Product Safety Problems in the Auto Industry due to a lack of Integrity in Business Practices

Last week I heard that General Motors recalled 1.37 million vehicles sold in the U.S. with a faulty ignition key. Some of those keys, while in the ignition, could inadvertently move out of the "run" position, turning off the engine and some of the electrical components. One of the side effects was that the airbags could unintentionally be turned off.  According to the National Highway Traffic Safety Administration, there have been 31 accidents and 13 deaths related to the faulty keys.

For GM, the issue, which involves 2003 to 2007 models, dates to 2004, when questions about the key surfaced. But it wasn't until early in 2014 that the automaker issued a recall. That time lag is at the heart of a special order from the legal counsel office at the NHTSA.

From an ethical (and legal) perspective the questions are: (1) What did GM executives know? ; (2) When did they know it? and (3) Did they move as quickly as the law requires to issue a full recall of the ignition keys?

Less than two months after taking over GM and being hailed as a sign of how much the country's largest automaker has changed, CEO Mary Barra  is facing a huge test. Can she steer GM through a recall investigation that threatens to damage the automaker's reputation?

Barra knows just how serious the investigation is for her company. The same day NHTSA sent its list of questions to GM, she announced the automaker had "launched an internal review to give us an unvarnished report on what happened."

In a letter to employees, Barra said, "First and foremost, everything we are doing is guided by one unwavering principle: Do what is best for our customer. Customer safety and satisfaction are at the heart of every decision we make."

There's no reason to believe Barra is not sincere. She knows GM has to move quickly to stop the lingering questions about the safety and quality of its models.

It didn't help matters that Alan Batey, the new president of GM's operation in North America, issued a statement in late February, saying GM's handling of the recall investigation "was not as robust as it should have been."

Batey’s statement is insulting to the public and comes after a major recall at Toyota. In 2009, Toyota encountered a problem with some of its models due to the unintended acceleration. Toyota was hesitant at first but under pressure from the U.S. Congress, the company did take corrective action. Toyota’s fix was to first cut the length of the accelerator pedals until replacement pedal assemblies became available and to install a brake-to-idle algorithm on affected models. In December 2012, the company agreed to pay about $1.1 billion to settle a class-action lawsuit stemming from complaints about the unintended acceleration.

The failure of Toyota and GM to handle the recalls in a responsible manner brings into question their business ethics. GM’s corporate citizenship statement includes: Doing the right thing remains at the core of ethical business conduct. Toyota’s code of conduct includes providing clean and safe products. Both companies have now demonstrated by their inactions that they do not “walk the talk” of ethics.

Product safety is a problem that has plagued American business for long time. In the automobile industry it dates back to the early 1970s when it was discovered that in Ford Pintos when the cars experienced an impact at speeds of only 30 miles per hour or less, they might become engulfed in flames, and passengers could be burned or even die. Ford did nothing about the problem, which was due to the fact that gas tanks that were placed behind the license plates back then could rupture and spraying sparks could ignite the car in flames and passengers could be burned or die.

In the Pinto case the company conducted a cost-benefit analysis and determined it would be cheaper to fight the lawsuits than spend what was necessary to protect the gas tanks and make a safer car. From an ethical perspective, the company failed to see that the driving public has a right to get into a car and not expect it to be engulfed in flames as a result of low-speed accidents.

In business, when the top management does not have unquestionable integrity and highest business ethics, it seems it is too much to expect responsible behavior. What is more, the lack of the business integrity is the root cause of the recall crises. It is important for the company to promote highest business ethics and put the product quality and safety at the top priorities when making critical decisions. As with Toyota and Ford, GM is learning this lesson the hard way.

Blog posted by Steven Mintz, aka Ethics Sage, on March 11, 2014