The American government should not own a car company.
That was a wise stance back in 2008, before Barack Obama was elected president; it was a wise stance from 2009 through 2013, when the U.S. government owned a large but gradually shrinking portion of General Motors stock; and it is a wise stance today. Sadly, those who liked the era of “Government Motors” are determined to avoid any serious examination of that policy — perhaps because President Obama and his fans have persuaded themselves that the auto-industry bailout was one of the biggest successes of his presidency.
That argument was metaphorically kicked in the crotch this month when the public learned that GM continued to make cars with a life-threatening defect during the era of government ownership. Joe Biden liked to boast, “Osama bin Laden is dead and GM is alive!” Indeed he is dead, and so are 13 people who were involved in car accidents linked to a defective ignition switch.
Automakers recall cars with some regularity, but this episode is different in scale, seriousness, and skullduggery. In mid-February, GM announced the recall of almost 800,000 Chevrolet Cobalts and Pontiac G5s, because of a flaw in the ignition switch. GM explained that a heavy key ring or key chain can pull the key into the Off position if the car hits a bump. This would turn the engine off, creating high risk of an accident; even worse, the car’s power steering, power-assisted brakes, and airbags won’t function with the engine off.
Every few days, GM expanded the recall to more models and model years; the recall now includes all 2005–2010 Chevrolet Cobalts, 2005–2010 Pontiac G5s, 2003–2007 Saturn Ions, 2006–2011 Chevrolet HHRs, 2005–2006 Pontiac Pursuits (manufactured in Canada), 2006–2010 Pontiac Solstices, and 2007–2010 Saturn Skys. GM’s total recalls now exceed 6 million vehicles.
But most disturbing is that at least some GM engineers knew about the problem for years. In 2002, the automaker approved the design for the new ignition switch from manufacturer Delphi even though the supplier told them that initial tests showed the switch didn’t meet GM’s specifications. The company investigated the switches, and found them faulty, for at least a decade. Perhaps the most jaw-dropping detail is that the cost of replacing each switch was 57 cents.
The New York Times reported that engineers at GM reviewed data in the black boxes of Chevrolet Cobalts at a meeting on May 15, 2009, and confirmed that the potentially fatal defect existed in hundreds of thousands of cars. The Obama administration and GM’s management finalized the terms of the bailout at the end of that month. It’s not yet clear who at GM knew this shocking and scandalous information, but at least some GM employees knew they were selling dangerous cars at the precise moment they were asking for taxpayer money to stay in business.
This is a gargantuan problem for GM, but so far the press is covering it as a corporate scandal, not a government scandal. Very few individuals in the Obama administration, the auto industry, or the press want to reexamine the bailout and the government’s role in helping to keep these unsafe cars rolling off the assembly line and onto the nation’s roads.
During the bailout the federal government pumped $49 billion into General Motors, accepting shares of GM stock in return. The stock was gradually sold from November 2010 to December 2013; taxpayers ultimately lost $10.5 billion on the deal. (When the government sold its first shares, President Obama boldly predicted, “American taxpayers are now positioned to recover more than my administration invested in GM.”)
There are still plenty of unanswered questions about who knew what about the faulty switches and when; right now the best-case scenario for the Obama team is that GM’s management played the administration and the taxpayers for suckers. The worst-case scenario is that the government, which was literally invested in the success of GM, didn’t look too hard or at all at problems within the company.
Shortly after taking office, President Obama established an Auto Industry Task Force to review the crisis America’s automakers were facing and set up a response plan. Steve Rattner, a founder of Quadrangle Group, a private-equity firm, was chosen to head the task force although he had little or no experience in the auto industry. Usually a ubiquitous television talking head on economics issues, Rattner has declined comment in response to media inquiries since the GM recall scandal broke.
An unnamed source told Bloomberg BusinessWeek that GM didn’t tell the task force anything about the defective switches. It’s an unsurprising excuse, but not quite as exculpatory as that unnamed source may think. The task force’s job was to get an accurate portrait of GM’s assets, liabilities, and problems, and the source said GM’s board and the task force did discuss product-liability claims. The Obama administration bragged about the thoroughness of its review. At this point, it is unclear whether the task force spoke with anyone in the engineering department. It appears that at the precise moment the president’s task force was supposedly confronting GM about a dysfunctional corporate culture that had brought the company to the brink of ruin, it accepted everything GM’s leaders told it at face value.