Prepare a Report on the General Motors Crisis of 2014 (Term Paper Sample)

A Report on the General Motors Recall Crisis of 2014
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Introduction
The word "crisis" evokes a sense of threat fear and uncertainty of huge proportion. Organizations operate in an ever changing environment and it can be argued that a major source of crises is the constant change that organizations face. Organizational crisis is almost always the consequence of some unanticipated, complex and long-term interaction between social, psychological, and cultural factors, on the one hand and technical, structural, and standardized elements on the other (Seeger, Sellnow and Ulmer, 2003, p.5). Complexities of these interactions are the most noticeable characteristics of an organizational crisis. These complexities are increasingly becoming more noticeable as organizational systems continue to grow bigger in size and technological sophistication. The capacity of corporate individuals to comprehend complex systems and the centralization of decision making further worsen the situation. In addition, limiting the amount of information accessible to the public about the organization’s challenges and bureaucratic company procedures make crisis more difficult to manage.
Background
General Motors (GM) is a multinational company that has its headquarters in the U.S. It manufactures markets and distributes vehicle spares all over the world. Currently, its major car brands are Chevrolet, Buick and Cadillac. Some of the vehicles manufactured by the company had been equipped with faulty switches which could cause the engine to shut off. This would be followed by a loss of power steering and power brakes. Further, in the case of a crash, the cars’ airbag would fail to deploy. All these issues were attributed to the faulty ignition switches which the company blamed for at least 61 crashes and 16 deaths (Reuters, 2014, para1). An investigation was conducted by The New York Times on Chevrolet Cobalts and other models. According to Vlasic B. (2014, para 1), a tiny metal pin called the detent plunger which usually holds the ignition in the "run" position. Faulty detent plungers were blamed for switching off the ignition while the car was in motion and causing airbags to fail to deploy.
It was reported that for more than decade, engineers at GM knew about the faulty ignition switch in some models. Despite this, the company openly continued to tell families of victims’ families that it lacked evidence of any defect in their cars (Swensen, 2014, Para 2). An internal investigation on manufacturing operations in the company revealed that the problem was detected very early but the company missed opportunities to rectify the problem. The company’s board was also reported to avoid matters of safety; its legal department took actions to hide the fatal flaw.
In February 2014 General Motors (GM) started recalling 2.6 million Chevrolet Cobalts, Saturn Ions and other models equipped with faulty switches. Later that year in June, the company recalled 8.23 million cars that were linked by the automaker to three deaths (Reuters, 2014 Para 2). The crisis was considerable as the company resorted to compensating victims of crash related deaths from use of the company-manufactured cars to $1 million. GM also continued to adjust its provision for costs incurred when recalling its automobiles, each time, the figures were set higher than those set at the previous quarter. To worsen matters, more people, most of who were victims of accidents stemming from the use of GM manufactured cars were planning to sue the company. Some of the cases were not typical product liability litigation, as observed by Stout H. (2014, Para 3). Lawyers commented that the cases could be based on accusations of fraud and questionable company practices. The lawyers further argued that the company quickly restructured in order to escape liability because it was aware of the faulty ignition switches.
In April, the Chief Executive of GM presented herself for a Senate hearing in which her company was accused of "criminal" behavior and a "culture of cover up" (Reuters, 2014, Para 12). The company decided to double the number of recalls to more than a million cars as it appointed Jeff Boyer to head its vehicle safety unit and take charge of recalls.
Handling of the Event: Crisis Management and Crisis Communication
According to Seeger M. et al., (2003, p.65), communication and organizational crisis intersect at many points. The author further elaborates that communication is "an ongoing process that enables organizations to monitor their environments before and during a crisis”. The chief aim for this is, according to the authors to understand and respond appropriately, to resolve the crisis and reestablish order (p.65). An organization is expected, according to Seeger et al to communicate with customers, stockholders, residents in the surrounding area and special interest groups (as cited in Schuetz J.1990, p272).
Attitude:
Ms. Barra, the CEO of GM had initially adopted a negative attitude toward the crisis at her company. During the proceedings before the Subcommittee on Oversight and investigations of the Committee on Energy and Commerce, she reported that she did not know why it took so many years for the safety defect to be announced in the small car program started by the company (p13). This shows a lack of awareness on the CEO’s part as she had, prior to being appointed to her said position, occupied several senior positions in the company (p10). She represented the face of the company to outsiders and her remarks show that the general culture at GM was that of individuality. She however went on to promise that she and her management team would find out. GM, upon realizing the magnitude of the problem resorted to conducting an in-depth investigation of why it took so long for the defect to be announced. This move would trigger a change in the attitude of its top officials as they would be forced to take on a more proactive approach in future. This new attitude, as observed by Fink. S (2000, p130) is important because it encourages vigilance and is important in crisis management planning and preparation.
Culture
The company appeared to have had a "cost culture" in the early 2000s that contributed to the ignition problem, as reported by the company president (Naughton, 2014, para6). It would appear that since fixing the ignition problem would result to higher overhead costs, the company had not yet decided on appropriate action. Seeger et al (2003, p222), argues that organizations have unique values, norms, ideals and ethical standards encoded into a corporate culture. Engineers and employees of GM at large had known about the ignition switch glitch and did nothing about it. After ascertaining the magnitude of the crisis, the company decided to come up with measures encourage its employees to come forward with any product engineering related issue. In April, Gm tried to be proactive about the communication problems by creating the "Speak Up for Safety program" (Naughton, 2014, Para 4).
The media
Some reports appearing in the media purported that Ms.Barra had been appointed CEO because the company needed a woman at the top to take the fall. Although this was quickly dismissed by Ms.Barra, a deeper look into how the crisis at GM was handled shows reason to consider the purported rumors. As the problem became more evident, speculation was rife about the company’s choice of CEO as there had never been a woman president for any company in the automobile industry. The company had waited too long to announce that it had faulty ignition switches in some of its vehicles, understandably because it was worried about the impact that such communication could have on its business. Harvard Business Essentials (2004, p79) urges companies to communicate relentlessly as telling the companies story would provide information to key stakeholders.
In large companies, press releases are normally handled by the vice president of communication or by the corporate public relations staff (p122). It is imperative that senior officials of the company should be trained to handle communication to both internal and external stakeholders. In an address to the company’s employees, the CEO made sure that workers came away feeling that they could do a better job, and that the management would stand behind them (Eisenstein,P 2014, Para 6). Ms.Barra asked the employees to blow the whistle on managers who took shortcuts on safety. The company’s handling of the crisis internally was proper and appropriate. Eisenstein, P praised the CEO’s handling of the crisis by noting that Barra didn’t tell her employees that they should all collectively fall on their swords (Para 5). It is much easier to deal with internal stake holders than with external ones. As evidenced by the crisis, employees at GM knew what was going on, compared to the general public who had no clue about the situation. It was therefore easier for Ms.Barra to speak to the employees, and the CEO excelled at this whereas she failed in communicating the same to the public.
A positive aspect of how GM handled the recall crisis was manifested during the hearing at the Subcommittee on Oversight and investigations of the Committee on Energy and Commerce. Ms Barra named a new vice president for Global Vehicle Safety; the position itself was a first for GM. (P. 13). The CEO threw her support behind the new vice-president and pledged support from her and her management. This move showed that the company was determined to deal decisively with the crisis and was taking its own measures. In addition to the investigation that would be conducted by U.S Attorney Anton Valukas. The appointment of Mr. Jeff Boyer showed that the company wanted to create...