general motors failure case study

This is the story of GM's quest for supremacy by replacing people with robotics, what gave rise to this strategy, and why it was ill conceived from the very start. While Roger Smith deserves criticism for embracing the automation solution without really understanding its limitations, the story is also one of ineffective organizational learning and failed corporate governance. The lessons that emerge from an analysis of a near-$45 billion investment strategy hold resonance today as much as they did in the 1980s.

With infrastructure in place, GM took aim at the Ford empire created by Henry Ford and his Model T. Having pioneered the assembly line that enabled mass manufacturing, Ford was the dominant force in the early automotive era and the competitor to beat. It took another giant—legendary GM CEO Alfred Sloan—to make that happen. Considered the most influential CEO in GM's history as well as a pillar in business history, his slogan, "A car for every purse and purpose," became GM's trademark. Sloan recognized that GM could not compete on price alone, so his strategy was to sell cars at the top of each price range, competing in quality against less-expensive cars and in price against higher-quality cars. With this came his theory of "planned obsolescence," where the concept of annual models was rolled out. Sloan visualized an emerging market for repeat sales if a car could be perceived as out-of-date within four to five years. He also introduced a reorganization philosophy, creating the famous GM Management System of decentralized operations and responsibilities with coordinated controls. Each division retained a high degree of autonomy while a central GM board set uniform policies and guidelines. The result: by the end of the 1920s, GM was overtaking Ford, and by the 1940s, a GM nameplate was on almost one out of every two cars sold in America. GM became the first corporation in the world by 1955 to generate $1 billion in revenue in a single year. After growing GM into one of the most successful corporations in American history, Sloan retired the following April.

The Changing Landscape Few organizations in American industry have had the long-term success that GM enjoyed. It was the industry's low-cost producer, with powerful economies of scale and market share as high as 60%. For a long time only the threat of Justice Department action to shrink the company's market dominance clouded the picture.

While GM prospered for years, problems were beginning to brew under the surface. Although U.S. demand for cars increased after WWII, European manufacturers were beginning to make an impact. In 1956, for example, Ford and GM lost 15% in sales while imports doubled their market penetration, and even worse, the following year the U.S. actually imported more cars than it exported. By 1956, GM's market share for new car sales fell to 42%.

Over time, other pressures arose. The tumultuous 1960s brought growing urban poverty and riots in Detroit. The nascent environmental movement focused attention on pollution and, by 1974, GM was spending $2.25 billion to meet pollution regulations, with that figure doubling by the end of the decade. To top it off, the OPEC oil embargo drastically decreased demand for GM's luxury, gas-guzzling cars. While GM introduced smaller cars, the market dwindled in the late 1970s as the U.S. plunged into recession. Into this environment—with GM recording only its second year of losses in its long history—Roger Smith became Chairman and CEO in 1981, bringing with him a confident vision to carry GM back to its glory days.

In line with the revolutionary transition to automation, GM also announced the most widespread reorganization since the consolidation days of the 1920s. Two manufacturing fiefdoms—Fisher Body and the GM Assembly Division—were abolished and control of production was placed under two newly created operating divisions. To break down silos across functional areas, each division would control design, manufacturing, and sales.

The changes at GM spearheaded by Roger Smith elevated him to the status of press darling in the first half of the 1980s. With 85% of the reorganization efforts based in the U.S., Smith became a champion of U.S. manufacturing, catching the public's imagination, and becoming a media hero. Described as an "innovator," "visionary," and "21st century futurist," Smith was named Automotive Industries Man of the Year and Advertising Age's Ad Man of the Year, honored with the Financial World Gold Medal (best CEO in America), and designated by The Gallagher Report as one of the ten best executives in America. With such acclimation, it seems little wonder that "GM completed the 1980s in a state of arrogance."

GM's Sting: Money for Nothing Though confidence remained high, productivity paybacks from GM's factory automation spending seemed slower-than-expected right from the start. Costs were rising at an alarming rate while market share and operating income were starting to decline, a combination that might trigger warning bells in some organizations. Internal GM reports indicated that by 1985 the Japanese cost advantage had not changed after four years of intensive spending on automation. The company that was founded on the principle of cost savings and was once the prototype for efficiency had by 1986 become the auto industry's high cost producer. The average number of autos produced by each GM employee stood at 11.7, while the same metric at Ford was 16.1 and as high as 57.7 at Toyota. GM also earned 38% less than Ford and 26% less than Toyota on each vehicle they made. Research by Marvin Lieberman and Rajeev Dhawan of UCLA, who studied productivity trends in the auto industry from the mid-1960s to the 1990s, confirm the story: GM's plant productivity, which had lagged Toyota's for years, actually declined further from 1984 to 1991, a period that should have reflected the gains from GM's automation push.

The new automated factories, which made over two-thirds of the parts used in GM cars, had become a high-cost problem, hardly more efficient than the old ones. Some plants were running at 50% capacity because of glitches in computer-integrated systems, while two major strikes in the U.S. and Canada in mid 1980s spoke to the state of labor relations during these changes. GM's share of U.S. auto sales fell to 41% in 1986 , while the company's stock price increased 35% from 1981 to 1987, a duration when Ford's market value increased seven-fold.

Former GM CFO F. Alan Smith summed up GM's situation in 1986: "Since 1980 GM has spent $45 billion on the automotive business. Capital spending appears to be almost inversely related to our levels of operating profit. And GM's forward capital spending plans are projected to be $34.7 billion over the period from 1986 through 1989. For $34.7 billion, given recent market valuations, GM could have purchased Toyota and Nissan. This would almost double GM's world market share, increasing our penetration to over 40% of the entire free world. Can we expect to double our worldwide market share from our spending program?"

Automating GM—The Key Lessons The strategy to automate General Motors in the 1980s under Roger Smith was predicated on a false assumption—that replacing people with machines could turn back the Japanese attack and bring GM back to dominance in the global auto industry. Rather than adopt the lean manufacturing techniques that still define the Toyota production system today, a virtual obsession with robotics took over. In some ways this was no different than the companies today that jump on the latest fad without really understanding the underlying processes and inter-relationships that make the whole thing work. That was certainly the case with GM and automation in the 1980s. By not understanding how people and machines could be effectively integrated, GM missed the essence of Toyota's low-cost production success. Former Ford President Phil Benton put it this way: "Automation would not make the list of major problems facing the auto industry in the 1980s." Consistency of manufacture must come before automation. Toyota is not as automated as Nissan, for example, but they are more successful. "Everything goes back to management. What you need to do is engineer the product to the skills of your work force."

The Japanese also excelled at the other fundamental components of lean manufacturing, including just-in-time inventory, supply chain integration, and quality management. "[Automation] didn't save the company very much because GM still needed people," explained Charles McElyea, a factory automation engineer. By simply using the technology without the prepared workforce, "all you can do is to automate confusion." Robert Lutz, someone who has witnessed first-hand many of the changes in the auto industry over the years as a senior executive at GM, Chrysler, and most recently Ford, gave this assessment: "The thought was if we can do a fully automated factory and get rid of all the labor, we would have plants that run day and night fully automatically. But with these totally automated facilities you lose all flexibility and they are extremely capital intensive. The only way you can hope to make a return is to run pedal to the metal at all times. They were prisoners of the great North American manufacturing cost accounting system that says, as you eliminate labor, your costs goes down. But what they forgot was they were getting rid of direct labor but replacing it with indirect labor and huge capital costs. These costs were high because the technicians and other people needed in an automated plant were much more expensive than the hourly laborer. You need to look at every worker. You look at his value added time versus his wait time and you arrange the production flow in such a way that you maximize the value added time of each worker and reduce the waiting time. You concentrate on the worker not on the machinery. Use automation only where necessary".

At its core, the automation strategy drew its genesis from Roger Smith's business and personal beliefs. Despite internal opposition, it was Smith—described by many as autocratic �who defined GM's problems in the 1980s in terms of labor costs. To his credit, Smith also understood that GM's slow, bureaucratic culture was a hindrance to change, and his push for new organizational structures, the attempted infusion of EDS entrepreneurialism to GM, and investments in NUMMI (the joint venture with Toyota) and Saturn were all attempts to shake up that culture. But his focus on high-technology solutions to the labor cost problem underlined his belief that costs could be cut by replacing people with machines. He browbeat the UAW with statements like, "Every time you ask for another dollar in wages, a thousand more robots start looking more practical", and was described by one insider as "fascinated with anything new and high-tech; he really doesn't understand, or want to hear about, the limitations of technology." To his critics, he was an "unusual man who just doesn't understand people"

The GM Board of Directors Where was the GM board during this time, and do they deserve some of the responsibility for the automation debacle? Roger Smith became infatuated with robotics and began to see it as GM's salvation right from the start. While there was internal opposition, particularly among people who understood that productivity is not just based on labor costs but on the entire production system, the board of directors appears to have had little problem with the strategy. Indeed, given the deteriorating state of GM labor relations and productivity at the beginning of the 1980s, turning to the automation solution may well have been considered reasonable. It didn't take long, however, for problems to develop. Plant efficiency was down in many factories, productivity improvements relative to the Japanese did not materialize, and traditional metrics like stock price and market share reflected these problems. Further, when a company spends some $45 billion on automated factories, it does not write a single check for that amount and wait for delivery. Expenditures of this magnitude involve thousands of checks written to vendors over a long time period, with an opportunity to assess progress along the way. For example, in 1983 GM spent $6 billion for new technology and automation, increasing to $9 billion in 1984 and $10 billion in 1985. Even by 1985, when internal studies were indicating little change in the productivity gap between GM and Toyota, GM was still poised to spend more. Nevertheless, throughout this time the board of directors continued to approve Roger Smith's plans and expenditures. Why?

Much has been written about the classic warning signs in corporate governance, and all are in evidence here. Almost one-quarter of the board consisted of GM insiders in 1982, rising to as much as 41% by 1986. Outsiders did not have much of a personal stake in the company, with three out of five owning less than 1000 shares of GM stock. Along with the undoubted prestige that comes with being a GM director, the generally advanced age of outsiders on the board (8 outsiders were actually retired from their former corporate jobs), and the heavy time commitments of virtually all the outsiders on other corporate and non-profit affiliations (averaging around 8 such commitments for each board member during this period), the odds were stacked against the GM board taking an activist stance in monitoring Roger Smith and his automation program.

In addition to these traditional indicators of board independence, there is some evidence and inference that Roger Smith had significant control over the board. Board meetings were known as formal, with little open and honest discussion. Inside board members would not speak unless specifically charged with giving an informational report to the board. As one retired board member said, "unanimity on this board is assumed". When Ross Perot was on the GM board for a few years in the mid-1980s following the acquisition of his EDS, he referred to Smith's optimistic predictions as "gorilla dust", designed to throw off criticism as much as anything else.

