GM Fiasco Blamed on “Pinching Pennies”

In the past month, more than 1.6 million General Motors’ vehicles have been recalled over an ignition switch defect the company says is behind 12 deaths. The Center for Auto Safety, an advocacy group, estimates that number could be more than 300.

In the decade before General Motors filed for bankruptcy, the company was pressuring supplier Delphi Automotive to pinch pennies.

Delphi was supposed to lower the price of every part to match what people familiar with GM called the “China cost” – a rock-bottom price identified with Chinese labor. If suppliers couldn’t match it, these people said, GM would threaten to out-source production overseas.

The Chevrolet Cobalts and Saturn Ions that are at the center of GM’s recall were the products of cost cutting and squeezing suppliers, as described by five people with knowledge of the automaker’s engineering, management and suppliers.

Maryann Keller has written two books on General Motors. She says, “It was a chaotic situation inside General Motors back then. It was a company suffering from falling margins and desperate to lower costs. So engineers and parts suppliers were under extreme pressure to do whatever they could to take costs out.”

U.S. investigators and regulators want to know what went wrong, who knew about it and why the largest U.S. automaker took so long to mount a recall of models manufactured a decade ago.

A company called Eaton won the right to manufacture ignition switches, according to documents from a wrongful death lawsuit filed against GM. Delphi bought Eaton’s switch division in 2001.

The switch would cost “as little as $2 to $5 to produce,” Delphi’s current chief executive officer said this month, according to a JPMorgan Chase report.

“We’re continuing to cooperate with GM on reaching an expedited solution,” Delphi spokeswoman Claudia Tapia said in an email.

Inside that simple part was a spring loose enough to allow the ignition to switch out of the “on” position when bumped, making it even riskier if a weighted keychain was used, GM has said. The turned key would then shut off the engine and power steering and disable the air bags.

“This was such an insignificant, inexpensive part to begin with, you almost have to scratch your head and say, ‘Well, why didn’t they do something about it?’” Keller said. “But you’re talking about a company that was under mounting pressure to stabilize its finances, which it was not able to do, and was absolutely counting pennies.”

GM’s plan was to develop its Ion, Cobalt and Opel Astra cars from the same mechanical platform, code named Delta, it was reported.  GM’s European operations needed to take the lead in developing the car with Fiat, in which GM had a 20 percent ownership stake in 2000.  They hoped that by teaming with the European’s small car specialists, they could produce a model with more amenities and a ‘racier’ ride and charge a higher price.

Unfortunately, the plan to create a “world compact” failed, so GM put together their Cobalts and Ions with parts collected from other models.

As Brian Bolton, a design manager for Ortech who supplied to GM said, “Suppliers and people in the industry would joke that GM makes design decisions based on three things:  one was cost, two was cost and three was cost.”

GM Chief Executive Officer Mary Barra, on the job for just two months, apologized for the “tragic events”’ that resulted from the faulty switches. Barra pledged to have “the most comprehensive and responsive process in the industry” for investigating safety defects.

That does not help the family of 15-year-old Amy Rademaker who died when the faulty ignition switch shut off on her Chevrolet Cobalt leaving her without power steering, brakes or air bags.

It would seem her family would have a strong lawsuit against General Motors for many millions in damages. However, they will probably never collect in the civil courts, legal experts say, because GM has been absolved of all responsibility for crashes before the automaker’s 2009 bankruptcy and federal bailout.

Amy’s mother believes GM should be liable for Amy’s death, saying, “They lied to everybody; they covered up the problem. They put anybody who bought the car or who—like my daughter—rode in the car, at risk.”

Last week, after learning about federal investigations into GM’s actions, families of victims filed a wrongful death and injury suit against the automaker and documents showing the automaker knew about the ignition switch problem before the bankruptcy. This case hinges on convincing the original bankruptcy judge that the company defrauded the court by withholding information about the safety defect.

Do you think the federal government should pursue criminal charges against GM? Feel free to comment on this blog post. For more information, contact one of our Gacovino Lake attorneys at 1-800-246-HURT (4878).

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