General Motors: How Recalls Have Impacted Customer Trust

General Motors: How Recalls Have Impacted Customer Trust

General Motors: How Recalls Have Impacted Customer Trust

Prepared for
Professor Jenell Barnard
COM/BUS 338

Prepared by
Jacob Cobleigh, Emily Fiebernitz, Taylor Phelan and Cara Walker
University of Michigan - Flint
November 22, 2015

MEMORANDUM

TO:

JENELL BARNARD

FROM:

GROUP 1

SUBJECT:

GENERAL MOTORS: A FORTUNE 500 COMPANY

DATE:

OCTOBER 7, 2015

We present you a report of the extensive recalls at General Motors that you
requested.
When composing this report we learned an extensive amount of information about
the long history of vehicle recalls at general motors. We gained insight into the
world of vehicle recalls, how they happen, and how General Motors responds to
keep their customers.
Recalls are going to happen from time to time in the motor vehicle industry. Each
car company handles recalls differently and General Motors has faced scrutiny in

recent years because some think they withhold recall information from the
consumer and regulatory organizations. Our report also discusses the level of
government involvement in the auto industry that we feel is necessary.
Our group worked well together to accomplish this report. We accomplished our
goals using effective communication and collaboration.
We appreciate the opportunity to work on this project. We gained valuable insight
into one of the biggest companies in the world, General Motors. We have also
learned valuable lessons in business, by learning how giant corporations respond
to being in negative light. We enjoyed working on this project and wish we could
undertake more research-based reports in the future.

TABLE OF CONTENTS

PAGE

INTRODUCTION.................................................................................................................1
General Motors History...............................................................................................2
General Motors Today..................................................................................................4
GENERAL MOTORS RECALLS ...........................................................................................5
CONSUMER DISSATISFACTION AND CONFIDENCE.............................................................7
COVER-UP SCANDAL/LEGAL REPERCUSSIONS..................................................................9

COMPARISON TO COMPETITIONS RECALL EXPERIENCES

...............................................10

GOVERNMENT INVOLVEMENT.........................................................................................11
CONCLUSION...... 13

LIST OF ILLUSTRATIONS

FIGURES
1. Example photo of early Buick Motor Company vehicles3
2. GM Year to Date North American Recalls Including Exports.6
3. Parts Involved In GM Ignition Recalls.8

INTRODUCTION
The recalls made by General Motors over the past few years have affected millions of
drivers. Even with the internal investigation performed by GM yielded incompetence and
neglect, the damage done to GMs reputation and trustworthiness has been diminished.
The purpose of this research is to determine how the most recent General Motors recall
has impacted the consumer trust factor, given the length of time it made the initial announcement

regarding said vehicles. We will touch upon the degree of government involvement in the auto
industry and whether it is too little or too much when it comes to consumer safety.
Data collection started initially with Internet research of credible resources, such as
online credible business articles. We also collected other articles from magazine sources, which
we also found online.

GENERAL MOTORS HISTORY

There werent too many automobiles at the turn of the century; most were powered by
steam or electricity while the others used gasoline. However, at the very first New York Auto
Show, it was very evident that automobiles were gaining popularity and were starting to become
high in demand.
From the first New York Auto Show in 1900, we fast forward to September 16, 1908 in
the Midwest to a city called Flint, Michigan where William Billy Durant founded General Motors.

