Earlier this month, the House of Representatives passed the 21st Century Cures Act in a rare bi-partisan effort. The bill is meant to speed the development of lifesaving treatments, but critics warn it may also allow ineffective or even harmful drugs onto the market.
Guest Host: Frank Sesno
Over the last month, General Motors announced the recall of more than three million vehicles, many of these for faulty ignition switches. At least 12 deaths and 31 crashes have been linked to the defective parts, which disable brakes and prevent air bags from inflating. And this morning, word that Toyota has agreed to what could be a record settlement with the justice department over delays in reporting sudden acceleration in its vehicles in two thousand-nine and ten. As with General Motors, there were allegations that executives ignored or covered up the problems. The government investigated and threatened criminal proceedings. Guest host Frank Sesno and a pane discuss accountability, consumer safety, and the outlook for the U.S. auto industry.
- Robert Lutz director, Lutz Communications; former vice chairman of General Motors; author of "Icons and Idiots: Straight Talk on Leadership."
- Allan Kam director, Highway Traffic Safety Associates; former senior enforcement attorney, National Highway Traffic Safety Administration (NHTSA), U.S. Department of Transportation.
- Micheline Maynard currently Reynolds visiting professor of business journalism, Arizona State University; contributor to Forbes.com and TIME magazine; former Detroit bureau chief for The New York Times; author of "The End of Detroit."
- David Shepardson Washington bureau chief, The Detroit News.
MR. FRANK SESNOAnd welcome to "The Diane Rehm Show." Thanks for joining us. I'm Frank Sesno, creator of "Planet Forward," director of the School of Media and Public Affairs at the George Washington University, sitting in for Diane today. She's on vacation. And it is a great pleasure to be with you. Well, this morning, word a very big settlement regarding Toyota and suggestions of unintended acceleration in their vehicles, a $1.2 billion settlement with the Justice Department.
MR. FRANK SESNOOver the past several weeks, General Motors recalled more than 2 million vehicles for problems, as many related to a faulty ignition switch linked to 12 deaths and 31 crashes. Yesterday, CEO Mary Barra of GM apologized for the company's handling of the recall, which critics say took more than a decade to begin. Today, Eric Holder, the attorney general, said that Toyota was involved in a cover-up.
MR. FRANK SESNOJoining me today in the studio to talk about the latest developments at Toyota and General Motors and the outlook for the U.S. auto industry, David Shepardson of the Detroit Free Press -- I'm sorry, the Detroit News. And, from a studio in Tempe, Ariz., Micheline Maynard of Arizona State University. Later on the program, we'll hear from former General Motors Vice Chair Bob Lutz of Lutz Communications in Ann Arbor, Mich.
MR. FRANK SESNOBut first, joining me from his office in Bethesda, Md. is Allan Kam. He's director of Highway Traffic Safety Associates and a former senior enforcement attorney at the National Highway Traffic Safety Administration. Welcome to "The Diane Rehm Show," Mr. Kam.
MR. ALLAN KAMThank you.
SESNOThanks very much for being with us. Can I ask you first, please, to react, respond, tell us what your thoughts are with respect to this settlement with Toyota?
KAMWell, as I read the statement by Atty. Gen. Eric Holder, he said Toyota's conduct was shameful, it showed a disregard for our system of laws designed to look out after the safety of consumers, and that Toyota concealed information and mislead the public about the safety issues behind the recalls. So this was very reprehensible behavior by Toyota.
KAMAnd the attorney general went on to say in his prepared statement that it is his hope and expectation that this resolution will serve as a model for how to approach future cases involving similarly situated companies. So I think this resolution of the Toyota matter by the Department of Justice may be a harbinger of things to come regarding General Motors.
SESNOAnd potentially other auto industry players down the line.
SESNOLet me read a couple of lines from Atty. Gen. Holder's remarks. "Rather than promptly disclosing and correcting safety issues of which they were aware, Toyota made misleading public statements," he says, "to consumers and gave inaccurate facts to members of Congress. And they concealed from federal regulators the extent of problems that some consumers encountered with sticking gas pedals and unsecured or incompatible formats that could cause the unintended acceleration episodes."