Contributing to the unquestioning environment was the remarkable extent to which board members' formal positions were intertwined. Whether by design or circumstance, virtually every single outside board member at GM had another formal appointment—whether on another corporate board or non-profit organization—in common with a colleague on the GM board. In 1982, for example, (whose composition was not only representative of, but almost unchanged from, the GM board in subsequent years), two different GM directors also sat on the boards of US Steel, Dart & Kraft, Merck, and International Paper. Three different GM board members were also directors of AT&T, Nabisco Brands, Citicorp, and Kodak, and four GM directors were present or former board members of JP Morgan. Ten GM directors were on the Business Council, six on the Business Roundtable, four were directors of the United Negro College Fund (the Chairman of the Board was a GM insider), and two different GM board members were affiliated with governance of the Mayo Foundation, New York Hospital, and the Sloan-Kettering Cancer Center. Overall, the extent of overlapping affiliations and directorships is nothing short of spectacular, and may well have been a contributor to the non-critical culture in place at the GM board. Under this arrangement, in the event a member of the GM board chose to speak out or break the norm of "unanimity", any potential retribution could not be easily contained within this one organization.

In sum, the robotics strategy that Roger Smith and General Motors adopted in the 1980s stands as a classic story of misreading the competitive landscape. For Smith, robotics represented the Holy Grail, the perfect strategy that could solve all of GM's problems at once. When GM finally discovered that the Holy Grail didn't exist, they could look back on an incredible waste of resources. Roger Smith was a very smart executive who failed, because of his own badly mistaken perception of the auto industry, a culture (that he helped engender) at GM that was afraid to ask questions, and a board of directors that watched billions of dollars go out the door with apparently little concern.

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• A giant falls

The collapse of General Motors into bankruptcy is only the latest chapter in a long story of mismanagement and decline

SINCE the start of the year it had seemed probable, and for several weeks inevitable. General Motors' application on June 1st for Chapter 11 protection from its creditors, triggering the biggest industrial bankruptcy in history, was nonetheless a momentous event.

The filings lodged at 8am with a court in Manhattan were testimony to the size and complexity of the 101-year-old company and to the scale of the problems that had finally overwhelmed it. Until 2008, when it was overtaken by Toyota, GM was the world's biggest carmaker, producing well over 9m cars and trucks a year in 34 different countries. It has 463 subsidiaries and employs 234,500 people, 91,000 of them in America, where it also provides health-care and pension benefits for 493,000 retired workers. In America alone, it spends $50 billion a year buying parts and services from a network of 11,500 vendors and pays $476m in salaries each month.

Amid the huge numbers, one comparison stood out: against assets of $82.2 billion, GM has liabilities of $172 billion. A year ago, realising that GM was running out of cash, Fritz Henderson, then the chief financial officer, sought to raise $3 billion through a sale of bonds or shares. When it became clear after the collapse of Lehman Brothers in September that there was no chance of success, he attempted to sell some non-core assets. That too failed. Mr Henderson, who became chief executive when Rick Wagoner was ousted in March, says in an affidavit that no one expressed any interest in lending to GM or buying its assets at a price that would have kept it operating. (This week GM managed to find a Chinese buyer for its Hummer SUV brand, but the price is thought to be far below GM's $500m valuation.) In November GM's share price fell to $3. The only route still open led to the federal government.

An autumn's warmth does not endure

Yet as recently as the autumn of 2007 Mr Wagoner's stock had been high. There was hope both inside GM and among industry commentators that after three years of huge losses and painful downsizing the carmaker was at last on the road to viability. The chief cause of optimism was a deal with the United Auto Workers (UAW) union to transfer health-care liabilities to a union-run trust fund and to reduce the pay and benefits of newly hired workers to rates similar to those at the “transplant” factories of rivals such as Toyota and Honda. That October the price of GM shares rose to nearly $43, the highest for more than three years.

Better still, independent surveys were reporting that many of GM's factories had closed the efficiency gap with Toyota. And guided by Bob Lutz, a quintessential “car guy” whom Mr Wagoner had appointed in 2001 to oversee product development, GM was also making some pretty good cars, among them the fast-selling Buick Enclave and the award-winning Chevrolet Malibu and Cadillac CTS. The Chevrolet Volt, a revolutionary electric car with a “range-extending” internal-combustion engine, due to be launched in 2010, made Toyota's Prius hybrid look a bit dated. In late 2007, after years of decline in North America and despite cuts in dealer incentives and sales to car-rental firms, GM's market share was edging up.

The final element of this cheery prognosis was GM's success outside North America, especially in fast-growing emerging markets. For all his sometimes plodding approach at home, Mr Wagoner had proved surprisingly fleet of foot abroad, where GM was making 65% of its sales (see chart 1). GM had long been big in Latin America, but in China and Russia it was reaping the rewards from being among the first foreign firms to set up factories. In China, with its joint-venture partner, SAIC, GM now has 12% of a market that will soon surpass America's.

But, as at other times in GM's recent troubled history, the promise of that autumn turned out to be false. By the end of 2007, the weakness of the American housing market was infecting sales of cars. Falling house prices caused many people to put off getting a new car, while willing buyers with below-average credit ratings were finding it increasingly hard to finance prospective purchases, new or used.

On top of that, petrol prices nearly doubled. With a gallon costing $4, demand for the big pickups and SUVs that provided most of Detroit's profits evaporated. In the scramble to swap gas-guzzlers for smaller vehicles, residual values collapsed, leaving GM's finance arm with huge losses on cars returned after lease. After Lehman failed, car markets were clobbered around the world, but America's was hardest hit. Sales of cars and light trucks in December 2008 were 35.5% lower than the year before. After four years of restructuring efforts during which it had lost more than $80 billion, GM was too enfeebled to stagger on.

Where did it all go wrong?

In some ways, GM's problems can be traced to its origins a century ago. Between 1908 and 1920, its founder, Billy Durant, bought 39 companies including Cadillac, Pontiac, Oldsmobile, Chevrolet and several parts-makers, but ran them as separate entities. In 1923, after narrowly avoiding bankruptcy, Alfred Sloan, a ball-bearing magnate, took over the running of GM. Sloan imposed tight financial controls and brought order to the chaotic model line-up. Yet even as GM expanded abroad, establishing factories in 15 countries and buying Vauxhall in Britain and Opel in Germany, Sloan made little attempt to forge a unified company at home. The different divisions were run almost as independent fiefs that fought among themselves and against any interference from the centre.

Still, GM was doing well enough after the second world war to accede to the deals with the UAW that, much later, were to become an insupportable burden. It agreed in 1948 to annual cost-of-living pay increases and in 1950 to free health-care coverage for life and generous pensions. With hardly any foreign competition in America and its main Detroit rivals, Chrysler and Ford, forced to offer their workers similarly gold-plated benefits, GM's sheer scale masked any inefficiencies. By the early 1960s, with its market share at over 50%, its bosses were more worried about avoiding antitrust action and a possible break-up than reducing costs or improving GM's cumbersome, committee-bound way of making decisions.

Only in the 1970s, after the first oil shock, did faults start to become visible. The finned and chromed V8-powered monsters beloved of Americans were replaced by dumpy, front-wheel-drive boxes designed to meet new rules (known as CAFE standards) limiting the average fuel economy of carmakers' fleets and to compete with Japanese imports. As well as being dull to look at, the new cars were less reliable than equivalent Japanese models.

By the early 1980s it had begun to dawn on GM that the Japanese could not only make better cars but also do so far more efficiently. A joint venture with Toyota to manufacture cars in California was an eye-opener. It convinced GM's management that “lean” manufacturing was of the highest importance. Unfortunately, that meant still less attention being paid to the quality of the cars GM was turning out. Most were indistinguishable, badge-engineered nonentities. As the appeal of its products sank, so did the prices GM could ask. New ways had to be found to cut costs further, making the cars still less attractive to buyers.

Respite came with the decline in oil prices from the late 1980s and an anomaly of the CAFE regulations that allowed passenger vehicles classed as light trucks a much slacker standard. Rather than invest in low-margin cars, GM and the two other Detroit firms concentrated on building profitable pickups and SUVs. After recovering from losses of over $30 billion in the early 1990s, the company was in trouble again at the beginning of the next decade. Its market share had been steadily falling (see chart 2), while higher interest rates and an economic downturn led to a pensions and benefits crisis. However, thanks to Mr Wagoner's first efforts at restructuring, by 2003 GM's market share in America had stabilised at 28% and it was making profits of nearly $4 billion.

It could not last. Every year the cost of retired workers' health care diverted billions of dollars from developing new models and added $1,400 to the cost of each car compared with those made in Asian and European transplants. Mr Wagoner had little choice but to generate cash to feed the beast. That meant keeping production high and sustaining sales with costly dealer incentives, cheap credit and heavily discounted fleet sales. That in turn hammered residual values and damaged GM's brands. It is easy to say with hindsight that Mr Wagoner should have done more to prevent the slide. But had a more confrontational manager forced an earlier showdown with the union, downsized faster or tried to hack back a sprawling dealer network protected by state franchise laws, he might merely have hastened bankruptcy. It may be fairer to say that, dealt a rotten hand, Mr Wagoner tried to do many of the right things, but ran out of luck and time.

The car-industry task-force appointed by Barack Obama to save GM and Chrysler quickly concluded that neither could be viable without the pressure of bankruptcy to force stakeholders to renounce most of their claims. But it also recognised that a long period in Chapter 11 could be fatal. Not many people want to buy something as expensive and durable as a car from a company that may not be around next year. The task-force is therefore forcing through “quick rinse” or “pre-packaged” bankruptcies to separate the good assets from bad assets and liabilities speedily. The idea is to allow a new, cleansed company to emerge in a matter of weeks (as with Chrysler) or at most a few months (GM).

New beginnings?

At Chrysler, everything seems to be going according to plan. Fiat, which will take over the running of the business, will have 20% of the new company, rising to 35% on reaching certain goals. A union trust will have 55% and the government 10%. This week the judge handling the bankruptcy, Arthur Gonzalez, cleared the way for a spruced-up Chrysler to exit the court soon after the good assets are transferred to Fiat. An appeal by some Chrysler creditors may delay this by a few days.

Although GM's bankruptcy will be more complicated and drawn out, a new entity should emerge before September. The government, which is putting $30 billion into GM on top of the $20 billion it has already handed over, will receive 60.8% of the stock. The Canadian government, which is providing $9.5 billion, will get 11.7%. The UAW's trust will have 17.5% and the bondholders 10%. Despite the size of its stake, the government is adamant that it is a reluctant shareholder and will stay out of managing the business. It hopes that within 18 months GM might become a publicly traded company again.

The new GM will shed about 14 factories, 2,400 dealers, 21,000 hourly-paid jobs, 8,000 white-collar jobs and, crucially, $79 billion in debt. The aim is for the company in North America to be able to break even in a domestic market with annual sales of 10m vehicles. Today's extremely depressed market is running at about 9.5m. A recovery is forecast to start next year, but it may take time for sales to return to the 15m-17m seen between 1995 and 2007.