His company started as the leading manufacturer of the horse-drawn vehicles, which quickly
charged its way into the automobile business.
General Motors started with the Buick Motor Company, which in a few short years also
included Oldsmobile, Cadillac and Oakland, which we now know as Pontiac today.
In 1920, General Motors added Chevrolet, Vauxhall and Opel, a German company who
originally started their business making sewing machines. General Motors led the industry by
their innovative methods of production, design and marketing. As they added more cars to their
company they were able to expand their plants to outside of the United States.
Decade after decade through the 20th century even through hard times of war and
political change, General Motors continued with their innovative ways, introducing independent
front wheel suspension unibody construction and the one piece steel roof. They also supplied
the Allied war effort that included airplanes, trucks and tanks all while continuing to surge
forward with the development of vehicles like the 1949 Buick Roadmaster, the Chevrolet
Corvette and the BelAir and then with the 1959 Cadillac El Dorado. Thus proving to the world
that General Motors was an automobile force to be reckoned with.
As General Motors pushed into the 1960s and 1970s, with it came new challenges and
times of change. They had to acknowledge environmental concerns and the growing
competition of the foreign car market, which ultimately led to a downsizing across all of GMs
vehicle lines. However, that still didnt stop them from continuing with their innovative ways to
stay ahead of the game. They manufactured engines that could now run on lower leaded
gasoline and they were also the first car company to offer an air bag in one of their production

cars. They also addressed the growing concerns people had with protecting the environment by
introducing the catalytic converter, which reduced emissions.
However, as Germany and Japan began to recover from the war, their foothold in the
automotive world began to take hold and cause problems for General Motors that had

dominated the American car market for so long.

GENERAL MOTORS TODAY

Because General Motors was so big for so long and was involved locally as well as
internationally, there was great need for the company to function as a whole instead of as

separate entities. They knew if they could accomplish this, the company could be run more
efficiently. They also started to reorganize their North American foothold into a singular unit
within the area.
General Motors welcomed Saab and HUMMER into the fold, which led to an expanded
variety of vehicles that would be sold worldwide. In 1995, GM entered into its first venture with
China in order to to have global growth. They also entered in to joint ventures with Toyota and
Saturn, which provided new innovations from these car companies into the GM family. These
innovations led to the birth of the Sports Utility Vehicles (SUVs) as the ever so popular mode of
transportation for the growing American family.
As General Motors started the new millennium, GM had built strong relationships
throughout the world with strong market presence in such countries as China and Brazil. In 2002,
they introduced the Daewoo, which introduced the manufacturing of a smaller more efficient car.
However, as the company grew larger, it became more difficult for GM to compete with
other foreign car companies and it began to take its toll on them financially.
As they continued to develop new cars, the pressure of a looming recession and global
credit crisis forced GM to downsize once again in 2008 losing the Pontiac and Saturn car lines
altogether as General Motors filed Chapter 11 in the United States bankruptcy court in June of
2009.
Today, GM is much smaller than what it once was. Its four main car lines today include,
Chevrolet, Buick, GMC and Cadillac; almost a mirror image of how they first started.
GENERAL MOTORS RECALLS
General Motors has been highly criticized in recent years for the massive amount of
vehicles in which they had to recall. Its hard to turn on the news without seeing a report on

another report on General Motors recalling another vehicle. Last year alone General Motors was
forced to recall nearly twenty eight million vehicles (Valdes-Dapena, 2014). The 2014 recalls
were due to a faulty ignition switch that caused many vehicles to shut off while driving down the
road.

These recalls were linked to at least thirteen deaths and a large amount of injuries

(Basu, NPR). With this recall scandal General Motors might have hurt their sales, many analysts
began to write articles about how GM would face decline in sales when the recalls started
happening, has that happened yet? The answer is no, GM faced almost no decline in sales in
2014 despite recalling nearly thirty million vehicles that same year. GMs market share was
17.8% in 2014, which is nearly the same as it was the year before (McIntyre, 2015).
There are a number of factors that contribute to GM not losing sales even though they
lied to the consumer about their recalls. GM was not currently producing any of the cars that
were recalled in 2014, so the sales of those particular cars could not possibly be affected. Also,
when GM customers had to go to dealerships to get their cars fixed, it is believed that while they
were waiting, they could have spent time looking at GMs new models, which could have
actually boosted GMs sales. At this time the millions of recalls do not seem to have affected the
image of General Motors as drastically as some many have thought.