SESNOAnd as we all recall, a California Highway Patrol officer and his family died in a Lexus that was going 120 miles an hour or something like that. Mr. Kam, what does a $1.2 billion settlement from Toyota and an acknowledgment of responsibility mean for that company?
KAMWell, Toyota is a very large company. It's a fraction of the profits they made last year, but, on the other hand, it's not exactly chump change. And in addition, the company agreed to submit to a rigorous review by an independent monitor that will assess the manner in which Toyota's safety reporting goes in the future. So I think it's a -- the latter point is certainly pretty onerous on Toyota. I think it's appropriate under the circumstances but hopefully will fundamentally change the company's behavior.
SESNOAnd one last question on Toyota before I move on to General Motors. For those who may be listening to this discussion in their Toyotas or may be about to drive a Toyota, Toyota has also paid about $1.6 billion to Toyota consumers, car owners, and has recalled these vehicles. Are these cars now safe?
KAMWell, the allegations about sticky gas pedals and floor mats I think has been resolved now, but there's still serious questions of whether there are electronic causes of alleged sudden and unintended acceleration. So I'm not prepared to tell you right here or now that Toyota vehicles are safe.
SESNONHTSA was never able to find a direct problem with the electronics or any other elements of this. Isn't that correct?
KAMYes, you are. It's a very complicated problem when you have a possible defect which is not manifested in a broken part and it's an intermittent problem that may occur once every hundreds or thousands of cycles. So it's not readily repeatable. If a consumer reports to his dealership that his car suddenly accelerated and the dealer then drives the car around the block and doesn't experience the same phenomenon, the dealer may conclude that the owner was mistaken. But there may be an intermittent electronic problem which caused it.
SESNOTo General Motors, now. How serious was the ignition switch defect? Why did it take so long for General Motors to issue a recall?
KAMWell, that's what's under investigation right now by the Department of Justice and also the National Highway Traffic Safety Administration, which sent a very lengthy special order to General Motors on March 4. I think the response is due April 3. So hopefully we'll get to the bottom of it, but I think Mary Barra, the CEO of General Motors, has pretty well -- in the last couple of days -- admitted or confessed that GM should have recalled these vehicles many years earlier.
SESNOAnd, Mr. Kam, the law is quite specific as to what auto companies have to do when they are aware of a problem like this. Would you give the audience a sense of what that's all about?
KAMYes. When the manufacturer determines or should have determined that the vehicle contains a safety-related defect, they're required to report it to the National Highway Traffic Safety Administration, of the Department of Transportation, within five work days and then within…
SESNOFive work days.
KAMRight. And then within a reasonable time thereafter to notify consumers or the owners of the vehicles and offer to remedy the defect or what's commonly called a recall. So they're required to do a recall rather promptly also. And their failure to do this years ago really did endanger the users of the vehicles and at least allegedly resulted in quite a few fatalities and injuries.
SESNOCould NHTSA have opened an investigation sooner?
KAMSure. Unfortunately, they didn't. But you need to put that in a little bit of perspective. The manufacturer always has a lot more knowledge about their vehicle than NHTSA does. The manufacturer, after all, developed it, did the engineering on it, is the recipient of most of the complaints about it, as well as feedback from dealers.
KAMIn my experience at the agency, where I worked for over 25 years, the number of complaints that the agency receives directly from consumers is just a tip of the iceberg compared to the number of complaints that the manufacturer has. You know, NHTSA may get 10 percent of what the manufacturer has. And the manufacturer has much more knowledge about their vehicle.
SESNOSo how confident can the American public be, can drivers be, in the enforcement powers of NHTSA and its ability to keep up with these very serious issues?
KAMWell, it's sort of a question of is the glass half-full or half-empty. I think the agency tries and maybe needs to review its processes in light of the GM ignition switch experience. But it's a relatively small agency with limited resources, and their powers right now are essentially -- in terms of sanctions against a manufacturer for failure to conduct timely recall, all NHTSA can do is negotiate a civil penalty, which now would be up to about $35 million.
