 5, 2009

    Improving Contingency Disclosure? Just Keep Doing The Shuffle August 12, 2008

    Deloitte Settles Delphi For A Pittance December 28, 2007

    The Audit Landscape: 2001-2007 September 26, 2007

    GM and GE – Both Have Poor Internal Controls March 17, 2007

    So, as you read Eric’s essay below, you might ask yourself, “Am I still glad US taxpayers bailed out GM?”

    (Reprinted by permission of Eric Starkman.)

    Back in 1980, I bought what I thought was my dream car. It was an all-wheel, sporty – ok, sporty at the time – front-wheel-drive vehicle called the Chevrolet Citation, which General Motors heavily promoted as “The first Chevy of the 80s” and Motor Trend magazine named its “Car of the Year.” My generation was raised to believe that “What’s good for General Motors is good for America,” so there was also a sense of patriotism and civic duty at play behind my choice…even if I was a Canadian. After all, thanks to the countries’ trade agreements, what was good for America was also good for Canada!

    The Citation was released with great fanfare, but the glory didn’t last. You see, the car was a bit of a deathtrap. There were a host of mechanical issues, most notably a frequent rear brake lock-up that would cause spin-outs in sudden stops or on wet roads.  GM was accused of covering up the problems and the Justice Department charged that the automaker repeatedly lied to government investigators. I still have flashbacks to those terror-filled days when driving on rain-slicked roads.

    When I traded in my Citation, I vowed I’d never again buy a GM car. Call me crazy, but I figured it best not to trust a car company with a demonstrated pattern of willfully selling vehicles that could kill people. GM was also the company behind the Chevrolet Corvair, which consumer advocate Ralph Nader labeled a “One-Car-Accident” in his famous book “Unsafe at Any Speed.”

    Today, the evidence is quickly mounting that my instinctual distrust of GM all these years was very well placed. The company last month recalled 1.6 million Chevrolet Cobalts and other small vehicles because of a potentially fatal ignition switch defect that put hundreds of thousands of owners at considerable crash risk. Numerous crashes and more than a dozen fatalities are being blamed on the defect. The New York Times reports that GM conclusively knew about the defect more than four years ago but continued to take active measures to deny the problem; Automotive News weighed in with a recall-related shady practices story of its own.

    According to the Times, GM had a pattern of intimidating plaintiffs and their attorneys who dared to file wrongful-death lawsuits after a family member had been killed driving a Cobalt. William Jordan, a South Carolina attorney who filed a Cobalt wrongful death suit, said GM threatened to file sanctions and seek attorneys fees if he didn’t withdraw his lawsuit. Intimidation tactics are also part of GM’s tortured history: the company conducted an aggressive campaign of harassment and intimidation against Ralph Nader that ultimately resulted in former GM President James Roche apologizing on behalf of the company before a Senate Committee. (Nader successfully sued for excessive invasion of privacy.)

    Mary Barra, GM’s recently appointed CEO, has said that she doesn’t know why a recall wasn’t ordered, but maintains she is committed to finding out the truth as to what happened. As I read her comment, my mind immediately jumped to the memorable scene in the movie “A Few Good Men,” when a character played by Jack Nicholson is urged to come clean and tell the truth. “You can’t handle the truth!,” the Nicholson character retorted in one of the best scenes in recent cinematic history.  Barra might be wise to heed that message.

    There is evidence that she possibly has. Barra’s retention of two white shoe law firms to conduct an “unvarnished” inquiry certainly doesn’t inspire trust or confidence.  Law firms are well suited to conduct inquiries as to how a company complied with the law, but not to measure prevailing moral and ethical standards that employees are expected to follow. As I’ve written before, many companies allow their attorneys to engage in questionable practices that ultimately hurt their brands and reputation. If Barra truly wanted an unvarnished investigation, she would have appointed a panel of experts from a multitude of disciplines.  James McGrath, a principal at the Cleveland law firm, told the Times the advantage of having a law firm investigate a scandal is that “there is a great incentive to ferret out information so they can spin it.”

    Barra’s selection of the law firms King & Spalding and Jenner & Block to conduct the inquiry is also dubious. King & Spalding has ample reason to “spin” the information it uncovers: it was one of the law firms that GM used to defend against the Cobalt wrongful dismissal suits, so it’s hardly a disinterested party.  Jenner & Block is also involved in a high-profile investigation that some charge is an inherent conflict.

    GM ultimately will survive its latest crisis. Sadly, it seems we have become so inured to government and corporate wrongdoing that such behavior is considered de rigueur, no longer sparking much more than a fleeting moment of outrage. In the absence of such well-overdue and much-needed public outcry – such as the one that emerged after Nader published his book – political leaders and certain broadcast media pundits will inevitably step in and whitewash GM’s latest reported misdeeds, ultimately championing the company as “too big to fail” and one of the nation’s vital “job creators.”  And these apologists will go on maintaining that what’s good for General Motors is good for America – despite the staggering evidence to the contrary.

    Eric Starkman is co-founder of Starkman and its President. His three-decade-plus career in journalism, public relations, and advertising has given him unique perspectives and keen insights on the business challenges these professions face and the opportunities awaiting them in today’s integrated marketing world.

    Eric is actively involved in virtually all of the firm’s accounts and closely monitors all client-related activities. Prior to founding Starkman, he was a senior vice president at The MWW Group, where he oversaw corporate communications and investor relations, and Morgen-Walke Associates, where he was responsible for the firm’s corporate communications practice.

    Prior to entering public relations, Eric was an editor and reporter at major newspapers in the U.S. and Canada, including The Wall Street Journal, American Banker, The Detroit News, The Toronto Star, and The (Montreal) Gazette. Earlier, he worked as a copywriter at W.B. Doner in Michigan. Eric is cited in the acknowledgements of four books written by leading financial journalists. He holds a Master’s degree in Journalism from Boston University and a Bachelor’s degree from Toronto’s York University.

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    3 Responses »

    1. The government became a major investor in GM and had a huge stake in being able to package GM as a new company and sell it to the public. If this scandal came out in 2010 before GM had its IPO, the IPO wouldn’t have occurred and GM probably would have failed. Nobody in the federal government in 2009 and 2010 would have let this information come out. If this had come out in 2009 or 2010 and GM goes down, President Obama probably doesn’t get reelected in 2012.

    2. Usually big companies try to pass off the risk and external costs of their actions to society and taxpayers. This case sounds different. The lack of internal controls is often traced to the top levels of management. They control the company. Enough said.

    3. I see he’s not buying Barra’s old-GM/new-GM dynamic.