A car company builds a car knowing that there is a defect in the design and parts of the car, but after calculating the cost of fixing the problem, the company decides it is more cost efficient to have the defective cars on the road than to recall the cars to have the problem fixed. The year is 1971 and the car was the Ford Pinto. (A vignette describing the Ford Pinto case can be found at the end of Chapter 10.) Fast-forward 30 years: General Motors (GM) discovered a flaw in an ignition switch part when testing its cars, but it waited 13 years before it started recalling the cars.

The Recall Starts

On February 13, 2014, GM announced that it was recalling 778,000 model year 2007 Pontiac GT and model years 2005 to 2007 Chevrolet Cobalt cars for ignition switch problems. The flaw in the ignition switch was that either a heavy key ring or a “jarring event” could cause the ignition to switch from the “on” to the “accessory” position, which cut off power in the car and prevented the air bags from deploying. GM stated it knew of five crashes in which six people died due to this faulty ignition switch. GM released a statement saying, “All of these crashes occurred off-road and at high speeds, where the probability of serious or fatal injuries was high regardless of air bag deployment. In addition, failure to wear seat belts and alcohol use were factors in some of these cases.”1 Less than two weeks later, on February 25, 2014, GM expanded the recall to include 1.6 million cars after consumers had complained that the initial recall was not comprehensive enough. GM increased the recall to include Saturn Ions with model years from 2003 to 2007, Chevrolet HHRs for model years 2006 and 2007, and Pontiac Solstice and Saturn Sky vehicles for model years 2006 and 2007.

GM North American president Alan Batey apologized by saying, “We are deeply sorry and we are working to address this issue as quickly as we can.” GM advised consumers whose vehicle had been recalled to use a single key on their key chain when operating the vehicle. In a report filed by GM to the National Highway Traffic Safety Administration on February 24, 2014, GM admitted that GM employees knew about the flawed ignition switch in 2004. In 2003, a GM engineer had recommended a redesign of the key head from a slot to a hole, which would have potentially eliminated the problem of the ignition switching off. The proposal was initially accepted by GM but was later cancelled without any reason given. In December 2005, GM issued a notice to dealers informing them that the ignition could switch off if the key ring was too heavy. In April 2006, a GM engineer who was responsible for the ignition switch approved changes to the ignition switch part, and in 2007, the part was changed. In 2009, the recommendation was made again to change the ignition design from a slot to a hole, and it was implemented for the 2010 model year. GM North American president Alan Batey also stated, The chronology shows that the process employed to examine this phenomenon was not as robust as it should have been . . . Today’s GM is committed to doing business differently and better. We will take an unflinching look at what happened and apply lessons learned here to improve going forward.

The Story Starts to Unravel

As stated in a deposition by a GM employee, GM had “repurchased vehicles from owners who had complained about the vehicle stalling or losing power.” One customer had her 2005 Chevy Cobalt repurchased with only 600 miles on the vehicle. A team of high level executives was created in 2011 to investigate the ignition switch issue.3 In November 2004, GM engineers were investigating the ignition switch problem, but in March 2005, the Cobalt project manager ordered the investigation to be closed because the “lead time for all solutions is too long . . . the tooling cost and piece price are too high . . . (and none of the solutions) represents an acceptable business case.”4 A 2005 memo stated that redesigning the faulty ignition switch would cost 90 cents per car and would return only 10 to 15 cents in warranty cost savings.5 On March 12, 2014, GM revealed that it knew of the faulty ignition switches as far back as 2001. GM also announced that the replacement part would cost between $2 and $5 per car and take only a few minutes to install. By March 12, 2014, 12 fatalities has been linked to the faulty ignition switch. In response to the latest information on the recall, GM spokesman Greg Martin announced, In keeping with our commitment to help customers involved in this recall, a special $500 cash allowance is available to purchase or lease a new GM vehicle. . . . We have been very clear in our message to dealers that this allowance is not a sales tool and it is only to be used to help customers in need of assistance. Neither GM, nor its dealers will market or solicit owners using this allowance.

The program engineering manager for the 2005 Cobalt, Gary Altman, stated that GM engineering knew about the ignition switch problem but that the vehicles could coast safely to the side of the road if the vehicle lost power. In a June 2013 deposition, Gary Altman stated, “We’ve sold vehicles for many, many years without power assist and the car was maneuverable and controllable. . . . We’ve been through that several times, in fact, during this investigation looking at the car to make sure it still could be controlled.” In addition, Ray DeGiorgio, who was the project engineer for the Cobalt ignition switch, said that he was not aware of any problems with the ignition switch and was not informed when GM issued a service bulletin to the dealers identifying the ignition switch issue. He stated that “as long as the vehicle can still be controlled . . . the vehicle is still safe.”8 On March 28, 2014, GM announced it would be recalling an additional 971,000 vehicles to replace the ignition switch, which resulted in a total recall of almost 2.6 million vehicles globally. In addition, GM announced that approximately 95,000 faulty ignition switches were sold to dealers and parts stores, of which 5,000 were in vehicles on the road.

The Consequences of GM’s Inaction

On April 10, 2014, the two main GM engineers involved in the ignition switch decision, Ray DeGiorgio and Gary Altman, were put on paid leave.10 On May 14, 2014, the GM board of directors announced that it had hired a law firm to review how information related to potentially dangerous defects is received and reviewed by the board. The board stated that it was not informed about the ignition switch problems by GM management. The directors were facing at least three lawsuits in which it was alleged that the directors had failed to perform their governance duties related to GM operations.11 On May 16, 2014, GM agreed to pay a $35 million fine for not releasing information related to the ignition switch problem. GM had told its employees not to use words such as defect in their communications related to the safety issues. Instead of defect, employees were told to use the phrase “does not perform to design.”12 On June 5, 2014, a 315-page report was released by the NHTSA that described a number of internal issues at GM that led to the lack of quick correction of the ignition switch issue. Two of the issues are related to the physical actions of the GM executives. The “GM nod” refers to the nodding of one head in agreement in a meeting but taking no action after the meeting is over. The “GM salute” occurred when GM executives would cross their arms and point outwards indicating someone else was to blame for the issue and, therefore, it was not his or her problem to solve. The report also revealed that GM had bought an ignition switch that was “far below GM’s own specifications.” Furthermore, the report stated that GM failed to look for the “root cause” of crashes in which the air bags were not deployed, which could have occurred if the ignition had been switched to “accessory.”

On June 5, 2014, GM announced that 15 people related to the ignition switch problem had been dismissed from GM, including Ray DeGiorgio and Gary Altman. On June 12, 2014, GM announced that its board of directors had created a new risk committee responsible for GM policies and procedures related to vehicle safety, product quality, and cybersecurity.15 On June 13, 2014, GM announced an additional recall of more than 500,000 Chevrolet Camaros due to an ignition switch problem. By June 30, 2014, 2.6 million cars had been recalled by GM for faulty ignition switches. The estimated replacement cost for each ignition switch was 57 cents. By January 31, 2015, 4,180 claims had been made to the GM ignition switch compensation fund. GM estimated the payout of the claims could be up to $600 million. At that time, 51 deaths and 77 seriously injured people had been linked to the ignition switch defect problem. The estimated amount of compensation given to each victim was from $20,000 to $1 million. By February 16, 2015, the death toll had risen to 56, and it increased to 57 on February 23, 2015.

Questions

1. Comment on the dismissal of Ray DeGiorgio and Gary Altman. Were their dismissals justified? Explain.

2. What value should be place on human life? How did GM value the life of its customers?

3. A cost-benefit analysis was conducted for the switches. What was problematic with the analysis?