KAMNow, the $35 million may sound to our listeners like a lot of money, but relative to the cost of a recall, which can be hundreds of millions of dollars or even billions of dollars, and the possibility that NHTSA would never find out about it and the recall wouldn't have to be done, it's kind of a rounding error on the manufacturer's budget. So…
KAM…unless there were criminal penalties involved, the manufacturer doesn't have a whole lot of incentive to comply with the law for just a plain cost benefit analysis of paying a $35 million penalty if the government catches us versus having to spend hundreds of millions of dollars on a recall.
SESNOWell, whether the glass is half-full or half-empty, is NHTSA doing its job and doing its job in a timely enough way to really protect American drivers and consumers?
KAMI'd like to think so, but certainly the recent General Motors ignition switch experience suggests that some re-examination needs to be done about NHTSA's processes and procedures.
SESNOAllan Kam, thank you very much. You're director of the Highway Traffic Safety Associates, and you're a former senior enforcement attorney at the National Highway Traffic Safety Administration. Thanks again.
SESNOI want to turn to David Shepardson. He's the Washington bureau chief of the Detroit News. He's in the bureau here. And Micheline Maynard, contributor to Forbes.com, Time Magazine, former Detroit bureau chief for the New York Times, author of "The End of Detroit: How The Big Three Lost Their Grip On The American Car Market." Say it ain't so, Micheline. But let me start, David, with you, your response to what you just heard and particularly the Toyota news.
MR. DAVID SHEPARDSONWell, it's pretty staggering. Toyota, until today, has never admitted any wrongdoing in the handling of the sudden acceleration complaints. The attorney general said Toyota was engaged in a cover-up, that it mislead consumers. It said, put simply, you know, this was essentially a fraud on the government and consumers. And unlike NHTSA, which as, you know, the guest pointed out, can only levy at the time $65 (sic) million in fines. This will hurt Toyota in the pocketbook.
MR. DAVID SHEPARDSONNow, on the other hand, the company is on track to make about $19 billion in profits worldwide this year, about twice it did last year. But it does also send a message to other auto companies that if you don't follow the rules, the fines from NHTSA are only the tip of the iceberg and the DOJ is waiting in the wings.
SESNOMicki, your response?
DR. MICHELINE MAYNARDWell, first of all, one of the things we found out during the Toyota furor of five years ago was how strapped NHTSA is for investigations. We found out that there was some key investigation equipment that NHTSA just didn't have and actually had to borrow from Toyota at the time. And so I think this is an issue across government. If you look at aviation investigations, other things, there are lots of places in government where there aren't enough investigators and not enough money and unfortunately NHTSA is one of those places.
SESNOWe're going to come back to both of you for more on this. We're going to invite our listeners into the conversation as well at 1-800-433-8850. You're listening to "The Diane Rehm Show." I'm Frank Sesno. We'll be back in just a moment.
SESNOWelcome back to "The Diane Rehm Show." I'm Frank Sesno sitting in today for Diane Rehm who's on vacation. We're talking about Toyota, General Motors, government oversight, and consumer safety on the road. And we're talking with David Shepardson, Washington bureau chief for The Detroit News, and with Micki Maynard. She's contributor to Forbes.com and Time magazine. She's currently the Reynolds visiting professor of business journalism at Arizona State University.
SESNOMicki, back to you for just a moment here. Let me come back to the three components of this Toyota thing that the attorney general just talked about, three parts: one, $1.2 billion financial penalty, two, the company will fully admit wrongdoing -- those words directly from Holder's statement -- and, three, the government will -- and the company will submit to -- the government will impose and the company will submit to "rigorous review by an independent monitor." What does this mean for Toyota?
MAYNARDWell, first of all, as Dave said earlier, Toyota had not admitted any fault in this. And, actually, you can't blame them. I mean, you wait until there's a settlement to admit fault usually. So for Toyota it's a black eye. Toyota had a sterling reputation in this country and around the world for quality. This goes to show this might not be admitting to the defects, but it's admitting to the cover-up. So it's not the crime. It's the cover-up.
