Last year, in what was billed by business and general media as the worst U.S. product safety crisis in recent memory, a series of large scale product recalls among multiple General Motors brands involving upwards of 2.6 million vehicles brought this company to crisis footing as it attempted to restore consumer confidence and establish a new footing for growth.
The defective ignition switch recalls involving thousands of vehicles triggered consequent increased regulatory and business media scrutiny. An additional response among GM’s product teams was to subsequently review all potentially harmful vehicle safety and parts quality issues and err on the side of caution with even more product recalls involving multiple parts issues.
In conjunction with its earnings reporting in October 2014, CEO Mary Barra assembled the company’s top 300 executives to declare that that the company must do what it takes to be the “world’s most valued automotive company”. That included a renewed more passionate emphasis on quality as well as reliance on an expected crop of planned new models expected to come to market, many of which were shepherded under the leadership of Barra when she previously led new product development. The goal is to have 47 percent of global sales to be fueled by these new models by 2019. Supply Chain Matters has also called reader attention to GM’s goal to further focus on the broader supply chain’s contribution to its renewed business goals.
This week, GM reported what is reported as better than expected financial results for the December-ending fourth quarter. While revenues slipped slightly, GM posted a noteworthy 91 percent increase in profit compared with the year prior quarter.
The full-year results also provided quantification of the costs of product recalls. GM reported $2.8 billion in costs associated with product recalls including the ignition-switch related recalls. According to reports, GM will likely pay $9000 in profit-sharing to its upwards of 48,000 U.S. hourly employees, somewhat more than actual North American operating results to compensate for the impact of the product recalls.
Thus, at the conclusion of GM’s fiscal year, there is quantification of the specific financial costs of a previous corporate culture that eluded accountability and fostered functional fiefdoms. In what appears to be an increasing global trend, GM is considering appeasing its stockholders with plowing some profits in stock buy-back or increased dividend actions.
Moving forward in the new fiscal year, GM has to strengthen its supplier relationships and foster a climate of joint innovation and accountability for quality. We trust that such efforts would include more financial consideration toward stronger supplier relationships and an increased emphasis on joint quality management monitoring and remediation practices.
Billions of dollars expended in product recalls is better invested in addressing the root causes of either product design or supplier quality practices.