GM’s Big Recall: Brand Image Crisis or Temporary Headwind?
If anyone was looking for a test of General Motors’s (NYSE:GM) CEO Mary Barra’s mettle, the growing recall scandal surrounding the ignition switch defect should prove more than sufficient. Just two weeks after her inauguration, the company let loose with what would become one of the largest recall efforts in history — an effort exacerbated by the lengthy ten-plus year delay between the identity of the problem and the effort made to do something about it. However, now that GM has committed to making things right, many are wondering what impact such a monumental effort will have on the brand, which was already struggling to revive its image after emerging from a hotly contested federal bailout.
The decision to bailout General Motors from bankruptcy had its share of critics and proponents, and although the benefits and cons of the decision are still argued today, it seems that overall, the move was a beneficial one for taxpayers in a sort of twisted way, despite the Treasury coming up short on its liquidation of GM assets over the last few years.
General Motors, then under the oversight of Dan Akerson, saw the action as a sort of rebirth, an opportunity that it could use to rebrand itself as a renewed company that was casting aside its reputation of old, cumbersome, and crippled by bureaucracy, in favor of one of renewed vigor. The new company would ride on the backs of new vehicles across all of its brands, in efforts to once again win over the country’s trust in a cornerstone of American commerce.
Things seemed to be recovering well. The decision to cut out a handful of brands from the company’s bloated portfolio to focus on the four core names — Chevrolet, GMC, Buick, and Cadillac — has done wonders for the company’s efforts to revitalize them, and the appointment of GM’s first female CEO in January generated further buzz and excitement about the company’s future prospects.
Hardly weeks later, like that, the forward brand image momentum of a re-energized company came to a near standstill as the company recalled 778,000 vehicles for a defective ignition component, an effort that was later doubled, and then expanded further. Suddenly, the “New GM” was being probed by the National Highway Traffic Safety Administration, a House subcommittee, and subjected to its own internal review as the recall grew into a scandal when it was revealed that GM knew of the issue since 2001, and despite thirteen confirmed deaths tied to the problem, didn’t lift a finger about it until January of this year.
Overnight, Mary Barra went from a position of guiding the ship through smooth waters with a tailwind to playing defense for problems that were simmering below the surface for over a decade, on the watches of those who held her CEO seat before her. Like Toyota’s (NYSE:TM) infamous unintended acceleration issues some years back, GM was now facing public wrath aimed at the new entity that was supposed to represent the rebirth of a tired and antiquated business.
However, despite the bad press and the ongoing findings that paint GM in a continuously bad light, consumers don’t appear to be holding the new company accountable for its actions that forced the recall of 2.6 million vehicles, by the latest count. GM’s sales remained robust with the industry through the month of March, including those of small cars, which were the primary targets of the ignition recall.
CEO Barra has also been quite good at distancing herself from the problem. Not by evading responsibility for the issues, but rather pledging to take care of the customers affected by the problem and putting safeguards in place to ensure it doesn’t happen again. Barra was informed of the problem not two weeks into her term as CEO, initiated the necessary warnings and precautions, reached out to the affected owners and families, and set about working towards making sure this scenario wouldn’t be repeated. New GM or not, that’s just good business practice that should be recognized no matter how one feels about the company.
However, any company suffering a recall of this scope with a body count attached is going to have bruises to bear moving ahead. Toyota, which recently agreed to payout $1.2 billion as a result of its acceleration debacle, will have that incident resting on the public conscious for some time, and it’ll likely be the same story for GM.
History hasn’t shown these sorts of incidents to be a death sentence for a brand, either. Toyota is still the largest manufacturer in the world, despite its multi-million unit recall, and despite playing in the unpleasant spotlight at the moment, General Motors will find that attentions will soon turn back toward the efforts that the company is making with its new vehicles, allowing the New GM to move past the faults of the Old GM.
GM will be grappling with this for some time, and it’s easy now to sit and point fingers about how the company demonstrated irresponsibility — and on the outside, it appears they did, not just on GM’s side, but on the NHTSA’s side also. However, as more light is being shed on the problem, the issues were not as evident as they appear to be now.
“I wish these crashes were as simple as they appear to be,” said David Friedman, NHTSA’s acting administrator, told members Congress investigating the recall earlier this month, Auto News reported. “I wish the connection was as direct as we now know it is.” Reportedly, it’s not entirely uncommon for airbags to fail for one reason or another; on the investigative side, the dots weren’t that easy to connect. Documents reveal that in many of the reported accidents, there were other factors — drunk driving, for instance — that disguised the defect initially, distracting from the problems with the vehicle.
The full effects and reverberations of the recent developments will likely be hanging around for some time yet, and GM’s brand reputation moving forward will depend heavily on its commitement to seeing the effort through to the end. The company has some goodwill to make up with a particular set of angry legislators, who were not impressed by CEO Barra’s testimony on the matter, but as more developments come to life, GM still has a chance to come clean.