MAYNARDAnd, second, this idea of an independent monitor, I'm going to be very interested to see how that works because I'm not aware -- and maybe Dave knows -- but I'm not aware of another car company that's submitting to an independent monitor. So if it's...
SESNOWhat does that mean, David, independent monitor?
SHEPARDSONWell, so remember about a year-and-a-half ago when the National Highway Traffic Safety Administration posed a third of three fines on Toyota. It essentially put them in the penalty box and that they had to agree to meet with NHTSA every month to sort of stay after school to make sure they were doing things right, sort of a mini intensive monitoring by the government. But I think this monitor will be similar to monitors in, you know, big tech cases where they're going to have access to Toyota's records and books and interview employees and make sure that the company is doing what it should.
SHEPARDSONBut, frankly, there's been a huge culture change at Toyota. This company now recalls everything, you know, very quickly, very aggressively. This is the number one retail seller in the U.S., the largest auto company in the world. They've realized the cost of recalling things are far less than the hit to their reputation.
SESNOSo Holder says in his statement that Toyota treated a public safety emergency as if it were a simple public relations problem. Just yesterday, Mary Barra from -- the CEO of General Motors said -- told reporters -- I'm quoting here -- "I'm very sorry for the loss of life that occurred, and we will take every step to make sure this never happens again." It seems GM doesn't want to treat -- or maybe in a different way this is merely a public relations problem?
SHEPARDSONThey're clearly trying to get ahead of this, and they see Toyota and, you know, what the company's gone through for four years. They're trying to portray these events as old GM, that this is a new company. That's why GM recalled another 1.7 million vehicles this week in three separate incidents. In fact, they're following what Toyota did in some ways in that they're moving very fast. But they've got a lot to go through.
SESNOAnd, Micki, this is a new CEO who is talking to a public that sunk tens of billions of dollars to save the company.
MAYNARDRight. There are a lot of complications in this. First of all, Mary Barra is a brand new CEO, the first woman CEO in the U.S. automobile industry.
SESNODoes that matter?
MAYNARDShe would've been under scrutiny anyway. So anything...
SESNODoes that matter that she's the first woman CEO?
MAYNARDNo, it doesn't matter because actually I think Mary Barra's probably well-equipped -- as well equipped as any General Motors executive to know what's at stake here. She ran communications for a while. She's been involved in product planning. She knows that this is a very, very big deal. She's also been trying to send a message at GM that the culture is now different. And just to, you know, come back and smack her in the face is the old General Motors culture, so big stakes for Mary Barra in this situation.
SESNOI think Micki's point is that, because she's the first woman CEO, there's a tremendous amount of attention on her. And when she took the job, I mean, she was, you know, profiled everywhere. And so there's more scrutiny on her. But, as Micki said, given her engineering background, I mean -- and she's a brand new face -- she's probably sort of best suited to help the company pivot away from, you know, the old CEOs and the old regime.
SESNOMicki, this company had evidence for quite some time that there was a problem. What do we know about why they waited so long to talk about it or to do anything about it?
MAYNARDWell, we don't know a whole lot about why they waited so long. And so we're seeing documents showing that the knowledge goes back to 2001when these cars were still in development. Then we're seeing evidence that in 2005 there was some knowledge of this problem. And obviously these are vehicles that were on the market from 2005 to 2008, 2009. So we've got cars that are now five years old, 10 years old that are involved in this.
MAYNARDI'm frankly kind of surprised that no one at the senior level of General Motors says that they have knowledge of this because most companies, when they have to report financial results, often have to state areas of risk and areas where they might face lawsuits and areas of possible, you know, major safety recalls, that sort of thing.
MAYNARDAnd so you would've thought somewhere in the regulatory process, just the normal paperwork that General Motors has to go through, that this would've come up somewhere. And so I'm very puzzled, just as a business journalist, to see that there's a paper trail, and yet somehow the paper trail didn't leap to the executive suite at General Motors.
