General Motors waited more than a decade to recall 1.6 million defective Chevy Cobalts, Saturns and Pontiac G-Ss with faulty ignition switches that could cut off engine power and electrical systems, disabling the air bag and leaving occupants vulnerable to serious injury. Thus far, the defect has been linked to 13 deaths.
GM’s corporate delinquency and callous disregard for persistent quality control problems are so disturbing that many find it difficult to reconcile them with company leaders’ constant claims that the company has a different organizational culture than the one that was in place when these lapses occurred. GM has reinvented itself, the story goes, and now builds the safest and best cars in the world.
The coming months will tell us a lot about whether those claims are just talking points or if new CEO Mary T. Barra, a 33-year veteran of the company, has truly transformed GM.
Last month Barra told a congressional hearing about the overhaul of GM’s corporate culture. These days, “creating a new culture” is one of the phrases CEOs need to wield to make their way in corporate America. The new CEO is going to push middle management and old timers to think and act differently, shedding its hidebound culture and putting the customer first.
After dominating the U.S. car market for most of the 20th century, the glory days of GM and the American auto industry began to unravel in the early 1970s. GM, for example, had a majority of the U.S. market in 1962 and was the undisputed leader in global car sales between 1931 and 2008. By 2009, this great American icon’s market share had fallen to less than 20 percent.
One reason GM and other American automakers lost their way is because senior management built strategies around the flawed assumptions that oil would be readily available and cheap, and American drivers would continue to buy large vehicles. Given their inflated cost structures, these were the only vehicles American car manufacturers could sell at a profit. On average, GM spent about $1,600 per car more than their foreign counterparts on pension, health, life insurance and other worker and retiree benefits.
The 2008 financial crisis hit the industry hard. U.S. auto sales declined by 18 percent from 16.1 million units in 2007 to 13.2 million units in 2008. Meanwhile, the price of a gallon of gas rose to over $4 in the summer of2008, up from about $2 in 2005. In 2009, the credit crisis, coupled with an already-declining market share, redundant product offerings, huge legacy costs and customer perceptions of poor quality pushed GM into bankruptcy court protection.
By handing GM close to $58 billion under the Troubled Asset Relief Program, the feds became the company’s de facto owner. Washington provided additional help by waiving the payment of $45.4 billion in taxes on future company profits, offering a $7,500 tax credit to consumers who bought the Chevy Volt, the Cash for Clunkers program, and an exemption from product liability on cars sold before the bailout.
In November 2010, GM returned to private ownership by launching a successful initial public offering.
But just as people have distinct personalities, so too do organizations. Transformation takes time. Culture is the product of the firm’s organizational structure, the system used to reward senior management and motivate and shape employee behavior. Old loyalties, behaviors and identities are hard to change. They produce a massive amount of inertia which has to be overcome.
Does Mary Barra’s long tenure at GM doom her to repeat past strategies and traditions such as the slow response to safety issues? Can a company lifer drive the kind of major change Ford saw after it recruited Alan Mulally from Boeing in 2006 and he pulled the company back from the brink of collapse just two years later?
General Motors again faces the risk of years of costly litigation and a significant loss of brand equity and market share. Hey, no problem. GM is too big to fail.
originally published: May 3, 2014