Traverse City Record-Eagle


April 30, 2014

Another View: GM shows how to not handle a business crisis

Trust is an elusive quality. It’s hard to win but easy to lose. It can evaporate in an instant, and once lost it can take even longer to regain than it took to develop in the first place. Thus the current crisis facing General Motors because of its failure to promptly recall and fix cars with faulty ignition switches is a lesson for all businesses.

GM has been raked over the coals, and rightly so, for its lack of action on the ignition switch defect in its Chevy Cobalt and other small cars from the past decade, which has been linked to 31 crashes and 13 deaths. The company rejected the idea of a recall in 2005 because it was considered to be too expensive (even though the replacement part cost just $10 and the installation took less than an hour) and too damaging to the company’s reputation. Now GM is in the midst of a sweeping recall of 2.6 million vehicles, while it faces the possibility of hundreds of millions of dollars of damages and a blow to its public image that may be even more expensive.

GM failed to follow two very simple lessons.

First, as many a scandal-scarred politician has learned, the cover-up is usually worse in the public eye than the original misdeed — people are more likely to forgive what they perceive as a one-time lapse in judgment than a sustained, calculated effort to hide a problem. In the case of something as complex as an automobile, customers understand that defects are almost inevitable. Rather than scaring off customers, a recall in the auto industry can actually improve trust by reassuring customers that the manufacturer is concerned about their safety.

Second, the most important people for any business are located outside the headquarters building — the customers. GM’s decision-making in the ignition switch case was formed by the kind of insular, take-the-customer-for-granted culture that helped get the company in deep trouble even before the Great Recession hit. Faced with a problem, the natural inclination of employees in such a culture is to circle the wagons and hide the bad news rather than deal with it openly.

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