GM's post-recall strategy pays dividends

GM

GM expects to pay up to $400 million in compensation for victims of its defective ignition switches.

General Motors says compensating victims of its faulty ignition switches will cost $400-600 million, maybe more. That doesn’t include repairs and other costs associated with multiple GM recalls. The company’s recall crisis isn’t readily apparent in auto sales numbers. New GM cars are selling well, without the company having to offer big incentives.

“It’s amazing. General Motors would have had an outstanding quarter had it not been for all of the costs associated with the recalls,” says AutoTrader senior analyst Michelle Krebs.

Car industry watchers credit GM’s improved public relations response after early bumbling. But not everyone is impressed.

“If I were grading them in my class, they’d get a low pass, which is sort of the equivalent of a D,” says Paul Argenti, who teaches corporate communications at Dartmouth’s Tuck School of Business.

He wants to see the company better explain how it’s going to change a corporate culture that led to serious, deadly engineering flaws getting on the road. That goes beyond a simple PR response. It’s a real leadership challenge for CEO Mary Barra. Breaking decades of bad habits is a lot harder than fixing an ignition switch.

“All of what she’s doing and all of what she says will go for naught if a year from now, it’s business as usual,” says auto analyst Maryann Keller.

Mark Garrison: You wouldn’t think GM is the company going through a recall crisis based on sales numbers.

Michelle Krebs: It’s amazing. General Motors would have had an outstanding quarter had it not been for all of the costs associated with the recalls.

AutoTrader senior analyst Michelle Krebs adds that recalls actually provide a sales opportunity.

Krebs: A lot of these recall people are coming into the dealership and liking what they see in the showroom. They get their recall fixed, but they buy a new car.

And GM is driving sales without giving away the store, says Sean McAlinden with the Center for Automotive Research.

Sean McAlinden: They have not resorted to incentive campaigns to keep their sales up. Profitability on some of their newer models is very healthy.

Car industry watchers credit GM’s improved PR response after early bumbling. But Paul Argenti, who teaches corporate communications at Dartmouth’s business school, isn’t impressed.

Paul Argenti: You know, if I were grading them in my class, they’d get a low pass, which is sort of the equivalent of a D.

He wants to see the company better explain how it’s going to change a culture that led to serious, deadly engineering flaws getting on the road.

Argenti: What people wanna know in a crisis is why it happened. But then they also wanna know why that’s just not gonna happen again.

And that’s a real leadership challenge for CEO Mary Barra. For auto analyst Maryann Keller, it’s about action, not talk.

Maryann Keller: All of what she says will go for naught if a year from now, it’s business as usual.

And breaking decades of bad habits is a lot harder than fixing an ignition switch. I'm Mark Garrison, for Marketplace.

About the author

Mark Garrison is a reporter and substitute host for Marketplace, based in New York.

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