Lawmakers Grill Barra, Valukas Over Handling of Ignition Defects

Jun 18, 2014 11:36 am ET

June 18 (Bloomberg) -- General Motors Co. Chief Executive Officer Mary Barra faced intensive questioning from a House subcommittee over the slow recall of defective ignition switches, with lawmakers cutting off her answers and asking whether she can truly change the company’s culture.

Representative Tim Murphy, a Pennsylvania Republican, questioned whether the Detroit-based automaker’s culture could be sufficiently changed simply by dismissing 15 people from among its more than 200,000 employees. Fred Upton, a Michigan Republican, suggested that an internal report overlooked stalling-related safety concerns. Diana DeGette, a Colorado Democrat, wouldn’t let Barra elaborate on an answer.

Barra is returning to Congress 11 weeks after a hearing in which she failed to satisfy some lawmakers’ questions about why GM didn’t act sooner to fix a defective ignition switch linked to 13 deaths. An internal report this month showed engineers knew about the flaw for more than a decade, though corrective action was stymied by a pattern of incompetence and neglect.

“I know some of you are wondering about my commitment to solve deep, underlying cultural problems uncovered in this report,” she told the committee. “The answer is I will not rest until these problems are resolved. As I told our employees, I am not afraid of the truth. And I am not going to accept business as usual at GM.”

Strong Sales

GM shares and sales have held up despite the publicity surrounding the recalls. GM in May had its best month of U.S. auto sales since August 2008, rising 13 percent to 284,694 vehicles. In April, it reported first-quarter net income, despite $1.3 billion in recall-related costs.

Those gains suggest consumers are separating new models on the lot from the older small cars that are part of the ignition- switch recall.

GM declined 0.6 percent to $36.13 at 11:34 a.m. in New York. The shares through yesterday had risen 2.2 percent since Feb. 12, the day before the first batch of ignition-related recalls was formally announced.

Of 24 analysts who evaluate GM tracked by Bloomberg, only 3 have negative recommendations for investors.

Upton, chairman of the House Energy and Commerce Committee, read from a 2005 e-mail from a GM engineer who took an Impala on a test drive and experienced stalling. Laura Andres described hitting a pothole at 45 miles per hour and the car shutting off. That would be a big concern to any customer on I-75 in rush hour traffic with kids in the back seat, Andres said.

‘Big Recall’

“I think this is a serious safety problem, especially if this switch is on multiple programs,” Andres said. “I’m thinking big recall.”

The Impala was recalled two days ago, Upton noted and Barra confirmed. The document suggests employees within GM did consider engine stalling to be a serious safety issue, contrary to the findings of the company’s internal report, Upton said.

The automaker has received a draft protocol for a victim- compensation fund that is being circulated, Barra said.

GM has recalled a record 20 million vehicles in North America for various fixes so far this year, more than double the number of cars and trucks it sold worldwide last year. The spate of recalls largely began in February when the Detroit-based company said it would replace faulty ignition switches in small cars, including the Chevrolet Cobalt and Saturn Ion.

Repair Delays

Anton Valukas, the former U.S. attorney hired by GM to lead the internal investigation, who is appearing with Barra today, said the automaker needs to view federal safety regulators as partners, not adversaries. In his prepared testimony, he had reiterated findings from his report about how GM’s engineering and legal departments failed to connect the dots and move quickly enough on the main recall.

“I understand that while this report answers many questions, it leaves open others,” he said in prepared remarks.

GM has shipped 396,253 repair kits globally, and dealers have repaired 154,731 of the 2.59 million small cars covered by the recall, according to a memo released by congressional investigators. An additional production line will being making replacement parts in a week, Barra said.

The biggest U.S. automaker has initiated two new ignition recalls in the past week unrelated to the action to fix the Cobalt, Ion and four other U.S. models. On June 16, it recalled 3.36 million vehicles, including some model years of the Chevrolet Camaro and Cadillac Deville, because their ignitions could slip out of the “run” position.

About 9 million of the 20 million GM cars recalled this year were for ignition-related issues such as switches, cylinders and keys.

There’s frustration that the government’s fine of $35 million is too low to affect corporate behavior and the lawmakers want to make sure consumers know everything about how GM is making sure undetected defects don’t happen again, said Henrietta Treyz, an analyst with Height Analytics.

“The fact that these recalls are continuing and they’re not feeling the pain is something members are going to have a problem with,” Treyz, whose legislative research firm is based in Washington, said yesterday in an interview about lawmakers’ sentiment.