No one believes that GM will return to its former glory. The question is whether the new, smaller GM can succeed on its own more modest terms. Without doubt, its structural costs will be much lower: $23.2 billion in 2010, against $30.8 billion in 2008. With fewer brands and dealers it will be able to focus marketing and advertising more effectively. GM also retains the design and engineering resources to develop competitive cars, although the good ones are still outnumbered by the dross. The new-model pipeline has enough in it to keep buyers interested. Its successful operations in China should continue to grow rapidly with the market there.

But several doubts remain. The first is that although Mr Wagoner has gone, there has been no cull of GM's leaders—who helped to get it into this mess. Mr Henderson is an experienced financial manager, but GM may need someone more inspiring to shake it out of its consensual, bureaucratic ways. Senior members of the auto task-force found Chrysler to be better run in some ways than GM.

Second, although GM's cost base will be more in line with that of its transplant rivals, it will still be handing about $600m a year to the UAW in the form of dividends on preferred stock to comply with the revised health-care agreement. On the rather rosy assumption that GM sells 2m vehicles a year in America, each one will have to carry $300 in health-care costs. Unresolved questions remain about the firm's pension fund, which at the end of 2008 was underfunded by about $13 billion.

Third, GM's market-share forecasts still look optimistic. It expects its share to stabilise at around 18.5%, only one percentage point below its figure for this year. But GM will have fewer brands and dealers, and rivals will be eager to exploit its withdrawal from parts of the market. Volkswagen, for example, is planning an assault. It is building a new factory in America with the capacity to turn out 250,000 cars a year and is aiming to triple its market share from 2% to 6% by 2018, with sales of 800,000.

Fourth, there is a danger that with the government as its biggest shareholder, GM will be pushed into making the kind of cars—smaller and more fuel-efficient—that Mr Obama approves of rather than the sort Americans want to buy. Although new CAFE standards should encourage the shift away from the thirstiest models, trucks still get off too lightly and the administration seems to have no appetite for the one thing that would radically change buying habits: a big increase in petrol taxes or a more widely applied tax on carbon.

Finally, as Max Warburton, an analyst with Bernstein Research, notes, GM has suffered as much from a price problem as from a cost problem. GM's vehicles sell for between $3,000 and $10,000 less than Toyotas of the same size. “This is a brand issue”, says Mr Warburton, “and the brands won't be fixed by Chapter 11.” Most younger buyers have simply never considered a GM car. The new Malibu medium-sized saloon is just as good as the Toyota Camry, Honda Accord and Nissan Altima, yet is still shunned by many drivers because it is a Chevy. If anything, bankruptcy and subsidies from the taxpayer will tarnish GM's brands even more. The few Americans who buy cars for patriotic reasons are more likely to head for a Ford showroom to reward the company for its dogged fight to avoid the fate of its Detroit rivals.

When GM emerges from bankruptcy, it will have shed some of its burdens, but the damage done by decades of mismanagement and union intransigence will still weigh heavily. The new GM will not be quite as new as either it or the government would like Americans to believe.

This article appeared in the Briefing section of the print edition under the headline “A giant falls”

Briefing June 6th 2009

• A new sick man
• Hope for Opel

From the June 6th 2009 edition

Discover stories from this section and more in the list of contents

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The Chinese authorities are concealing the state of the economy

But the Communist Party’s internal information systems may also be flawed

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El-Fasher, until recently a place of refuge, is under attack

The ripple effects of Sudan’s war are being felt across three continents

It is a sign of growing global impunity and disorder

Anarchy in Sudan has spawned the world’s worst famine in 40 years

Millions are likely to perish

Kamala Harris has revealed only the vaguest of policy platforms

Her record suggests she would be a pragmatist

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For a Decade, G.M. Response to a Fatal Flaw Was to Shrug

By Hilary Stout Rebecca R. Ruiz and Danielle Ivory

• June 5, 2014

Just six months ago, a group of senior General Motors executives gathered to review a series of PowerPoint slides concerning a question that had been smoldering inside G.M. for a decade: Should the company recall hundreds of thousands of small cars because of a dangerous defect?

But as the slides flashed by with technical details about air bags and ignition switches, the executives in the room concluded they still could not answer the most crucial question of all: How many people had died because of the problem? Despite years of internal studies, field reviews and legal settlements, they adjourned without recommending a recall.

That meeting, on Dec. 17, 2013, was one of the final misfires in a decade of missed opportunities for G.M. to rectify a safety problem that was detected even before the first of the cars came on the market, according to an internal investigation of G.M.’s handling of the ignition switch issue.

The report, which the company on Thursday turned over to federal regulators and lawmakers, is a tale of nonchalance, ignorance and incompetence with tragic consequences. The 325-page document provides new details to help fill in a chronology of inaction that has been taking shape in investigations by federal regulators, lawmakers and law-enforcement officials.

Already, G.M. has been fined $35 million by the federal government — the maximum allowed by law — for illegally failing to address the problem in a timely manner. The automaker has publicly linked the defect, which can cause a moving car to shut down and disable air bags, to 13 deaths, though federal highway safety regulators have said they believe the fatality number is higher.

The report, written by Anton R. Valukas, a former United States attorney, details dozens of pivotal moments that ultimately passed with inaction. Some may seem trivial, such as when Rick Wagoner, chief executive at the time, inadvertently “kneed off” the ignition in a test drive of a Chevrolet Cobalt in the spring of 2004, according to one engineer interviewed by investigators. But the lack of information at the highest executive levels, the report concluded, was at the heart of G.M.’s failings on this issue.

G.M. Internal Investigation Report

The results of an investigation overseen by Anton R. Valukas, a former United States attorney, into the company’s handling of a defective ignition switch.

The Fault in the Cobalt Ignition Switch

Diagram of the faulty metal pin that led to the G.M. recall of 2.6 million Chevy Cobalts.

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The GM recall scandal of 2014

by Brad Plumer

What was the GM recall scandal of 2014?

General Motors faced an uproar in 2014 over its handling of a defective ignition switch in some of the cars it manufactured — a problem that led to at least 13 deaths.

In the first three months of 2014, GM ordered the recall of 2.6 million small cars because of faulty ignition switches that have been linked to at least 97 deaths since 2005 . The faulty switches could inadvertently shut off car engines and airbags during driving. Recalled models included Chevrolet Cobalts and Saturn Ions.

Worse still, evidence has emerged that GM knew about the faulty switches since at least 2003 — but had been slow to fix the problem, possibly because it would have cost too much. Both Congress and the federal government investigated GM on precisely this question.

Sen. Edward Markey (D-MA) holds up a faulty GM ignition switch during a press conference April 1, 2014. (JIM WATSON/AFP/GETTY IMAGES)

After taking charge of GM on January 14, 2014, CEO Mary Barra found herself under public scrutiny for the recalls. In early April, she testified before Congress and apologized for the company's actions before her tenure. "In the past," she said, "we had more of a cost culture, and now we have a customer culture that focuses on safety and quality." Even so, plenty of questions remain about why GM didn't fix the switches or recall its vehicles earlier.

After facing a backlash for not fixing the ignition-switch problem earlier, GM recalled millions more vehicles — some for similar ignition-switch problems and others for unrelated problems. As of June 30, GM had recalled 28 million vehicles in 2014.

General Motors is based in Detroit and is the third-largest automaker in the world, making vehicles under a variety of brands, including Chevrolet, Buick, GMC, and (until recently) Saturn. The company was bailed out and partly owned by the US government between 2009 and 2013 after falling into financial trouble during the recession.

How many vehicles did GM recall in 2014?

In 2014, GM recalled some 30.1 million vehicles in North America. A portion of the recalls were definitely due to the faulty ignition switch, some were possibly related, and others seemed to be unrelated. A breakdown:

Ignition-switch recalls: In early 2014, GM recalled 2.6 million small cars because of a defective ignition switch that could shut off the engine and airbags while the car was in motion. This was the big, controversial recall — the ignition-switch problem has been linked to at least 97 deaths .

That recall included Chevrolet Cobalts, Chevrolet HHRs, Saturn Ions, Saturn Skys, Pontiac G5s, and Pontiac Solstices that were produced between 2003 and 2011. GM will replace their switches for no charge and is offering affected drivers free loaner vehicles in the meantime.

The models before 2008 all had the defective ignition switch. GM reportedly redesigned the switch for cars built in 2008 and later, but some of those later models may have inadvertently received faulty replacement switches when they went in for repairs. So those cars got recalled, too.

(David McNew/Getty Images)

Possibly related recalls: On June 30, 2014, GM recalled an additional 8.4 million vehicles in the United States and Canada — most of them for a defective ignition switch. The automaker says these models have been involved in seven crashes resulting in eight injuries and three deaths in which the airbags had failed to deploy.

However, GM added: “There is no conclusive evidence that the defect condition caused those crashes.”

Possibly unrelated recalls: GM has recalled millions more cars for a variety of other problems over the course of the year, as well — nearly 30.1 million in all as of November 2014.

Some of these were for seemingly unrelated problems. For instance, in March, GM recalled 1.5 million cars because the electronic power steering could suddenly stop working, making it harder to steer. This appears to be a different problem, although one that also involves Chevrolet Cobalts and Saturn Ions. (There’s evidence that GM knew about this power steering problem in Saturn Ions for years before the recall.)

What’s so bad about a faulty ignition switch?

The faulty ignition switches were a huge problem — drivers could inadvertently knock them to “off” or “accessory” mode while driving, if, say, they were using a heavy keychain. Once that happened, the engine would shut off and cars would lose their power steering and power braking capabilities. The airbags also wouldn’t inflate in the event of a crash.

In its initial count in the spring of 2014, GM linked 13 deaths and 32 crashes to the faulty switches. As of May 2015, that number had risen to 97 deaths .

GM said the cars could still be safe to drive if people removed everything from their keychains except the key itself. Others, such as Sen. Richard Blumenthal (D-CT), alleged that the cars could still inadvertently switch off — if, say, they hit a bump in the road while driving. Regardless, GM recalled 2.6 million vehicles to replace the ignition switches in the spring of 2014.

Young people appear to have been disproportionately involved in the crashes. That's because the vehicles affected, like the Chevrolet Cobalt and Saturn Ion, were the sort of cheaper cars that younger drivers are more likely to buy. What's more, experts say, inexperienced drivers were more likely to panic and lacked the focus necessary to wrestle the stalled car safely to the side of the road.

What did GM do about the ignition switch?

It looks like GM engineers knew about the faulty switch at least as far back as 2004, but failed to address it until 2006 — possibly because it would have been too expensive to fix. And the defective vehicles themselves didn’t get recalled until 2014.

That was the version of events laid out in an investigation by the House Energy and Commerce Committee. Here’s a breakdown:

Noticing the problem (2001–2004): GM engineers noticed a defect in the ignition switch for Saturn Ions in 2001 and for Chevrolet Cobalts in 2004 — the ignition could inadvertently switch off while driving if, say, hit by a driver’s knee. (There’s some evidence that GM had considered a more resilient ignition switch in 2001 but rejected it for cost reasons.)