CONSUMER DISSATISFACTION AND CONFIDENCE

In 2014 General Motors submitted nearly thirty million recalls across its many vehicle
models and makes. We want to look at if these recalls had a negative effect on the consumer
themselves, and how the recalls effected them. First we would look at the biggest recall of the
2014 calendar year, which was the ignition switch recall. This recall spanned over 1.5 million
cars and in some cases proved fatal for individuals who had the faulty switch. The idea of a recall
on your car possibly taking your life or the life of your loved ones instantly makes your doubt the
manufacturer.
The monetary losses some consumers suffered was also another blow against General
Motors as there are surly cases where individuals had the faulty switch replaced or repaired but
were not compensated on their claims. Also the long time periods experienced by owners who
had to wait sometimes weeks and months to get their car into the dealership to have it repaired.
Even if consumers were reimbursed for their recall the time they spent on having the issue fixed
was surely detrimental.
In 2014 GM hires a new CEO, Mary Barra, who within a week of learning of the faulty
switch brought it to the attention of the NHTSA. So for fourteen years weve had GM corporate
knowing of this issue with ignition switches and choosing not to act, this alone will sway
consumers away from GM products as they cant trust the reliably of the product or the company
behind it. Mary Barra handled this situation very well and she admits, I hate excuses, she said.
We have to be quick and have to respond, and Im committed to driving G.M. to be the
company we know we can be. The safety of consumers is very important to GM employees and

it is their jobs to insure safety precaution in vehicle at all times as well as in the production
process.
Its hard gauging customer reception as a whole, but they seem mixed. On sites that focus
on recalls and customer service they seem to gravitate toward the lower end of the car
manufacturers spectrum. But according to Fortune magazine, Consumer Reports, and J.D. Power
& Associates have all reflected high scores on vehicle ratings by consumers. So its hard to make

a definitive answer as to say wether they are more or less popular after the recall scandal, as even
their stock has balanced out since then.

COVER-UP SCANDAL AND LEGAL REPERCUSSIONS

A very large factor at much of the outrage of the 2014 recalls was the amount of time it
took General Motors to come public about the issues they knew certain models experienced.
Engineers first examined faulty ignition switch problems way back in 2001, but when addressed
two years later it was determined too expensive to repair and they let it slip under the carpet. Due
to these recalls consumers felt there was enough transparencies by GM leadership to admit that
there was a major issue with the recalls related to the different types of them, including the
ignition switch.
After GM came clean about their recalls it was inevitable that they would find themselves
in a pricy civil and criminal legal case. The recall that prompted millions of vehicles and was
linked to 124 deaths ended up paying $900 million in their criminal case and another $500
million in their civil case. Since 2014 GM has faced more than 200 lawsuits consolidating claims
from thousands of individuals. GM is still facing claims from GM customers who claims their
vehicles lost values as a result of the recalls. The automaker is not liable for claims arising from
incidents or accidents occurring prior to July 2009, when GM emerged from bankruptcy. But the
company is responsible for safety recalls and resulting repairs regardless of when its vehicles
were made.

COMPARISON TO COMPETITIONS RECALL EXPERIENCES

In recent media reports there have been an increase in vehicle sales of GM products.
Forbes states that, Fast forward 5 years and you find GM recalling over 27 million cars in less
than six months. Thats three times the recall number related to Toyotas unintended acceleration
case. Around the same time GM was having all their problems, Attorney General, Eric Holder
announced on March 19, 2014 that Toyota is being fined a record $1.2 billion, a criminal
penalty, for not providing adequate information in 2009 to customers who complained about
safety issues involving sudden acceleration of vehicles (Basu, NPR).
Yet GMs stock price on July 1st ($37.35) is actually higher than where it was on
February 13 ($35.20) when the first ignition switch-related recall was announced.
GMs sales are up, too 13 percent last month and nearly 3 percent so far this year.
Overall, it is seen that the recalls from General Motors have not had a major impact on the
decrease of sales. General Motors handled this type of issue in a quick, professional manner.
Other GM employees and workers in the automotive industry agree with Mary because not all
companies would own up to such a serious problem. General Motors did everything to the best
of their ability to make it right towards consumers and that is what automotive workers find most
important.

