General Motors and the silence of the lambs
A gigantic company deliberately covered up safety defects in its products, leading to at least thirteen fatalities. Government investigators at several vast agencies missed the problem, prompting a congressional investigation that will bring both the corporate CEO and top regulators into committee hearings. It’s a story soaked in the kind of revolving-door cronyism that should make Occupy Wall Street types lose their minds. Another company in the same industry just agreed to a billion-dollar settlement with the government over safety defects, leading to triumphant giant-slayer press conferences by the Attorney General.
And yet, hardly any attention has been paid to the story of General Motors, whose “safety debacle is about everything that’s wrong with Washington,” according to Howard Kurtz at Fox News. He theorizes that it’s a back page story because our TV news culture “thrives on heroes and villains,” and in this case it’s “hard to know who to blame.”
You can’t single out President Obama because the government’s failure to act stretches back to the Bush administration, so it doesn’t make for a left/right slugfest.
You can’t fault Mary Barra, the new GM boss, because she didn’t know about the cavalier disregard for safety until she was promoted into the top job.
You most certainly can blame a Beltway culture of coziness between the regulators and the regulated—but that’s an old story and perhaps too abstract.
It seems to me that growing complacent with a well-established “culture of coziness” is a catastrophic failure of what the media is supposed to do. I doubt you’ll find many journalism-school graduates whose proposed career track involves leaving a corrupt establishment alone, because it’s such an old story. I thought we were all about hope, change, doing things differently in Washington, etc. Especially when the story in question has a body count, and nobody in government or media had any trouble designating a competing company (Toyota) as the villain in a broadly similar story.
Kurtz uses a New York Times piece to build his crony-capitalism explanation for why the feds didn’t open an investigation into problems with GM cars, even after multiple complaints and fatalities:
“Federal regulators decided not to open an inquiry on the ignitions of Chevrolet Cobalts and other cars even after their own investigators reported in 2007 that they knew of four fatal crashes, 29 complaints and 14 other reports that showed the problem disabled air bags, according to a memo released by a House subcommittee on Sunday.
“Then in 2010, the safety agency came to the same decision after receiving more reports that air bags were not deploying.”
Now we get to the mutual back-scratching that corrodes each administration. Many former top [National Highway Traffic Safety Administration] officials “now represent companies they were once responsible for regulating, part of a well-established migration from regulator to the regulated in Washington…
“When David J. Friedman, acting administrator of the highway safety agency, testifies before House and Senate panels on Tuesday and Wednesday, a central question will be why the agency failed to push for a recall.
“To critics, the agency’s failure to act is another example of how it is not as effective as it could be. One reason often cited is a shortage of investigators. Another is that former agency employees join law firms and help defend automakers and other companies being regulated.”
Why be too aggressive in your job if there’s a bigger payday looming when you leave the government? Some people may die in the process, but hey, that’s the cost of capitalism.
No, that’s the cost of socialism, crony capitalism, corporatism, fascism, or whatever you want to call our current fusion of Big Government and Big Business. The involvement of a private-sector business in some scandal does not automatically turn it into a failure of “capitalism,” which has absolutely no ideological difficulty with diligent and reasonable government inspections. Some degree of regulation is absolutely necessary for capitalism to function, since banditry and fraud are corruptions of the capitalist ideal. Every species of theft and coercion is anathema to the exercise of economic liberty. There are no capitalists to be found in warlord-haunted wastelands of anarchy, or carnivals full of hucksters.
Furthermore, it has been observed that NHTSA regulations actually provide a “perverse incentive” for lower-level engineers and supervisors to keep upper management in the dark about safety issues, because as soon as management is brought into the loop, they are legally required to inform the government. That’s a failure of regulatory structure, not capitalism, although it is fair enough to ask corporations to rise above the perverse incentives and hold themselves to a higher standard, by insisting on the prompt reporting of safety issues to both managers and government regulatory agencies.
Why didn’t all these federal officials give Toyota pass, if their primary motivation is “a bigger payday looming when you leave the government?” Doesn’t Toyota’s American operation hire enough ex-regulators? At the risk of angering lawyers and automotive engineers, it seems to me that the defect that got Toyota in so much hot water was considerably more ambiguous – the NHTSA never actually found a smoking-gun defect in their automobiles, and they won almost all of the court cases filed against them. Some of the incidents in question were credibly ascribed to driver error. I mention this not to let Toyota off the hook, or dismiss allegations that they were less than forthcoming with information consumers needed to know…. but for comparison purposes, the GM ignition defect under discussion killed the engine and disabled the airbags while the car was in motion.
Another piece at Fox News chronicles the sort of business decision that the media might normally be expected to portray as blood-curdling evidence of heartless corporate evil – decisions which the current GM CEO, Mary Barra, has formally apologized for:
Congress is also investigating why GM didn’t recall the cars sooner, because it first found problems with the ignition switches in 2001. The House memo provides new details about GM’s consideration – but ultimate rejection – of potential solutions.
According to the memo, GM engineers met in February 2005 to consider making changes to the ignition switch after reports it was moving out of position and causing cars to stall. But an engineer said the switch was “very fragile” and advised against changes. In March 2005, the engineering manager of the Cobalt closed the case, saying an ignition switch fix would take too long and cost too much, and that “none of the solutions represents an acceptable business case.”
In May 2005, the company’s brand quality division requested a new investigation into ignitions turning off while driving, and a new review suggests changing the design of the key so it wouldn’t drag down the ignition. That proposal was initially approved but later cancelled.
Kurtz only briefly mentions the most salient difference between Government Motors and Toyota:
GM, you’ll recall, had to be rescued by the taxpayers in 2009, and the federal stake was so large that the company was dubbed Government Motors when it went through bankruptcy. But bankruptcy rules require a disclosure of all liabilities as well as assets. By hiding the defect in its cars, GM may have committed bankruptcy fraud.
That’s a rather modest tip of the cap to the $50 billion elephant in the room. The structural corruption Kurtz describes is well worth consideration, but it’s almost comical to watch him blow past the most uncomfortably obvious reason for the different treatment of Toyota and GM – portrayed by some critics as a deliberate effort by the government to protect and nourish its Little Partner in Detroit. You may recall that former Transportation Secretary Ray LaHood actually told people Toyota cars were unsafe to drive, prompting exactly the sort of media frenzy GM never had to endure, because the federal government kept finding reasons not to investigate their issues. Would anyone care to put an estimated dollar value on that bit of government-media market intervention?
Although Tuesday’s hearings involve the NHTSA, there are big questions about the role Treasury Department bailout negotiators played in the story, and whether they knew about the GM safety defects before working out a deal that gave General Motors a liability shield that would have been worth over a billion dollars to Toyota. The GM bailout has a long history, but it’s become almost entirely associated with President Obama at his insistence – a major element of his 2012 campaign involved accusing his opponent, Mitt Romney, of wanting to “let Detroit go bankrupt,” and it was a recurring theme at the Democratic National Convention that year.
Of course, the Administration isn’t saying much about GM’s difficulties… so there isn’t any screaming-headline news about them. Do we really need a more complex explanation for the silence of the lambs?
Update: If it wasn’t sufficiently clear from the above reference, Mary Barra was not the CEO of General Motors when the product-safety drama took place. Nevertheless, she’d better be prepared for a long day on Capitol Hill. Whatever may have occurred during the government’s past relationship with GM, nobody in Congress wants to be seen as soft on them today.