Failing to fix it (2005): GM investigated the issue several times. One inquiry was closed off in March 2005 because, according to a project engineering manager, the ignition switch was too costly to fix. (Emails unearthed by Reuters suggested the fix would have cost GM 90 cents per car.) Another design change was approved in May 2005 but never implemented for unclear reasons.

Possible fix (2006): Finally, in April 2006, a GM engineer approved a new ignition-switch design to increase torque performance. Delphi, a parts maker, later told Congress that the new switch for 2008 models was harder to move out of position but “still below GM’s original specifications.”

So it’s not clear that this redesign actually fixed the problem. What’s more, the new design was never given a new parts number — which means that the earlier, faulty switch might have been inadvertently been installed in later models when those cars went in for repairs.

Signs of crashes (2007–2013): In March 2007, safety regulators informed GM of the death of Amber Rose, who crashed her Chevrolet Cobalt in 2005 after the ignition switch shut down the car’s electrical system and the airbags failed to deploy. The company didn’t appear to launch a formal investigation at that time.

In 2011, a Georgia lawyer named Lance Cooper began investigating the 2010 death of Brooke Melton, whose Chevrolet Cobalt lost power while driving and veered into oncoming traffic. Over the next two years, Cooper’s law firm begins unearthing evidence related to the defective ignition switch.

Finally taking action (2012–2014): By 2012, GM had identified eight crashes and four deaths involving 2004 Saturn Ions that were attributable to the ignition-switch defect. By the end of 2013, they had determined that the faulty ignition switch was to blame for at least 31 crashes and 13 deaths in a variety of car models. A formal recall began in January 2014.

Investigation (2014): In June 2014, GM released an internal review of the events leading up to the recall. The probe, led by Anton Valukas, confirmed that GM employees had neglected to take action for many years — although he concluded that it wasn’t due to a cover-up but rather a “failure to understand, quite simply, how the car was built.”

Why didn’t GM fix the ignition-switch problem earlier?

That’s not entirely clear — though there are plenty of theories. On March 31, 2014, GM CEO Mary Barra appeared before Congress and couldn’t explain why it took a decade for the company to recall its vehicles after identifying the problem as far back as 2001 and 2004.

Mary Barra, CEO of General Motors, testifies before a House Energy and Commerce Committee hearing in Rayburn Building on April 1, 2014. (Tom Williams/CQ Roll Call/Getty)

The switch appears relatively easy to fix. As the Washington Post put it : “The part costs less than $10 wholesale. The fix takes less than an hour. A mechanic removes a few screws and connectors, takes off a plastic shroud, pops in the new switch, and the customer is back on the road.”

One theory for inaction is that GM’s management simply thought the replacement was too expensive. According to an email chain from 2005 unearthed by investigators, GM’s managers estimated that replacing the key ignition-switch component would cost 90 cents per car but only save 10 to 15 cents on warranty costs.

When presented with those documents, Barra told Congress that decision was not acceptable. “In the past,” she added, “we had more of a cost culture, and now we have a customer culture that focuses on safety and quality.”

There are other questions, too. In 2006, GM reportedly redesigned the ignition switch for 2008 models and later. But then why didn’t GM recall its earlier cars? And did this redesign really fix the problem? (Delphi, a parts maker, told congressional investigators that even the new design was “below GM’s original specifications.”)

How common are car recalls?

They’re fairly common. In 2013, car companies recalled roughly 22 million vehicles in the United States for dangerous defects or problems, promising to repair them free of charge. Toyota had the most recalls that year, with 5.3 million recalls.

In 2014, automakers recalled a record 52 million vehicles in the United States — and GM had the most recalls, with 26 million.

Between 1990 and 2013, car companies in the United States have issued 3,497 recalls that affected some 398 million vehicles in all:

Vehicles are typically recalled when they have a problem that could jeopardize public safety — and are fixed for no charge. Toyota recalled 803,000 vehicles in October 2013 because of a problem that could inadvertently set off the airbags or shut down power steering.

The automakers with the most recalls aren’t necessarily the companies with the most problems, says the federal agency that tracks the data. Different companies have different decision-making processes in deciding how to deal with vehicle problems. One investigation by the New York Times, for instance, found that GM has often relied on sending discreet “service bulletins” to car dealerships in order to avoid full-blown recalls.

Overall, the number of car recall campaigns appears to be increasing over time for a variety of reasons. Toyota has suggested that recalls are often bigger because companies are using the same parts across several model lines — so if the part fails, more models are affected. Other experts point to a growing crackdown by US regulators.

What did regulators do about GM’s ignition-switch problem?

It looks like regulators were slow to respond, although the agency in charge has blamed GM for not being forthcoming with information.

Slow to respond: Back in March 2007, the National Highway Traffic Safety Administration (NHTSA) first informed GM of the death of Amber Rose, who crashed her Chevrolet Cobalt in 2005 after the ignition switch shut down the car’s electrical system and the airbags failed to deploy. Neither GM nor NHTSA opened an investigation.

Then, in September 2007, NHTSA investigators looked into four fatal crashes and a variety of reports of defective ignition and disabled airbags in Chevrolet Cobalts. But the agency couldn’t identify a discernible trend and closed the investigation. Something similar happened in 2010.

Blaming GM: David Friedman, the acting chief of NHTSA, told Congress in April 2014 that regulators would have acted earlier if GM had been more forthcoming. "GM had critical information that would have helped identify this defect," he said . "Had this information been available, it's likely NHTSA would have changed its approach to the issue."

Among other things, Friedman said that his agency did not know that GM was talking with suppliers about concerns over airbag failures. Regulators also did not know that GM had redesigned the ignition switch in 2006 without giving it a new part number.

Fining GM: On May 16, 2014, NHTSA fined GM $35 million — the maximum allowed under the law — for delays in recalling the faulty ignitions. In the consent decree, GM admitted that it broke federal law by not recalling the vehicles in a timely fashion.

(For more on this, see this New York Times piece by Jackie Calmes. )

How did GM respond to the scandal?

The company announced it would replace the faulty ignition switches for 2.6 million recalled vehicles. Replacements for Chevrolet Cobalts, Saturn Ions, and other models began April 7, 2014. Repairing all of those cars could take months , so the company offered free rental vehicles to affected drivers in the meantime.

GM also conducted an internal investigation into why the part wasn't fixed earlier, which was released in June 2014. That report confirmed that GM had neglected to address the ignition-switch problem for many years — although it said this wasn't due to a cover-up but rather a misunderstanding in "how the car was built." The company dismissed 15 employees and disciplined five others after the investigation was published.

GM has also tapped Kenneth Feinberg as a consultant to help them decide how to compensate families who were injured by the recalled cars. As of May 2015, the company has set aside $550 million to compensate victims. The fund has reviewed more than 4,000 claims and determined that at least 97 deaths could be linked to the faulty ignition switches.

People walk near the front entrance of the General Motors headquarters on April 1, 2014, in Detroit, Michigan. (Joshua Lott/Getty)

On April 1, 2014, GM CEO Mary Barra appeared before Congress and said that the company had once been too focused on cutting costs — but has since changed. “In the past,” she said, “we had more of a cost culture, and now we have a customer culture that focuses on safety and quality.”

What consequences did GM face?

Here’s what the company has faced as of June 2014:

A $35 million fine: On May 16, 2014, the US Department of Transportation hit GM with $35 million in fines — the maximum allowed under the law — for delays in recalling the faulty ignitions. In the consent decree, GM admitted that it broke federal law by not recalling the vehicles in a timely fashion.

The cost of recalls: GM already has to pay the cost of the recalls, which ran to at least $1.7 billion in the first half of 2014 .

Investigations: In March 2014, Manhattan US Attorney Preet Bharara opened a federal probe into whether GM could be criminally liable for failing to disclose information. (This wouldn’t be unprecedented: back in March, the Justice Department levied a $1.2 billion fine against Toyota for allegedly lying to the public over an unintended-acceleration problem in its vehicles.)

Possible payments to victims: As of May 2015, the company had set aside $550 million for the GM Ignition Compensation Fund to compensate victims of the faulty switch. As of January 31, 2015, the company has received more than 4,000 claims and linked at least 97 deaths to the switch.

Wasn’t GM owned by the government during the scandal?

Yes. GM declared bankruptcy in 2009 and was owned by the government between 2009 and 2013.

GM was owned by the US government during a critical part of the scandal

That’s after the company supposedly redesigned the faulty ignition switch. But the government ownership came during a period when GM failed to recall millions of defective vehicles that were out on the road.

S ome observers have wondered whether GM officials were too focused on pulling the company out of bankruptcy to worry about the faulty ignition switches. Others have asked whether federal regulators may have turned a blind eye toward GM's problems during this period.

The backstory: In 2009, GM was burdened by declining sales, high pension costs, and escalating losses. To forestall a total collapse, the US federal government invested some $50 billion into GM in exchange for a 60 percent stake in the company (which it sold off over time). As part of the deal, GM filed for Chapter 11 reorganization on June 1, 2009.

The General Motors world headquarters complex November 18, 2010, in Detroit, Michigan. (Bill Pugliano/Getty Images)

During the restructuring, GM closed brands like Saturn and Hummer, cut thousands of jobs, reduced its labor costs, and went public again in July 2009. The company has been profitable since 2010.

The Obama administration sold its last remaining shares in the company in December 2013 — ultimately taking a $10.5 billion loss on the taxpayer-funded bailout. (Supporters of the bailout argue that letting GM fail would have had a ruinous economic impact during the nadir of the recession.)

Why it matters: That bankruptcy was an issue during the scandal. As part of the government restructuring, GM technically isn’t liable for injuries that happened before it went bankrupt in the summer of 2009. That potentially includes some of the victims of the ignition-switch defect. In 2014, some members of Congress urged GM to pay up anyway — and suggested potentially revising the terms of the company’s deal.

Is driving getting more dangerous?

Driving in the United States is an inherently dangerous activity — 33,561 people died in car crashes in 2012.

But driving’s not getting more dangerous. The number of traffic fatalities in the United States has fallen dramatically since the 1970s:

That’s partly due to the fact that people are becoming safer drivers (less drunk driving, less driving in general). And it’s partly due to the fact that cars are getting safer — airbags save lives, and the combination of antilock brakes and electronic stability control have cut crashes 30 percent.

Still, some critics argue that driving could be much safer. In Slate , Nicholas Freudenberg argues that the rate of auto deaths in the United States is three times as high as it is in, say, Sweden . And, he argues, auto companies have often resisted regulations that could make driving even safer.

