What GM Can Learn From its Ignition Switch Problem

Cultural issues plague the auto giant.

Jun 10, 2014 at 7:39AM

The verdict is in. There wasn't a coverup after all. According to an internal probe, top executives at General Motors (NYSE:GM) did not try to hide the ignition switch defect that has plagued the company for over a decade, and tragically led to at least 13 deaths and numerous accidents. There was no conspiracy at the top, but "cultural" issues do exist at the auto maker. Newly minted CEO Mary Barra says the problems will be fixed.

The total financial cost to GM will probably exceed $1 billion. In addition, the company's reputation, already at a low level as it reemerges from bankruptcy and a federal government bailout, will continue to suffer.

Can GM right the sinking ship and what lessons can American businesses learn?

A housecleaning
A handful of employees, including the engineer responsible for the design of the switch, were terminated because of "incompetence and neglect." The buck didn't make it to the C-suite but stopped further on down the food chain. 

The problem began when the switch was incorrectly designed, probably over a decade ago, and festered for many years because the part number was not changed even after the device was subsequently improved. Service departments at car dealerships kept installing faulty parts that were still in inventory when customers came in for repairs, according to USA Today.

Silo effect
The systemic problems at GM that led to the fiasco, including the "silo" effect or a lack of timely communication among different departments, are fairly common at many large organizations, according to management experts. Another notable example of the phenomenon was the 1986 space shuttle Challenger tragedy. In silo-based companies one hand doesn't know what the other is doing. 

It could be long and difficult road ahead for a company as large as GM, with its 219,000 employees, to fix the root causes of the switch defect. Even after the Challenger disaster NASA still never solved all of its problems. Another shuttle, Columbia, was lost during reentry into the Earth's atmosphere after a mission in 2003. It's possible that GM will fail in its efforts to fully change its culture and similar issues could crop up in the future.

Lessons to be learned
As it works its way though the process, General Motors might want to benchmark other businesses that have had to respond to similar safety-related issues.

Fellow automaker Toyota Motor Corp (ADR) (NYSE:TM) went through a crisis several years ago when accidents due to "unintended acceleration" occurred. At least 37 fatalities were attributed to the events, which the company indicated were due to issues involving the accelerator pedal. Toyota ultimately issued three separate recalls, totaling more than 9 million vehicles worldwide, to solve three somewhat interrelated problems. Some of the accidents were due to the floor mat becoming tangled with the accelerator pedal. In some instances the pedal itself jammed leading to uncontrolled acceleration. Another problem corrected was a software defect in the anti-lock braking system. 

The company also had to settle a lawsuit that implied that some of the cars in question were susceptible to "cosmic rays" affecting the throttle control system. Ironically NASA was part of the team that investigated this piece of the puzzle, although according to some never finished its analysis.

Perhaps the space agency has never really worked out its own inherent problems. Toyota seems to have made the necessary improvements and no major safety problems have occurred since. 

Foolish conclusion
Although an internal investigation regarding an ignition switch defect exonerated top-level executives at General Motors, a cultural change at the big auto maker needs to happen to prevent more incidents down the road. The company has a big challenge ahead of itself.

Another large organization, NASA, that has gone though similar issues may not have fully implemented all needed changes. General Motors may want to study how Toyota Motors handled its unintended acceleration problem for clues about how to proceed. 

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Mark Morelli has no position in any stocks mentioned. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Jun 12, 2015 at 5:01PM

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