GM’s Suspended Engineers Made Fateful Calls on Faulty Cobalt

Apr 10, 2014 4:53 pm ET

(Updates with GM shares’ closing price in 11th paragraph. For more on the small-car recalls, see TOP EXT9 <GO>.)

April 10 (Bloomberg) -- General Motors Co. has placed two engineers, Ray DeGiorgio and Gary Altman, on paid leave for their roles in events leading to the recall of 2.59 million small cars with potentially defective ignition switches tied to at least 13 deaths, said two people familiar with the matter.

Altman led the engineering team working on the Chevrolet Cobalt, one of the affected cars, and rejected a fix because it was too expensive and would take too long, documents indicate. DeGiorgio led the team that designed the faulty switch. In 2006, after car columnists and customers complained about the switch, DeGiorgio quietly greenlighted an improvement that others at GM didn’t learn about for more than six years. Last year, he denied under oath that he knew the part had been changed.

Their actions, documented in legal and Congressional filings, have put them in lawmakers’ cross hairs as they seek to understand what top GM executives knew about the defective switch and why they waited so long to fix it.

DeGiorgio was part of a “culture of coverup that allowed an engineer at General Motors to lie under oath” and that continued in recent months, Senator Claire McCaskill, a Missouri Democrat, told Barra during an April 2 Senate hearing. “I for the life of me can’t understand why he still has his job.”

Chief Executive Officer Mary Barra said in a statement today on the company’s website that two engineers had been placed on leave following a briefing from Anton Valukas, the former U.S. attorney overseeing an independent investigation into circumstances leading to the recall.

‘Interim Step’

Without naming DeGiorgio and Altman, Barra said “this is an interim step as we seek the truth about what happened. It was a difficult decision, but I believe it is best for GM.”

Barra has struggled to convince lawmakers that GM has transcended its troubled past and is in fact the “new GM” she has described. It remains unclear whether DeGiorgio changed the part on his own, or whether he was acting on behalf of managers or others. The answer may help explain whether the part of the culture at old GM that kept the deadly flaw from emerging was narrow or broad, and will suggest how much work is required to address the issue.

The carmaker declined to make DeGiorgio or Altman available for comment.

‘Unanswered Questions’

“This is just the beginning. Although the two employees on leave played a part in GM’s safety failure, there are still many unanswered questions about who else was involved and the extent of the breakdown,” Republican representatives Fred Upton, the chairman of the House Energy and Commerce Committee, and Tim Murphy, the chairman of the Oversight and Investigations Subcommittee, said today in a statement. “Just how far up the chain did the communications go?”

GM also said today it anticipates taking a first-quarter charge of $1.3 billion, primarily for the cost of recall-related repairs announced this year and courtesy vehicles for inconvenienced customers. The charge includes $750 million in previously announced recall costs, GM said.

GM shares closed at 33.30, down 0.95%.

Blinds Drawn

DeGiorgio, who turns 61 this month, has made no public statements. Blinds were drawn this week at the two-story house that public records show is owned by DeGiorgio and his wife, and small windows on either side of the front door were covered to black them out. A beige Buick Rendezvous CVX was parked underneath a basketball hoop at the home, on a cul-de-sac that borders still-icy lakes in a rural suburb about 40 miles northwest of the city.

A telephone associated with DeGiorgio was answered this week by a man who identified himself as Ray. He declined to speak to a reporter or say whether he had a lawyer. A subsequent call to the number went to a voice mail saying that DeGiorgio was “currently away from the office.”

DeGiorgio graduated in December 1977 with a bachelor of fine arts degree from Eastern Michigan University in Ypsilanti, according to a school spokeswoman. He joined GM in mid-1991, just after earning a mechanical engineering degree from Lawrence Technological University in Southfield, Michigan, he said in a deposition taken for a wrongful death suit in Georgia against GM.

Space Arm

He worked at GM’s sprawling technical center in Warren, Michigan, the cradle of GM innovation for a half-century. Among the campus’s 20,000 workers are engineers who collaborated with NASA to build a robotic space arm, and designers who jostled for the chance to shape the latest Chevrolet Corvette.

DeGiorgio’s job, in 1999, was to lead a team designing an ignition switch for GM’s next generation of small cars. The Cobalt ignition switch, which was also used in the Saturn Ion, was among the first ones he designed, he said in the deposition. The team consisted of DeGiorgio, suppliers, project engineers and validation engineers, he said.

Altman, meanwhile, was overseeing GM’s push for small cars to replace the aging Chevy Cavalier. Altman, testifying in a deposition in the same Georgia lawsuit, said that his roughly 35 years at GM included a stint as the Cobalt’s project engineering manager, overseeing designers, engineers and manufacturers, from about 2000 until May 2005.

At the time, GM’s profit margins were shrinking and they were facing increased pressure to cut costs. Around 2000, Altman gathered more than a dozen managers together to deliver a message that they would need to find ways to reduce costs of the vehicles, including a suggestion to pull parts from existing models, according to a person who was at the meeting in the automaker’s suburban Detroit technical center.

Failed Airbags

As early as 2001, GM engineers noticed the switch could unexpectedly shut off, the company has said, adding that it thought it had fixed the problem. By 2005, several engineers were aware that it could be inadvertently turned, shutting down a moving car’s engine and cutting power to its steering, brakes and airbags. The fault was also cited in newspaper reviews of the 2005 Cobalt. In July of 2005, a Cobalt with the ignition in accessory mode hit a tree in Maryland. The airbags failed to deploy, and the driver died.