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Home » Management Case Studies » Case Study of General Motors (GM): How a Lack of Innovation can Cause Business Failure

Case Study of General Motors (GM): How a Lack of Innovation can Cause Business Failure

Innovation is the process whereby the management team of an organization is charged with the responsibility of introducing something new, which might be a new idea or a methodology or rather, a contrivance to facilitate the operational concerns and production. The Old General Motors failed with innovations in the company . These innovations were needed to ensure that the Old GM able remains competitive , and the company was able to manufacture cars that are in line with the client’s demands. This is related to the Old GM field of business to ensure that the organization do continue to produce the respective consumer centered product. The manufacturing industry such as the General Motors , innovation ensure that the output they deliver to the consumer do meet their needs, and expectations in a way that is realistic and makes their product to have a preference by the consumers against other same need satisfying product.

The fall of the Old General motors’ in this context was initially by the lack of personal innovation. The Organizational management was desperate for people who could see things in a different perspective. This would quickly size up the problems and come up with creative solutions to pinch the organization was facing. The failure of the “Old GM” to innovate made the organization less indispensable to consumers of the company products and other key personalities, who preferred the company output. This was both in the organization and outside its walls. The GM did lack the “go to idea personality,” which is essential, to work through intricate challenges and come up with creative solutions such as more performing vehicles. The failure by the Old General Motors to innovate made the company and its technologies obsolete; thus, the company failed to satisfy the needs of evolved human with its obsolete products.

Innovation is essential in an organization for it to be able to thrive in the challenging business world a thing that the Old General Motors did not realize. The company product tends to go through a life cycle. At the initial stage, the product is not well known; and it is costly such as the way General motor’s vehicles were in 1950s hence the sales are restricted. The product does reach growth after some time. At this stage, there is no more growth seen in sales, and at after time, it goes to the decline stage. A better and more satisfying product has replaced the product. It is at this stage that the manufacturer is supposed to come up with realistic ideas towards product development if he has to remain competitive. For example, the Old General Motor’s GMC trucks did reach the declining stage simply because the consumer switched to more efficient ones other than the GMCs that were moving at 50/60kmp speed.

The innovation diffusion is the factor that the organizations tend to take them to be in a better position of running the business. Innovative General Motors is likely to be the first to adopt a new production technology. A company is willing to pay a premium price for the new production processes and unwarranted technology. A later adopter relies on advice from the innovators who are more informed on new techniques. The fall of the “Old GM” seemed to have had been influenced by such factors in that the company never adopted the new technologies not even in the latter stages. Such technologies ensured the organization was able to produce customer more satisfying product, such as the luxurious and comfortable seats that other competitors fitted in personalized cars.

The product life cycle shows very well where innovation is critical for a manufacturing company especially the General motors’ limited. When the “Old GM,” company product did go through the life cycle as shown the company, ran out of ideas, opted out, and watched when other company products replaced its offer to the market, which decreased sales hence making it bankrupt in 2008. At the latter product life cycle stages, the company is supposed to at least make a modification of its marketing strategy a factor on which the Old General Motors failed. For example, when Toyota, was facing an inundated market for its “old face me sedan” based on its conventional usage, the company did opt for innovation to have the private Sedan replace the old one. This innovation did as well come with the fuel efficiency on top of high performance. They extended this to the production of five-seat family cars, which were a relief to the public old Sedans.

It was essential for Old Gm to come up with new products for its consumers, because that is what can make them have a bigger realization of sales. Either these new products can be new to the market in that, no any other manufacturer had made such a product before just like the Chrysler invented the minivan , or the product can be new to the company in that it was an invention done by another organization and the organization is coming up with its own version. For example, The Mercedes Benz Company was not the original manufacturers of the personal cars, but they came in after the market depicted a high potential with very satisfying products. This is innovation at its best, which the old General Motors failed to adopt. A product can be innovated to be new to a certain market segment. For instance, the Mercedes Benz sedans were first aimed at the price insensitive segments, but the manufacturers did in latter stages decide to target the price sensitive segment. This was innovation.

Innovation adoption over time is a critical thing that each of the organizations has to consider enabling it able to thrive in the market. Innovation starts with the innovators who account for about 2.5% of all innovations, then about 13.5% of early adopters and at least 34% of the early majority to take in the innovations. Afterwards, a 34% of the later majorities in innovation adoption do come in then the laggards are at 13.5% as far as innovation adoption and implementation is concerned. The “Old GM” failure could have been caused by his choice of being a laggard in the innovation adoption.

The old General Motors Company limited allowed the force of innovation to work against them. The managers did fear the risk associated with innovation and its adoptions that can either be financially bent or rather socially indented. The Old General Motors did as well fear the chance of trying edging ideas towards product development and growth for the organization to be able to remain in business. The organization might as well have resistance towards erudition on how to use the new technologies and innovation towards consumer satisfying products fabrication and pricing as well as positioning.

The required innovations for an organization to remain in business are adopted and implemented in varying degrees. The innovations might be continuous in that it includes the trivial improvements in due course. For example, the year to another change in vehicle, yet they are driven the same way they were in 1940s. Dynamic continuous innovation is essential in that technology is varied even though the product usage is similar to the older one. As an example, the jet technology came in to replace the propeller aircraft yet they are used for the same purpose. Discontinuous innovation is as well practical in an organization in that it creates a product that completely varies the way things are done. For instance, the introduction of the private and personal family cars did vary the transport sector.

Innovation is hard to embrace; however, in due time, the results are significant, and a failure to innovate in an organization does result to fatal implications. The “Old GM” for instance did not embrace innovation and the organization opted to operate with obsolete technologies a factor that could not let them stay in business. This failure to be creative brought down the organization’s profitability and sustainability in the manufacturing sector. This resulted to General Motors being regarded as a failure with little to offer to the market that was updated.

The Old Gm did lack the modernity-desired innovation, and its adoption in that its extent to new production technologies reception was below par, and tainted with fear, and frustrations, which are the practical, proves of failed leadership. Additionally, General Motors might have been devoid of creative leadership; the management did not value opinion leaders. The chances that the Old General motors’ management never did appreciate the opinion of others did bar innovation in the organization a factor that resulted to no innovation at all. Such a factor coupled by the resistance to change, production techniques, and fear of trying new ideas are some of the factors that resulted to Old General Motors as a manufacturing organization becoming a mere general venture and losing big in its market and standards.

Innovation does create a desirable environment for product positioning; for instance, the efficiency desired by consumers is critical to ensure that a company is able to satisfy the customers’ needs effectively. The resistance and lack of innovation are reasonable and justified factors to conclude that the fall of the Old GM resulted from the company’s lack of innovative ideas . Additionally, the company failed to adopt new technologies when the organization was desperate for innovations.

Innovation is paramount in any organization. The competitive environment is challenging and turbulent. Thus, companies need to be innovative in the achievement of the organizational goals and objectives, and development of products. This is what the old GM failed to realize, and they never embraced innovations when their competitors such as the Chrysler were top at innovations, hence resulting to the company failure and 2008 bankruptcy.

Related posts:

• Case Study: The Decline and Fall of General Motors
• Case Study: Sony’s Business Strategy and It’s Failure
• Case Study: Business Model Innovation and Customer-Driven Innovation at Dell
• Case Study of Walmart: Business Model Innovation for Sustainability
• Case Study on Business Strategies: Failure Stories of Gateway and Alcatel
• Case Study of Apple iPod: Significance of Strategic Innovation Management within the Business
• History and Background of General Motors
• Case Study: Acquisition of Jaguar and Land Rover by Tata Motors
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What U.S. CEOs Can Learn from GM’s India Failure

• Vijay Govindarajan
• Gunjan Bagla

The company lacked the right approach.

General Motors, once the world’s largest carmaker, has decided to stop selling vehicles in India by the end of 2017, since they consider their India operation to be not profitable. A few years ago, Mary Kay Cosmetics also exited India, blaming local issues for its problems. While India now claims to attract more foreign direct investment than China, American companies have not been as visible as European and East Asian players. Is there something wrong with the India opportunity? Or are some American companies being unnecessarily restrained about the world’s fastest growing major economy? The success of dozens of large American players in India — Boeing, Cisco, Coca Cola, Cummins, Dell, General Electric, Google, Hewlett-Packard, McDonalds and PepsiCo — suggest that it is the latter and that there is a “right” approach to India. Based on the experiences of these companies, and of what we know about GM’s sales demise in India, there is a specific kind of leadership and strategy that works in India. American CEOs need to take heed, or else cede what will soon be the most populous country on the planet to Asian and European competitors.

General Motors, once the world’s largest car maker, has decided to stop selling vehicles in India by the end of 2017, since it considers its India operation to be not profitable. The company re-entered a liberalizing India in 1994, after abandoning the country in 1954. Like its American compatriot  Ford Motor Company , GM’s market share in India has always been in the single digits, but recently Ford has reported rising monthly sales of 36% in India.

• Vijay Govindarajan is the Coxe Distinguished Professor at Dartmouth College’s Tuck School of Business, a Dartmouth-wide chair and the highest distinction awarded to Dartmouth faculty, a Faculty Partner in the Silicon Valley incubator Mach49 , and a Senior Advisor at the strategy consulting firm Acropolis Advisors . He is a New York Times and Wall Street Journal bestselling author. His latest book is   Fusion Strategy: How Real-Time Data and AI Will Power the Industrial Future .   His Harvard Business Review articles “ Engineering Reverse Innovations ” and “ Stop the Innovation Wars ” won McKinsey Awards for best article published in HBR. His HBR articles “ How GE Is Disrupting Itself ” and “ The CEO’s Role in Business Model Reinvention ” are HBR all-time top-50 bestsellers. Follow him on   LinkedIn . vgovindarajan
• Gunjan Bagla is Managing Director of Amritt Inc, a California consultancy that advises American companies on doing business in India and the author of Doing Business in 21st Century India (Hachette, 2008). Follow him on LinkedIn .

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No Accident: Inside GM’s deadly ignition switch scandal

Photograph by Josh Meister

March 10 2010 For Brooke Melton , the day began with a voicemail from her father, wishing her a happy 29th birthday. She drove to her shift as a nurse at West Atlanta Pediatrics. After work she climbed into her white 2005 Chevy Cobalt and threw her bag onto the passenger seat. A cautious driver—she’d never once gotten a speeding ticket and always wore her seatbelt—Brooke was headed to her boyfriend’s place to celebrate over a birthday dinner.

Darkness had already descended when Brooke pulled onto Hiram Acworth Highway. Driving north on the lonesome two-lane road, past the strip malls and convenience stores, she came to a half-mile downhill straightaway, a stretch of asphalt bordered by Georgia pines and utility poles. Where the road leveled, rainwater pooled on the blacktop. Suddenly Brooke lost control of the Cobalt, hydroplaning across the center line. An oncoming Ford Focus slammed into Brooke’s rear passenger side, violently reversing the car’s counterclockwise rotation. The Cobalt spun off the road, over the shoulder, and 15 feet down into the surging waters of Picketts Mill Creek. It was just before 7:30 p.m.