SHEPARDSONWell, here's what we know. What we know is, as Micki said, the first ignition problem that GM saw was in 2001. By 2003, they had seen a real world incident of these heavy key chains pushing a key out of position. And in 2005, GM had engineered and approved an ignition key head redesign that they subsequently cancelled, which would've at least made the problem less severe.
SHEPARDSONBut it is -- and that's the major question. Why didn't GM, you know, put the pieces together early given they had 12 reported deaths by December 2009? Was it simply the silo culture of GM that the legal department wasn't in contact with the safety department? But, like Toyota, the real answers are going to come from the emails, from the interviews that the -- with the people then -- you know, we have some depositions. But until we get all the records between those engineers, we will not know precisely why this wasn't taken more seriously and who knew this was a problem.
SESNOThe investigation. And just for anybody who may not be familiar, have been following this, the precise issue with the key and the key head was what?
SHEPARDSONBasically we're talking about, because the ignition key can slip out of position when a car goes over railroad tracks or hits a bump, that key can slip into the accessory or off position. And there are reports the car stalled, the steering locked up, sometimes the brakes didn't work.
SESNOAs the car was running?
SHEPARDSONAs the car was running on highways. And so we have reports of people then crashing at high speeds. And the airbags did not deploy because the power was cut off to them as a result of the key being out of the ignition switch. That's the allegation.
SESNONow, GM has talked about 12 people dying from this defective part. But just last week we heard possibly hundreds of other deaths. Micki, Dave, what do we know about that?
MAYNARDWell, first of all, one of the things to be careful with is that the data that was released by the Center for Auto Safety is raw data. And I have looked at that kind of data back during the Toyota situation when I was with The New York Times. We combed through report after report after report like those. So you have to be very careful.
MAYNARDIt may not be specifically the key falling out of the ignition. And the only way that you can do that is by sorting the data and categorizing it. And so I think we'll hear -- be hearing more about those supposed 303 more deaths. But we may find out that not all of them were due to the ignition situation.
SHEPARDSONRemember, that database is a census of all traffic crashes that take place within 30 days of a death, the raw police reports. And there are studies that show that in about 45 percent of the cases between '98 and 2006 when the FARS database said there was no airbag deployment, a more comprehensive statistical study showed that it had deployed. So we have to be very cautious. Those numbers are not confirmed. And I think it's very speculative to use that number now.
SESNOMicki, you wrote a story -- a column for Forbes.com. Now General Motors is finding out how Toyota felt. Let's go back to the parallel for just a minute. One of the things that happened when Toyota went into this mess is it was more than a black eye. Their sales tanked. They had gigantic issues on the lots, huge. I remember all these incentives that they were offering to try to get people to buy their cars. It was a real reputation issue, but it was an economic issue for them. Likely that General Motors is going to face the same problem as this unfolds?
MAYNARDYou know, right now it's difficult for car companies to convince people to buy anything. First of all, a lot of people are still...
SESNOExcept the car industry's been booming.
MAYNARDThe car industry's back to about normal for 2005, 2006. It's not booming the way it was in the early part of the last decade.
SESNOI guess just booming by comparison to where we've been, right?
MAYNARDYeah, it's booming by comparison to 2009 when sales were down 40 percent, but it's not -- it's kind of back to normal. So one of the issues that the car companies face is that there's starting to be a lot of alternatives to automobiles. You can use a Zipcar for an hour or two. You can use public transportation if you live in a place like Washington or even here in Phoenix. You have the Millennials who are putting off buying cars. You have the aging boomers who are starting to say, hey, maybe we don't need three vehicles now that the kids have moved out. We only need two.
MAYNARDAnd so this is happening to General Motors at a time of sea change socially, economically. And so it doesn't need it. At least -- you know, Toyota, in a way, was lucky -- and I hate to say that -- but they're big problems occurred in 2009, 2010 when the market was terrible anyway. And they've had the benefit of a few years to climb out of that. For General Motors, this is a time of -- it's a turning point for the company. It needs to make sure that it keeps its operations as transparent as possible because going forward, it's just going to have a tougher time convincing buyers of any age to purchase its vehicles.