That September, a GM manager, John Hendler, sent an e-mail to 16 colleagues -- including DeGiorgio -- that weighed a plan to fix the “inadvertent ignition offs” issue.

Too Costly

In the e-mail, which GM provided to lawmakers, Hendler wrote that it would cost too much -- 90 cents per piece and $400,000 in production equipment changes -- to add enough capacity to put a new switch to 500,000 small sedans, including the 2008 Cobalt. The warranty savings from the changes was only 10 cents to 15 cents per part. Hendler’s report says the team opted to keep the existing switch and look at changing it in the 2009 model year.

“I’m not sure it’s OK to wait,” wrote another GM manager, Lori Queen. GM declined to make Hendler available for comment. Queen has declined to comment.

DeGiorgio forwarded the e-mail to another colleague, writing: “It’s not over yet.”

GM opened an engineering inquiry into the Cobalt ignition switch in November 2004, after customers complained the engine “can be keyed off with knee while driving,” according to a problem-tracking document obtained by House investigators. Four months later, the engineering manager for the Cobalt rejected the change, citing parts costs and long lead times.

Longer Spring

“None of the solutions presents an acceptable business case,” the manager said, according to a GM memo cited by the House committee that didn’t identify the writer. Altman, was the Cobalt engineering manager at the time, according to his deposition.

The following year, 2006, DeGiorgio signed an order with Delphi Mechatronics Systems, the switch’s manufacturer, to upgrade the switch, Part No. 10392423, by adding a longer and tighter spring, according to another document provided by GM.

The redesigned part was assigned the same number. That is unusual, according to auto-safety experts, because the automaker, as well as dealers, repair shops and auto-parts stores, would have no way to tell the updated part from the old.

“It’s pretty much standard procedure to make a part number change when they change the part like they did,” said Pat Donahue, a private engineering consultant who worked at GM for almost two decades until 2001. Typically, he said, such a change would also require authorization from a manager. DeGiorgio was the only person listed on his request.

Claudia Tapia, a Delphi spokeswoman, declined to comment.

In-House Investigation

The new switch began making its way into 2007 Cobalts and Saturn Ions, according to a timeline GM provided to regulators.

By 2012, GM knew a switch flaw was causing some Cobalts and other models to stall and prevent airbags from deploying, according to Lance Cooper, the Georgia lawyer who deposed DeGiorgio and several other GM engineers as part of the wrongful death suit against the automaker. Yet GM’s inhouse investigators, who had been looking into the flaw for two years, couldn’t figure out why it wasn’t showing up in later models, Cooper said.

In part, that was because DeGiorgio didn’t tell the investigators he had ordered the redesigned part without assigning it a new number, Cooper said last week in an interview at his office in Marietta.

‘Switch Guy’

Instead, DeGiorgio told the investigators, including Brian Stouffer, that he would try to figure out what was wrong, Cooper said, citing October 2012 e-mails between DeGiorgio and the investigators.

“Stouffer is saying, ‘You’re the switch guy. If we’re going to change it, give me some proposals for how to change it,’” Cooper said, citing the e-mails.

“DeGiorgio says, ‘What do you want in terms of torque?’” Cooper said, citing the e-mails. “Stouffer is going to DeGiorgio saying, ‘Hey, I need you to design me a new switch with a higher torque level.’ But it had already been designed -- it was in the replacement switches,” Cooper said.

DeGiorgio told Cooper much the same in a five-hour depostion last April at the Westin Hotel at Detroit’s airport.

More than three hours in, Cooper showed DeGiorgio an exhibit of the faulty ignition switch, as well as a replacement part with a longer spring in the so-called detent plunger.

DeGiorgio Deposition

“Do you see the difference?” Cooper asked.

“Yes,” DeGiorgio said.

“Have you noticed that before today?”

“No, sir,” DeGiorgio responded.

Cooper repeated his question. DeGiorgio repeated his denial and said he didn’t authorize Delphi to change the switch.

“We certainly did not approve a detent plunger design change,” DeGiorgio said. Asked if suppliers would only make such a change with GM approval, he responded: “That is correct.”

It wasn’t until October 29, 2013 -- six months after DeGiorgio’s deposition -- that GM’s defect investigators received a copy of the document from Delphi, bearing DeGiorgio’s name, showing the switch had been changed in 2006, according to GM’s timeline.

Senator’s Scorn

It was this point that brought the greatest scorn from McCaskill in last week’s testimony. How, the senator asked, could GM lawyers who were present at their engineers’ depositions not flag the issue to their superiors?

“If I’m a lawyer and I’m at a deposition where this bombshell has been dropped on my client -- that there are two different parts with the same number, one of which is defective -- I guarantee you I don’t go back and tell the folks at the law firm,” McCaskill said. “I’m on my cellphone in the lobby saying to General Motors, ‘We’ve got a problem.’”

How, the senator asked, could this have gone on for months without the knowledge of GM executives?

“That is part of the investigation,” Barra responded.

--With assistance from David Glovin and David Welch in New York, Mark Clothier in Southfield, Michigan and Anita Kumar in Princeton.