Nineteen minutes later, after a passerby called 911, the first responders arrived on the scene and pulled Brooke from her half-submerged vehicle. Roughly nine minutes after they placed her gurney in an ambulance, she arrived at WellStar Paulding Hospital in Hiram, six miles from the crash site. Doctors put her on a ventilator, but the prognosis was grim. She was transferred to the better-equipped WellStar Kennestone Hospital in Marietta, 16 miles away.

Around 10 p.m., the phone rang at her parents’ home in Kennesaw. The call went to voicemail. Brooke’s mother got out of bed and hit play: It was the hospital, requesting she come immediately. A frantic call back and finally the news: Blunt force trauma from the crash had broken Brooke’s neck. I’m sorry , the doctor said. We couldn’t save her. Brooke was the oldest daughter of Beth and Ken Melton. Her parents gave permission for her organs to be donated. It’s what she would have wanted.

On the drive to the hospital, Ken prayed the doctors were wrong. But no. Inside the ICU, he kissed his daughter’s cold forehead and made a vow: that her death would not be in vain. Even then, wrestling with the first waves of a grief that would consume him, he suspected the fault lay not with Brooke but with her car.

In the months that followed, Beth and Ken both sought refuge in different ways: Beth through her faith and therapy, Ken through poring over every detail of the accident and the days leading up to it. A week before she was killed, Brooke had called him to say something strange was going on with her car. Sometimes it would simply shut off while she was driving it, and she’d have to pull over to the side and restart it. Get it serviced , Ken told her. The weekend before the accident, she dropped off the car at Thornton Chevrolet in Lithia Springs. The mechanic cleaned her fuel injectors, changed her oil, replaced her fuel filter. All fixed , she later told Ken over the phone.

Now Ken spent evenings scrolling through online discussion boards. Other drivers had reported problems with the Cobalt—problems similar to the one Brooke had complained about. On one forum, a father posted that he refused to let his daughter drive her Cobalt after it stalled. Ken even found testimonials from people like him, family members who had lost a loved one in a crash involving a Cobalt. With each new revelation, he grew more angry. His behavior worried Beth, who believed the accident simply happened. He’d call her over to share new bits of information, compounding her own grief. She pleaded with him to stop. Ken wanted General Motors, the manufacturer of the Cobalt, to examine the wreckage. It took months, but finally GM scheduled an inspection for February 2011, almost a year after Brooke’s death. Ken wasn’t the only party interested in the findings; a lawyer for the driver of the Focus wanted to know, too. Ken and Beth realized they needed their own attorney. Their insurance adjuster gave them a name—Lance Cooper.

February 9, 2011 Lance Cooper was an odd recommendation. The Meltons appeared to be in the market for a defense attorney, but Cooper was a plaintiff’s lawyer. Cooper, a 52-year-old California transplant who’s lived in the South long enough to affect a slight drawl, didn’t know if he could help but invited them to his Marietta office anyway.

Cooper plopped into his leather rolling chair. From across his mahogany desk, strewn with yellow legal pads, the Meltons talked about their daughter: Her stellar driving record. The problem with the Cobalt. Her visit to the mechanic the weekend before the accident.

Cooper had seen this kind of case before. His job was to look beyond the grief and the anger. What lay beneath the emotions—the cold facts of the case—often pointed to nothing but the obvious. He glanced at the accident report. The details seemed straightforward: A rainy night. Speed too fast for conditions. A hydroplaning car. An oncoming vehicle. The police report concluded that Brooke had been at fault; Cooper saw little reason to doubt it.

But that visit to Thornton Chevrolet the weekend before the crash—it gave Cooper pause. The timing was peculiar. What were the odds of someone picking up their car from the shop only to die in a crash the next day? The lawyer had three choices: Take the case, decline it, or poke around a bit before making a final decision. He chose the latter. He told the Meltons he would follow the facts, wherever they led.

First Cooper needed the evidence. For $548, he bought the remains of Brooke’s white Cobalt, contorted almost unrecognizably. The Cobalt was loaded onto a flatbed truck and moved to a private testing facility 15 minutes from Cooper’s office. Doreen Lundrigan, Cooper’s paralegal for the past 15 years, began to search federal databases, state government records, and resources like the Insurance Institute for Highway Safety for details of other Cobalt accidents.

There was something else. Nine days before her death, General Motors had announced a recall of 1.3 million vehicles, including the Cobalt, due to a power steering issue. Ken found the recall notice in his daughter’s mail after her death. He told Cooper, who felt it gave their investigation added momentum. On June 24, 2011, four months after first meeting with the Meltons, Cooper filed a lawsuit against General Motors and against Thornton Chevrolet. (Bill Heard Chevrolet, the Kennesaw dealer that sold Brooke the Cobalt, had gone bankrupt and shuttered.) Cooper alleged that GM had failed to adequately and promptly warn Brooke, other Cobalt owners, and the public about the defective design of the electronic power steering system. By not taking proper action, the lawsuit claimed negligence on the part of GM—for its role in “designing, inspecting, testing, manufacturing, assembling, marketing, selling, and providing warnings for the Cobalt”—and Thornton Chevrolet, which “knew or should have known that not performing the recall work would make the vehicle unsafe.” The Meltons asked for a jury to decide on an amount.

Product liability cases are won and lost not in the courtroom , but in the long slog of the discovery process—the establishment of facts, the boxes of documents, the endless depositions. As a young lawyer out of Emory’s law school in the early 1990s, one of Cooper’s first jobs was working for Jean Johnson, a Marietta attorney specializing in personal injury cases. Johnson threw him a case that was an uphill battle for a small firm against a carmaker with a deep bench of lawyers. In August 1992, Gary Stanger, a 36-year-old father of three boys, was driving his 1988 Ford Bronco II on a stretch of I-75 in Tennessee when the Bronco’s left rear tire tread separated from its belt. The Bronco smashed into a guardrail and flipped three times, ejecting Stanger, who was killed. His widow sued the Ford Motor Company and the dealer, alleging that the Bronco II’s design was “unstable and unfit for highway use,” and General Tire, claiming that the tire was “defectively designed and manufactured.”

What Cooper lacked in experience, he made up for in persistence, meticulously assembling the Stanger case from the ground up. He examined how the tire made it to market, despite an improper adhesion between its steel belts. His diligence paid off: After General Tire’s executives claimed potentially damning documents had been destroyed, Cooper tracked down copies from another source, according to court documents. The case was settled in December 1993.

For Cooper, the Stanger case was also an education on the automobile industry’s ignominious history of sacrificing passenger safety for profits. Ralph Nader’s landmark 1965 book, Unsafe at Any Speed , scrutinized the Chevrolet Corvair’s faulty suspension and helped establish federal oversight of motor vehicles. In 1977 journalist Mark Dowie revealed that defective gas tanks in early 1970s Ford Pintos were causing fiery wrecks; his story in Mother Jones led to a recall of 1.5 million subcompacts. In the early 1990s, Jim Butler, a Georgia-based trial lawyer, sued General Motors over the design of its mid-1980s GMC Sierra pickup truck, which contained a “sidesaddle” gas tank that could explode upon impact. The case resulted in a $105 million civil judgment in 1993.

Today few industries operate with more federal oversight than automobile manufacturers. The National Highway Traffic Safety Administration requires that carmakers abide by a strict set of safety standards. The agency conducts major investigations when failures persist. What were once optional safety features—three-point seat belts, antilock brakes, airbags—are now mandatory in vehicles sold in America. A motorist is five times less likely to die in a car accident today than 50 years ago.

Despite—or perhaps because of—all the safety enhancements, the number of defective cars on the road has reached an all-time high. In 2014 NHTSA recorded 63.9 million vehicle recalls—roughly one out of every four cars in the U.S.—breaking the federal agency’s single-year record. That year Toyota admitted to producing floor pedals and mats that caused unintended acceleration, taking at least five lives and triggering the recall of 9.3 million cars worldwide. Takata, a Japanese airbag supplier, is currently fixing more than 30 million cars in the U.S. after eight people died from exploding airbags that sent metal shards into some drivers’ faces and necks. Most recently, the world’s largest car corporation, Volkswagen, began recalling 11 million vehicles worldwide after acknowledging its diesel models contained “defeat devices” designed to cheat emissions tests.

In 1998 Cooper and a colleague opened their own firm, focusing on automobile defects. (Cooper went solo in 2006.) Over the course of his career, Cooper estimates he’s won somewhere around $500 million for his clients, much of it from judgments and settlements with carmakers: $6.7 million for a minivan’s broken liftgate, $8 million for a sedan that burst into flames after a rear-end collision, $10 million for another case involving a tread separating from a car’s tire.

Ultimately, Cooper sees each case like a product—a product he must sell to a jury. Go before them with a flawed product, and it’s a waste of everyone’s time and money. “You have to recognize what facts you need to prove, but also what the jury is going to think about the evidence you present,” he says. “You have to pin it to what’s going to be important to the jury—not just what’s important to you.” Cooper’s focus on the jury is now almost as intense as the discipline he brings to discovery. Occasionally, he will even convene focus groups of residents in the jurisdiction where a case is scheduled for trial, attempting to gauge the reaction to the evidence he plans to present.

Over the years, as he’s represented victims and survivors of horrific car accidents, Cooper has come to believe that federal regulations can do only so much. Corrupt corporate execs and engineers, he’s concluded, will always find ways to game the system. “You have to have some regulation,” says Cooper, who describes himself as an economic conservative. “But more often than not, regulations don’t work to protect people. That’s why you need the jury trial.” Not surprisingly for a liability attorney, Cooper sees the threat of seven- and eight-figure awards as the biggest incentive for car companies to do the right thing. Fear of litigation trumps fear of the federal government.

Depending on the case, Cooper’s firm keeps anywhere from 10 to 40 percent of his clients’ awarded damages. A father of five, he and his wife own a 12,600-square-foot home on a 40-acre horse farm in Powder Springs. As for what he drives, it’s a blue Range Rover with a keyless ignition. “I don’t agonize over buying a car,” Cooper says. “You almost have to distance yourself from the tragedies you deal with. You start thinking about your kids and what’s going to happen to them. It can become a little overwhelming.”

January 6, 2012 After seven months of motions and countermotions , GM finally agreed to send a team to inspect Brooke’s Cobalt. Cooper had put off his own inspection until it could be done simultaneously with GM’s. To perform it, he hired Charlie Miller, a former hot rod racer who runs a repair shop in Merigold, Mississippi. Over the past 20 years, Miller has become an expert witness in auto liability cases, working for insurance companies as well as for plaintiffs’ lawyers.

Modern automobiles are essentially rolling computers, so any evaluation of them is as much electronic as it is mechanical. On the day of the inspection, with GM’s representatives looking on, Miller attached a diagnostic computer to the Cobalt. He examined the car’s wires to see if any happened to be cut during the crash. He checked the engine control module, the small on-board computer that manages the car’s complex operations from the moment the car starts to when the key is removed. He ran tests on the body control module, the computer connected to the car’s electronic parts (power windows, air-conditioning, and door locks); the antilock brakes; and the front airbags, which hadn’t deployed given that the collision occurred on the right side of a vehicle with no side airbags. He checked the power steering.

