Why Didn't General Motors Company Just Fix the Switches?
Unless you've been living under a rock for the past few weeks, you're surely familiar with the basic outline of the story behind General Motors recall debacle.
To recap: Over the last two months, GM has recalled over 2 million vehicles for a faulty ignition switch that's being blamed for 13 deaths. Most of those vehicles were made last decade -- in fact, GM fixed the switch design in 2007.
But for some reason, GM never recalled the affected vehicles until now -- even though some people within GM knew the switch was a problem, and had apparently known for years, possibly since 2001.
So, here's the question everyone has been asking me all week: Why the heck didn't GM just fix the switches at the time?
When $0.90 a car was a big, big deal
The real answer is that we don't yet know for sure.
But here's a very educated guess: It's because switches that worked properly were more expensive, and "more expensive" was a no-no at Old GM.
Reuters reported on Wednesday that it had obtained a series of internal GM emails from 2005 in which it was said that a change to the switch design to address the issue would have cost an additional $0.90 per vehicle and added $400,000 to tooling costs.
That's a devastating report. In the context of the hundreds of millions of dollars that GM routinely spends to develop and produce new vehicles, it's a trivial cost.
But it's understandable -- somewhat -- in the context of GM's culture and priorities at the time, in which keeping costs (even little costs) down was absolutely paramount. (To be very clear, it's not excusable. But it is somewhat understandable.)
Pre-bankruptcy GM -- Old GM -- was at a huge disadvantage to many rivals. High "legacy costs" -- rich union contracts, underutilized factories -- meant that GM felt it had to spend less per vehicle than rivals such as Toyota and Honda.
That pressure led to vehicles (especially smaller cars) that weren't fully competitive with the best from the Japanese brands. That, in turn, meant GM had to offer them at lower prices, and that, in turn, gave GM less to spend on the next generation of cars, and so on. Keeping costs down was of paramount importance.
Long story short, adding $0.90 to the cost of a compact car like the Chevy Cobalt -- where profit margins were likely razor thin, if in fact GM was making any money at all -- was probably a very big deal.
For somebody in the middle levels of GM's bureaucracy, it might have even been a career-limiting move.
Of course, those somebodies had no idea their decisions would lead to deaths and would put the company in a ton of hot water a decade later.
That wouldn't fly at most of GM's rivals nowadays
Nowadays, at most automakers, the parts of the company that decide whether to issue a safety recall are deliberately kept separate from the parts that make decisions about cost and pricing.
Fiat Chrysler Sergio Marchionne recently told Bloomberg that the company's recall committee includes members from the engineering, safety, and legal departments.
He said senior executives aren't told about recalls until they're issued -- and that's the way he wants it. Ford and BMW have similar processes, Bloombergreported.
From what Mary Barra and other GM executives have said recently, it sounds like GM now follows a similar process as well.
But apparently, that wasn't true nine years ago -- and that's probably why GM didn't fix the switches before it was too late.
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The article Why Didn't General Motors Company Just Fix the Switches? originally appeared on Fool.com.John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends BMW, Ford, and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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