By Joseph White, Jonathan Stempel and Nate Raymond, Crain News Service
DETROIT (Sept. 18, 2015) — Hours after General Motors Co. agreed to pay $900 million to settle criminal charges related to a bungled recall over defective ignition switches, Chief Executive Mary Barra said the legal and public relations crisis that has shadowed her for nearly two years was “a catalyst for meaningful change.”
Now, Ms. Barra must show investors and consumers that the change at the No. 1 U.S. auto maker is real, and goes beyond the steps she ordered to attack the engineering and managerial lapses that resulted in GM waiting more than a decade to fix dangerous vehicle defects now linked to 124 deaths.
GM shares rose modestly on Thursday as investors digested details of the criminal settlements, for which the auto maker will take a $1.475 billion third-quarter charge, including $575 million for private litigation.
However, GM shares are still trading well below their initial public offering price of $33, despite Ms. Barra's move in March to promise investors $10 billion in cash and stock buybacks through the end of next year.
Ms. Barra could face new pressure from investors to take more aggressive steps to lift the company's shares. Meanwhile, Sergio Marchionne, CEO of rival Fiat Chrysler Automobiles NV, continues his campaign for a merger of his company and GM — a proposal Ms. Barra and her board have rebuffed.
GM executives would rather focus attention on their ambitious plans for launching new vehicles with advanced technology. Product development chief Mark Reuss, speaking to employees on Sept. 17, hit that note.
“We are going to deliver vehicles with features that astound and amaze people,” he said, adding that GM's goal is to be a “zero defects” company.
The settlement caps a humbling episode for a company that once dominated the global auto industry. The recall scandal battered GM's reputation in its home market, chopped more than $5 billion out of the Detroit auto maker's profit and helped usher in a new era of aggressive oversight by federal regulators.
GM disclosed in February 2014 that it failed to tell regulators what it knew about defective ignition switches that could cause vehicles to stall, and cut power to the air bags. Before that revelation, GM was regaining profitability after a federally funded bankruptcy, and Ms. Barra was hailed for breaking one of industry's formidable glass ceilings to become the first woman to head a major global auto maker.
The recall scandal — which engulfed the company just weeks after Ms. Barra took over as CEO in January 2014 — put the ills of the pre-bankruptcy GM at center stage in Washington, in the media and in the courts. Ms. Barra took sharp criticism from lawmakers during four hearings on Capitol Hill.
But the steps Ms. Barra took in response to GM's humiliation paid off.
She set up a compensation fund that paid $600 million to ignition switch crash victims, appointed a new safety czar to cut through managerial silos in the engineering organization, shared mountains of documents with federal investigators and publicly embraced a scathing internal report by Anton Valukas, chairman of the Chicago law firm Jenner & Block, that exposed deep flaws in GM's managerial culture.
All that helped GM secure a settlement that was less onerous than many financial analysts had expected.