Everything was normal.

Miller moved on to the Cobalt’s sensing and diagnostic module (SDM), a data recorder not unlike an airplane’s black box. In 1994 GM led the way in installing tamper-proof data recorders in its cars. The device acts as a sort of internal monitor, recording data—a vehicle’s speed, RPMs, pressure applied to brakes—that are essential to better understanding the final seconds before a crash. As of September 2014, all new vehicles sold in the U.S. must be equipped with an event data recorder, which tracks 15 different variables.

When Miller downloaded data from the Cobalt’s SDM, he was flummoxed. The reading showed that between three and four seconds before the crash, the speed of Brooke’s Cobalt had dropped from 58 miles per hour to a standstill—an impossible scenario given the facts in the police report, the reconstruction of the crash, and the laws of physics.

“It looks funny to me,” Miller told Cooper. “I don’t understand it. I’ve done this long enough to know that GM knows something, and they’re not telling you.”

The position of Brooke’s key proved equally perplexing. At impact, the key was not in the on position but the accessory position—where you can turn on your lights or radio, but the engine itself isn’t running. Were the mysterious deceleration and the key position related? A few weeks later, Miller called Cooper with something else: In December 2005 GM had issued what’s known as a “Technical Service Bulletin,” an internal memo that updates dealers on potential problems. The bulletin warned of a stalling engine issue with select Cobalts; this was a problem potentially related to the car’s ignition switch, a deceptively simple part that allows a driver to insert the key, twist the fob clockwise, and start the engine. It appeared that, in some cases, a car engine was shutting down simply because the key was slipping from its on position. The question was, why?

Cooper began narrowing his focus on the ignition switch, requesting more documents from GM, which led to more motions and countermotions. At the same time, Miller purchased a used ignition switch from a salvaged 2005 Cobalt, as well as a brand-new one from a GM dealer. Both had the same part number, yet to his surprise, when he turned a key in each, the older ignition switch was easier to turn from the on to off position.

Starting a Cobalt is much like starting any other gas-powered vehicle: The driver inserts a key into a lock cylinder and exerts enough force to rotate it clockwise. When that level of force—which engineers measure in units of torque—is applied, a plastic plate with notches on its edge turns inside the ignition switch. The notches, which keep a key in the on, accessory, or off position, are held in place by something called a detent plunger, a tiny metal pin affixed with a spring. The plunger provides enough tension to keep the key in position.

To learn more about Brooke’s switch—and why it seemed to require less torque than the switch found in newer Cobalts, even though it was supposedly the same part—Miller jerry-rigged a test by connecting a fish scale to a screwdriver that gave him a rudimentary reading on how much force was needed to turn each key. His conclusion? The older ignition switch required just half the force of the newer switch.

Fish scales don’t hold up in court, so Cooper contacted McSwain Engineering, a Florida engineering firm. Using a torque screwdriver, Mark Hood, one of McSwain’s materials engineers at the time, fabricated an adapter to fit on top of Brooke’s key in order to capture data regarding the rotation of the key and the force needed to turn it. Testing it again and again, he confirmed Miller’s initial findings: The old switch in Brooke’s car required only half as much force as the new switch. The next step was to dismantle the two switches to see why they behaved so differently.

Hood measured the detent plunger inside Brooke’s ignition switch: 10.6 millimeters long. By contrast, in the Cobalts that came out after 2007, the detent plunger was 12.2 millimeters long. As Cooper learned from Hood, the 1.6 millimeter difference, about the thickness of a quarter, meant the key Brooke used in her Cobalt could be jiggled into the off position with little more than the brush of a knee against a dangling keychain. Even if the car was in motion.

The discrepancy was of huge consequence to the Melton lawsuit. To Cooper, it meant GM had produced a part that failed to meet not only its own internal minimums for torque but also basic federal safety standards. For all safety-related defects, NHTSA requires auto manufacturers and part suppliers to notify the agency within five business days after learning of a flaw that could lead to an accident. GM had not. Yet someone had quite obviously changed the switch. And even if a replacement ignition switch meant the new Cobalt models were safe, failure to report the old problem meant millions of cars with defective switches remained on the road.

February 13, 2013 Lawyers for GM refused Cooper’s requests for more documents surrounding the ignition switch. Finally, Cobb County State Court Judge Kathryn Tanksley stepped in, ordering on February 13, 2013, that GM turn over all ignition switch documents. Doreen Lundrigan laid them out for Cooper. His eyes widened.

This is as bad as it gets , he thought.

The documents showed that engineers first noticed the engine stalling problem way back in 2001, four years before Brooke purchased her Cobalt. What’s more, the Cobalt wasn’t the first GM car with a defective switch; that would be the 2003 Saturn Ion. Despite internal probes over the following decade that recommended changes to the key system, no changes were made. Indeed, GM appeared to double down on the bad ignition switch, integrating it into other compact cars, including the Chevy Cobalt, Chevy HHR, Pontiac Solstice, and Pontiac Pursuit.

One document in particular, from the fall of 2004, stood out to Cooper. Just as the 2005 Cobalt was arriving in dealer showrooms, GM program engineering manager Gary Altman’s knee knocked the key out of the on position during a test drive, causing the engine to stall. He reported the problem, confirmed by a subsequent internal investigation, which offered two solutions. The first plan—changing the design to mount the key cylinder in a higher position and lengthening the detent plunger in the ignition switch—was rejected due to cost concerns. They then considered altering the fob from a slot opening for the key ring to a smaller hole opening. Even though this fix wouldn’t directly address the ignition switch problem, engineers believed it could prevent a keychain attached to a driver’s key fob from dangling as low, thus reducing the chances of a key getting knocked into the off position. But that option, as well, was rejected as too expensive. (The piece required to change the opening from a slot to a hole would have cost 57 cents per part.)

GM instead issued a bulletin, the one Miller had found, that blamed the problem on oversized keychains and short drivers. Despite that disclaimer, Cooper alleged in a court filing, consumers were offered different solutions when complaining to dealers: Some were instructed to remove items from their keychains, others were given a small adaptive insert to prevent keychains from hanging low, and a select number of irate car owners managed to score buybacks.

“In late August 2005, Brooke bought a car with a key with a slot that they know is defective,” Cooper says. “People are coming in to have their keys replaced in the service centers if they have a stalling problem. Thornton Chevrolet had the part right next door. They didn’t tell Brooke that.”

When a key slipped from the on position while a car was in motion, it meant the loss of power steering and power brakes, increasing the likelihood of drivers losing control of their vehicles. It also meant a loss of power to the sensors that deploy the front airbags. Even more surprising, Cooper discovered, was that GM knew about the airbag problem and kept tabs on the potential link to a rising death toll that began at least five years before Brooke’s crash.

As he scanned the documents, Cooper finally began to better understand the scope of the ignition switch issues. Between 2005 and 2010, the carmaker had documented hundreds of crashes related to a stalling engine, an airbag failing to deploy, or a combination of both problems. On July 29, 2005, Amber Marie Rose, a 16-year-old high school student from Clinton, Maryland, died because her airbag didn’t deploy after her 2005 Cobalt collided head-on with a tree. GM, which had found that Amber’s key had jolted out of the on position, entered into a confidential settlement with her mother. Her crash was one of many in GM’s files: There was the Cobalt that wrapped around a tree in Baldwin, Louisiana, in November 2005; the Cobalt that struck a light pole in Lanexa, Virginia, in February 2006; the Cobalt that smashed into a utility pole in Frederick, Maryland, in March 2006. Every time GM received notice, the company opened a file, with each one referenced by the victim’s last name: Freeman in Tennessee and Frei in Pennsylvania, Gathe in Louisiana and Grondona in Florida, McCormick in West Virginia and McDonald in Texas, White in Pennsylvania and Wild in Wisconsin. And on and on.

That pattern repeated over the years—before Brooke went car shopping, after Brooke drove off the lot, before Brooke went in for repairs, after Brooke had plunged into the creek. It continued well after GM declared bankruptcy in 2009. Launch a probe, receive a safety recommendation, reject the potential fix due to costs, and expand the internal bulletin. All the while, GM’s customers were kept in the dark about the potentially fatal flaw of the cars they owned.

“Candidly, I think they probably would’ve discovered what I discovered eight years later,” Cooper says. “It would’ve saved all these people’s lives.”

Free from such restrictions in Georgia, Cooper amended his original Melton complaint in March 2013 to capture the ignition switch issues. In his mind, however, the most important question remained unanswered: Who had approved the replacement of the faulty switch without informing NHTSA that older Cobalts needed to be recalled? By that point, Cooper had flown to Detroit a half dozen times for depositions with 13 engineers. For several months he had targeted Ray DeGiorgio, the lead engineer in charge of the team that designed the Cobalt’s ignition switches, as among the employees who might have the answer.

The DeGiorgio deposition occurred at the Westin Hotel at the Detroit Metropolitan Airport on April 29, 2013. The deposition was videotaped; in it Cooper can be heard peppering DeGiorgio, a graying, soft-spoken man in a black suit, with questions about the ignition switch and why the change was never reported.

DeGiorgio denies making the change.

“There were no official changes,” he says.

He denies knowledge of the manufacturer, Delphi, making a change.

“If there was something changed at the supplier side, we were not aware of it, and we did not approve it.”

He denies seeing problems after dismantling one switch.

“I saw nothing out of the norm that would suggest, you know, a potential issue.”

More than halfway into the five-hour deposition, Cooper lays a black-and-white X-ray photo of the 2005 Cobalt detent plunger in front of DeGiorgio. Then Cooper lays out a photograph of the replacement switch. At Cooper’s request, DeGiorgio holds up both exhibits toward the camera. In response to a question from Cooper, DeGiorgio says it’s the first time he’s ever seen the difference in the two plungers.

Cooper asks him about the potential effects such a change may have. “It’s hard to determine from these pictures,” he says. He points to the purchase of his son’s 2007 Cobalt as a testament to his belief in the product.

“There’s no way I would’ve done that and gave the car to my kid had I had any reservations,” DeGiorgio says.

Near the end of the deposition, Cooper asks DeGiorgio: “As you sit here today, do you have any explanation as to how there could be this change and no one from GM knowing about it? That’s never happened before to you, has it? Suppliers always make you aware of changes, don’t they?” DeGiorgio takes a breath. “In general, suppliers do tell you about changes,” he says.

The sun was about to set by the time Cooper turned off the camera. DeGiorgio’s deposition was supposed to be the linchpin. But through five hours of questioning, the engineer had pleaded ignorance. With no document to confirm who made the ignition switch change, a key component of Cooper’s case still eluded him.

