Duped or Complicit?

by Jim Geraghty
The bad idea of bailing out General Motors turns into a scandal.

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.

The American government should not own a car company because it inevitably creates a conflict of interest; the federal government is financially invested in the company making the cars and is hoping to make (or at least not lose) money off their sales, at the same time that it is inspecting, investigating, regulating, and punishing both that company and its rivals.

In February 2010, by which time the era of Government Motors was well underway, Toyota faced claims that its cars were accelerating unexpectedly. Obama’s transportation secretary, Ray LaHood, testified before a House Appropriations subcommittee and, in the words of USA Today, “went nuclear in his tirade against Toyota,” declaring, “My advice is, if anybody owns one of these vehicles, stop driving it.” Toyota stock plunged; later in the day, LaHood walked back his remarks: “What I meant to say, what I thought I said, was if you own one of these cars, take it to the dealer. If you’re in doubt, take it to the dealership today and have them look at it and have them fix it.”

But much later, LaHood’s department found evidence that a significant portion of the claims against Toyota reflected driver errors, not defective cars:

The National Highway Traffic Safety Administration has some good news for Toyota Motor Corp. Of the 58 data recorders analyzed by the agency and the company, 35 showed that the brake pedal was not depressed at the time of the crash. Partial braking was involved in 14 other cases. Drivers were hitting the gas pedal instead of the brake. In short, electronics was not the issue. Human error was.

By February of 2011, LaHood was singing a very different tune: “The jury is back. The verdict is in. There is no electronic-based cause for unintended high-speed acceleration in Toyotas. Period.”

In March of this year, Toyota agreed to pay a $1.2 billion fine to settle a four-year federal criminal investigation into whether it properly reported safety complaints about the sudden acceleration of its vehicles to regulators. (Note that the alleged crime is failing to properly report the complaints, not manufacturing unsafe cars.)

Meanwhile, in 2007 and 2010, the NHTSA considered but ultimately declined to start a formal investigation of the GM vehicles and reports of air bags failing to deploy.

Thus the Obama administration’s Departments of Transportation and Justice came down like a ton of bricks on a Japanese automaker about unproven allegations of defects, while the government-owned American company continued to make and sell cars with proven potentially fatal defects, even after the chief of the NHTSA’s Defects Assessment Division twice proposed investigations.

The U.S. government sold its last shares of GM stock in December 2013; some have asked whether the government did so knowing the recall would be announced in February 2014. The Treasury Department had announced in December 2012 that it would sell its last shares within 12 to 15 months. GM stock was at about $27 in December 2012 and at about $40 in December 2013; it is at about $34 today.

Finally, the American government should not own a car company because it inevitably turns the leader of the free world into a car salesman. President Obama would occasionally joke about his role, declaring at the 2009 White House Correspondents’ Dinner, “GM will rise or fall on the quality of its products — like the taut, athletic design of the new Buick Enclave. Its French-seamed leather and warm wood tones make the Enclave more than transportation. It’s a modern driver’s retreat. Come on, work with me here. I’ve got cars to move, people!” 

But when Obama wasn’t joking, he put his seal of approval on GM and its cars, again and again. His speeches from that era included pledges and promises that look awful in the light of what we now know. In a speech on June 1, 2009, President Obama said, “From the beginning, I made it clear that I would not put any more tax dollars on the line if it meant perpetuating the bad business decisions that had led these companies to seek help in the first place.”

Obama held a rally at the General Motors Lordstown Assembly Plant in Warren, Ohio, on September 15, 2009, touting the popularity of the Cobalt as he praised the Cash for Clunkers program: “The Chevy Cobalt that you build here was one of GM’s most sought-after cars under that program. Dealers across the country started running out. You need to build more.” He told the workers building the Cobalt, “You’re doing your part to move us forward and make sure that the high-quality, well-engineered, safe, and fuel-efficient cars of the future will be built where they always have been built — right here in Ohio, right across the Midwest, right here in the United States of America.”

We now know that the Cobalt wasn’t so high-quality, well-engineered, or safe.

The White House’s lovefest with GM continued into the second term. First Lady Michelle Obama invited General Motors CEO Mary Barra to the State of the Union address this year, and Barra sat near the first lady; the president cited Barra as an American success story: “Our success should depend not on accident of birth, but the strength of our work ethic and the scope of our dreams. That’s what drew our forebears here. It’s how the daughter of a factory worker is CEO of America’s largest automaker.”

The president and his fans find themselves insisting, simultaneously, (a) that losing $10.5 billion in bailing out General Motors was absolutely the right thing to do, because GM is a good company full of good people making good cars, and (b) that GM’s actions before the bailout, at the time, and afterwards are an abominable outrage, demonstrating that it is a reckless, selfish company full of irresponsible people making cars that kill people if the key chain is too heavy.

The contradiction is too great. So they prefer to avoid looking at the issue too closely.

— Jim Geraghty writes the Campaign Spot on NRO. He is the author of The Weed Agency, due out in June from Crown Forum.

 

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