THE IMPLICATIONS OF PRODUCT SAFETY ISSUES FOR FIRMS: A REVIEW OF GENERAL MOTOR'S 2014 RECALL
I prepared this report for an MBA Supply Chain Management course. The brief paper explores the financial and non-financial implications of the 2014 GM recall and outlines recommendations to prevent similar disasters in the future.
Background on General Motor's 2014 Recall
The average car is made up of more than 30,000 parts (Aon 2015). If any one of these parts fails, this can be disastrous for automotive manufacturers. Failure typically results from manufacturing issues, faulty parts from suppliers or installation errors. In certain cases, these failures can cause critical harm to users and require the manufacturer to initiate a recall, costing companies billions of dollars in losses and serious reputational damages.
2014 was the worst year in U.S. history for automotive industry recalls. Over 50 million cars and trucks were recalled—more than 5 times the number of vehicles sold in the U.S. (Aon 2015).
While most auto manufacturers have been affected by recent recalls, few have suffered as much reputational damage as General Motors. In 2014, GM alone accounted for over half of the 54 million vehicles recalled (Aon 2015). Of the 30.4 million GM cars and trucks recalled, the most serious were related to a flawed ignition switch in 2.6 million cars that disabled airbags and has been tied to at least 51 deaths (Isidore 2015).
The National Highway Traffic Safety Administration (NHTSA) fined GM the maximum allowable $35 million fine for not reporting the defect within 5 business days (Healey 2015). GM CEO Marry Barra, promoted after the recall, commissioned a 3rd party probe, conducted by former U.S. Attorney Anton Valukas. The report found that GM engineers did not realize that the faulty switches could disable airbags (Healey 2015). This fundamental lack of understanding of GM’s own cars by its engineers is a serious product safety issue that had devastating real world impacts.