A few days after interviewing DeGiorgio , Cooper conducted one of his final depositions with Brian Stouffer, a GM engineering group manager who led an internal airbag investigation—an effort that first started in 2010 but had hit repeated dead ends. Cooper, believing a recall was in order, handed Stouffer evidence that pointed to the root of the ignition switch problem. Stouffer told Cooper he’d look into it. But there was no immediate recall.

By now, Cooper began to see GM’s recalcitrance as evidence not merely of negligence but of recklessness. Cooper, still searching for the smoking gun, requested more documents regarding the ignition switch. GM, standing by DeGiorgio’s testimony, said there were no more documents to turn over.

“We knew that GM knew,” Cooper says. “And we thought we could prove to a jury, even if we didn’t have a smoking gun, that they made the change.”

Over the summer of 2013, GM’s attorneys at King & Spalding began pushing to settle the Melton case. The carmaker, Cooper believed, would pin part of the blame on Thornton Chevrolet for not fixing Brooke’s key. As much as Cooper wanted to go to trial, he consulted with the Melton family, and they agreed to negotiate a settlement with GM while continuing to pursue the case against Thornton Chevrolet. After all, Cooper says, one of its technicians had admitted that he should’ve found the Technical Service Bulletin in his system when Brooke came in for repairs. On September 9, 2013, the Meltons settled with GM for $5 million, a sum that would become public only later. As part of the settlement’s conditions, GM agreed to let Cooper retain its documents, ensuring the public would learn the full details of the cover-up—but not while the lawsuit against Thornton Chevrolet continued.

Meanwhile, GM was conducting its own investigation into potential ignition switch defects in millions of its cars. In a letter dated February 7, 2014, a GM official informed NHTSA that the company would recall the ignition switches in 780,000 Cobalt and Pontiac G5 cars sold between 2005 and 2007. The reason, the official explained, had to do with the low levels of torque needed to move some ignition switches into different positions. If defective, the company acknowledged, a heavy key ring or a “jarring event” could knock the key out of the on position and, when timed right, could result in airbags not deploying in a collision.

News of the recall rocked the auto industry. Throughout that day, the Cooper Firm’s phones rang off the hook as other victims inquired about representation for their own ignition switch problems. But Cooper took no pleasure in GM’s announcement. Based on the documents in his possession, he believed the recall included only a fraction of the cars that had the defective ignition switch. He also was shocked at the way GM was managing the message—acting as if it had taken steps to order the recall as soon as it knew of the problem. Cooper knew that was not the case.

Twelve days after GM’s recall notice, Cooper wrote a letter on behalf of the Meltons to NHTSA that pointed out the recall wasn’t wide enough. He also demanded that the agency investigate why the company failed to report the safety defect within five days of identifying the flaw years earlier. Cooper contacted national media outlets to spread word of the need for a bigger recall.

“GM was stuck,” Cooper says. “They had to give NHTSA a reason why they hadn’t done more of a recall. They were in trouble.”

With pressure mounting, GM six days later expanded the recall to 1.37 million vehicles. In federal filings for the recall, GM admitted, without delving into details, its knowledge of a GM engineer who signed off on a document to approve the ignition switch change. Congress scheduled hearings. CEO Mary Barra, who’d just taken over GM in January, hired Anton Valukas, the former federal prosecutor who probed the Lehman Brothers collapse, to examine the carmaker’s failures. The company scrambled to produce more than 200,000 pages of documents for federal regulators. GM ultimately conducted a record number of recalls, 84 in total, for a host of different safety issues that affected more than 30 million vehicles worldwide.

April 1, 2014 At the start of the two-day congressional hearing titled “The GM Ignition Switch Recall: Why Did It Take So Long?,” Barra promised to revamp GM’s cost-centric culture, to inject a greater sense of urgency toward safety issues, and to promote greater accountability within the company.

“Whatever mistakes were made in the past, we will not shirk from our responsibilities now and in the future,” Barra told lawmakers. “Today’s GM will do the right thing.”

Ultimately, the smoking gun Cooper had been seeking, a document from a GM engineer that authorized changing the ignition switch, came by way of the congressional investigation. The 2006 work order, authorizing supplier Delphi to increase the torque force of its ignition switch, bore the signature of Ray DeGiorgio.

That wasn’t all. As it turned out, DeGiorgio’s 2006 order came four years after an email he wrote to the ignition switch manufacturer, in which he ordered the company, rather than fix the part and incur delays, to “do nothing.” The email was signed “Ray (tired of the switch from hell) DeGiorgio.”

The Valukas report ended up naming the engineer 357 times, finding no other GM employee aware of either the decision to approve the faulty switch or the decision to replace it. The report also described the disturbing pattern of disregard for the defect. This could be witnessed in gestures such as the “GM Nod”—in which GM employees affirmed the need for a plan of action, but understood no one actually intended on following through—and the “GM Salute,” described by one employee as the “crossing of the arms and pointing outward towards others, indicating the responsibility belongs to someone else, not me.” In response to the report, which cleared executives of wrongdoing, Barra fired DeGiorgio and 14 other midlevel employees over their “pattern of incompetence and neglect.” In November 2014, DeGiorgio told the New York Times , “All I can say is that I did my job. I didn’t lie, cheat, or steal.”

Anticipating a deluge of lawsuits, Barra authorized a victims’ compensation fund of $625 million and hired as its administrator Kenneth Feinberg, who oversaw the 9/11 and BP oil spill payouts. More than 4,300 people filed claims. Of those received, 399 were approved, including more than a dozen individuals and families represented by Cooper, the attorney who made them all possible.

“It took the company so long to come forward,” says Carl Tobias, a law professor at the University of Richmond who studies product liability. “It took a decade, a number of people died, and a number of people were injured. Cooper’s work was critical to moving everything forward. Without that, who knows where we would be?”

In May 2014, Cooper refiled the Meltons’ lawsuit against the carmaker, citing DeGiorgio’s perjury and including an additional allegation of fraud.

“When we learned they lied to us during the congressional hearing, we wondered what we could do,” Beth Melton says. “From my mind, they hid this for 10 years, sold Brooke a brand-new car with a defect, people were dying, and they were lying to us. They still were lying to us [after the settlement]. Lance didn’t want them to get away with this.”

However, Ken and Beth, who were pivotal in exposing GM’s actions to the greater public, realized they were no longer slated to be the first plaintiffs headed to trial. With that in mind, Cooper settled the lawsuit against GM in March 2015 for an undisclosed amount—later revealed to be more than $6 million—and against Thornton Chevrolet for a confidential figure.

Photograph by Matthew Coughlin

September 17, 2015 From his office at the foot of the Brooklyn Bridge , U.S. Attorney for the Southern District of New York Preet Bharara announced his department had struck a deal with GM. Criminal prosecution would be deferred for three years, provided the company met the terms of the settlement. “There is actually no existing law specifically designed to impose criminal penalties for this kind of conduct—the nondisclosure of safety defects by a car company,” he said. “There have been attempts at such a law, but those attempts have failed. In the end, we can only do what the law allows and permits, and what, in our best judgment, justice requires.”

Bharara’s deal with GM called for the carmaker to admit to concealing defects that resulted in the deaths of 15 people—far fewer than the 124 people approved for fatality claims through the Feinberg fund—and to let an independent monitor watch over the company as it enacted safety reforms. Bharara also negotiated a $900 million fine against the carmaker—less than the record $1.2 billion fine Toyota paid in 2014 for concealing safety defects, but more in total given the $575 million the company will pay out in civil settlements. No GM employees were charged with wrongdoing.

Cooper was livid. He issued a statement from his office: “When individuals, through their reckless conduct, cause someone to die, they go to jail. When large corporations, such as GM, through their reckless conduct cause hundreds of people to die, they simply pay a fine . . . and move on.”

Three weeks later, Cooper pushes open the glass-paned doors of his law firm’s new office—twice as big as his old quarters, filled with exposed brick and hardwood floors, located a few blocks away from the hospital where Brooke died—and heads to the tiny sandwich shop around the corner.

Several months have passed since he finished his work with the Meltons. Dressed casually compared to most days—plaid button-down shirt, suede shoes, no jacket—he’s still angry over GM’s settlement with the Justice Department. He brings up Stewart Parnell, the 61-year-old head of a peanut butter company in southwest Georgia, who in 2015 was sentenced to 28 years in prison for ordering the shipment of a paste contaminated with salmonella that caused nine deaths.

“At some point in time, GM’s conduct became reckless, and then it almost became intentional because they weren’t doing anything about what they knew,” Cooper says as he readjusts the white square napkins around his red sandwich basket. “Their conduct has caused well over 100 deaths at this point—I’m sure there were more unreported—and they have to pay a fine.”

When asked for comment, GM spokesperson Jim Cain referred to the statement of facts outlined in the company’s settlement with the U.S. Department of Justice. In the agreement, GM acknowledged that it had known about the ignition switch’s flaw, continued to sell defective vehicles, assured the public that its cars were safe, and concealed a “potentially deadly” defect from NHTSA to delay a recall. A lengthy footnote on the agreement’s first page, however, noted the company couldn’t be held liable for any conduct that came before its 2009 bankruptcy. As far as Cooper’s quotes, Cain said, “We’re not going to respond.”

Starting this month , Cooper will be closely watching a multidistrict litigation out of New York, whose outcome will affect cases involving 84 deaths and 370 injuries based on the evidence discovered in the Melton investigation. Later this year, Cooper plans to assist two other firms in preparations for ignition switch lawsuits involving a 2005 Cadillac CTS in Conyers, Georgia, and a 2006 Chevy Cobalt just north of Louisville, Kentucky. He also will take on another GM case of his own, on behalf of Acworth resident Darah Worthington. Four years ago, Worthington lost control of her 2004 Chevy Malibu as she navigated a curve, breaking both her leg and hip in the accident. This time, Cooper suspects, an alleged power steering malfunction, similar to the one in the recall propelled by the Melton case, caused the accident.

Leading up to the new round of trials, Cooper says the signs of the old GM that Barra pledged to do away with have already returned. Over the past year, he says, the company has continued to deter cases from heading to trial, to deny full responsibility for its role in accidents, and to fight to be shielded from punitive damages for accidents that occurred before GM’s bankruptcy.

“GM hasn’t really changed their ways at all, even though they want the public to believe they have,” Cooper says. “They’re trying to make sure that victims of the defect are not made whole.”

Meanwhile, Ken and Beth Melton have sold their Kennesaw home and left metro Atlanta, the place where Brooke grew up. Last June, five years after their daughter’s death, they bought a house in Destin, Florida, two miles from the Gulf of Mexico. “We were moving on with our lives,” says Ken. “Trying to change our surroundings.” Before they left Georgia for good, though, the Meltons donated part of the GM settlement to a nonprofit that conducts car safety research and publishes a quarterly “watch list” highlighting motor vehicle defects. Their hope is to prevent more tragedies like their own.

This article originally appeared in our January 2016 issue.

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