GOVERNMENT INVOLVEMENT

General Motors first notified the National Highway Traffic Safety Administration
(NHTSA) in February of 2014, which was approximately two weeks after Mary Barra took over
responsibility of Chief Executive Officer. After a barrage of recalls due to a faulty ignition switch
in many of GMs vehicles, Mary Barra and NHTSA appear in front of the House and Senate in
order to testify. During the governments internal review of GM documents, they found that GM
had been aware for years that the ignition switches were vulnerable to turning off, which
prevented the airbags from deploying (Ward, New York Times). However, the investigation
failed to establish whether Barra, a high-ranking engineering executive for years (Ward).
The government involvement prompted GM to start the Speak Up for Safety campaign
in order to encourage employees to report any potential safety issue in regards to the consumer.
At the same time this campaign was announced, Barra also made it known that two of GMs
engineers were put on paid leave as part of the recall involving the ignition switch (Basu, NPR).
On May 16, 2014, just a month and a half after the hearings before the House and the
Senate, the government announces that GM is to pay out a $35 million civil penalty to NHTSA
because of the delay in reporting the defect in the ignition switch used in so many of GMs
vehicles (Basu, NPR). GM also had to payout $300 million in expenses in order to cover the cost
of repairs the vehicles involved in the recall. A more recent source stated that GM has paid $93
million through its compensation program for those killed or injured as a result of defective
ignition switches, according to a regulatory filing (Detroit News).
Since the recall began and was reported to NHTSA, General Motors had already started
making radical changes to their safety practices. On March 18, 2014, Jeff Boyer was appointed
as the newly created position of Vice President of Global Vehicle Safety in order to quickly

identify and resolve product safety issues. In addition, to Global Vehicle Safety, Barra also
appointed Ken Morris as the Vice President of Global Product Integrity.

CONCLUSION

General Motors Company has had a long history with ups and downs but they always
seem to recover. Despite the rocky start to 2014, GMs Chief Executive Officer, Mary Barra
stepped up and made her company take responsibility and be held accountable for the cover-up
involving faulty ignition switch. Despite losing the trust of some consumers, they still
acknowledged their shortcomings and are pushing forward to remain committed to producing
vehicles that lead the automobile market in safety.
The competition in the auto world, both foreign and domestic still remains a challenge for
General Motors, but as their long history suggests, theyre most definitely up for the task. As
long as they keep up with the tradition of their innovative ways, they will no doubt continue to
be ranked as one of the industrys leading car makers.

REFERENCES

Basu, T. (Writer). (2014, June 18). Timeline: A History Of GM's Ignition Switch Defect
[Television broadcast]. In Timeline: A History Of GM's Ignition Switch Defect. NPR.
Cafferty, J. (2009, May 28). Is the government getting too involved in the auto industry?
Retrieved October 15, 2015, from http://caffertyfile.blogs.cnn.com/2009/05/28/is-thegovernment-getting-too-involved-in-the-auto-industry/
General Motors Company, Media. (2014, March 18). GM Announces New Vehicle Safety
Chief [Press release]. Retrieved October 15, 2015, from
http://media.gm.com/media/us/en/gm/news.detail.html/content/Pages/news/us/en/2014/mar/0318
-boyer.html
General Motors Company, Media. (2014, April 10). GM Announces New Vehicle Safety
Chief [Press release]. Retrieved October 15, 2015, from
http://media.gm.com/media/us/en/gm/news.detail.html/content/Pages/news/us/en/2014/Apr/0410
-speakup.html
Shepardson, D., & Burden, M. (2015, February 4). GM: $93M Paid So Far From
Compensation Fund. The Detroit News.
United States, National Highway Traffic Safety Administration. (2014, December 2).
Consumer Alert: GM Ignition Switch Recall Information. Retrieved October 15, 2015, from
http://www.safercar.gov/Vehicle
Owners/ConsumerAlert:GM+Ignition+Switch+Recall+Information