SESNODave Shepardson, General Motors has announced it's appointed a new chief of global safety. What's that all about?
SHEPARDSONWell, I think it's very similar to Toyota that they know they need to address concerns. They're not taking safety seriously. And the big issue, again, with Toyota is that Toyota saw problems with pedals in Europe, did not report it in the U.S. I think GM knows they need to have a person in charge of safety worldwide, if there are problems in one country that they get addressed somewhere else.
SHEPARDSONBut one other thing on Micki's point, the only difference, I think, here between Toyota and GM is that this GM problem does not affect any vehicles currently in dealerships. When the Toyota sudden-acceleration issue really rose to public attention, it was in early 2010 when Toyota was forced temporarily to stop selling almost half their vehicles at dealer showrooms because they didn't have an immediate fix to the sticky pedal problem. So GM, in that sense, is better positioned because they can say these are vehicles that have long been out of the showrooms.
SESNOWell, joining us now from Ann Arbor, Mich. is Bob Lutz. He's a founder and director of Lutz Communications. He's also the former vice chairman at General Motors and has been in the auto industry for a very long time, one of the most accomplished and recognized executives in the industry. Welcome to "The Diane Rehm Show," Mr. Lutz.
MR. ROBERT LUTZYeah, good morning. Nice to be here.
SESNOWell, it's great to have you. Let me ask you first to help us out with this General Motors chief of global safety, what that means, and what that's likely to address given all these other issues we've been discussing this morning.
LUTZI think it's something that Mary decided to do to appoint a person because the so-called consumer -- I forget what it's called -- but consumer affairs and recall committee or something was always multifunctional or multidisciplinary group comprised of engineers, manufacturing people, representatives from purchasing and supply because most of the defective parts on any vehicle always come from a supplier, as in this case by the way. This was, you know, a part bought from one of General Motor's suppliers.
LUTZSo there's this interdisciplinary representation including legal -- and these are the people who basically analyze data and decide when a customer service action is necessary, when a recall is necessary. And usually -- I mean, in all cases, whenever that group would decide on a recall, senior management said yes. And I guess Mary decided, in order to put it all together and put some leadership and drive into that process, which she may have felt was missing, appoint a vice-president, whom I know by the way is a terrific guy.
SESNOSo what will exactly he be doing? What's the job?
LUTZWell, the way I understand it and the way I imagine it works is he will have anybody -- he will attend all qualify meetings. He will attend all warranty meetings. He will attend all meetings that have to do with supplier issues. And he will have regular meetings that monitor any information that General Motors gets from the field on vehicle-related problems, accidents, et cetera, et cetera. And with the new direction in the company, I'm sure that whenever there's the slightest doubt, he will push for a recall rather than saying let's wait a while.
SESNOYou got any reaction to what's happened with Toyota today and what they may mean for your alma mater over at GM?
LUTZYou know, I just haven't analyzed it. With finds of that magnitude, I just don't know. It sounds awfully punitive to me, and, let's put it this way, even though it's happening to a major Japanese competitor, I take no joy in it whatsoever.
SESNOOh, especially since who knows where it's going to go with GM. So something I mentioned earlier and I'd like to -- Mr. Lutz, why don't you lead off on this and then we can get the others in. One of the overlays to all of this is the rescue of GM, taxpayer bailout. And much of that has come back to the taxpayers since that took place. And as we see all of this and try to put it all in perspective, what was the return on investment? Was it worth it? And how should we assess whether it -- how should we assess how successful -- whether it was successful?
LUTZWell, that's pretty easy. I mean, the $53 billion that the federal government put in to recapitalize GM is only a tiny fraction of what it would've cost the U.S. economy to let both GM and Chrysler remain in Chapter 11 and essentially perish because that would've sucked with it all of the major suppliers, thousands of dealerships across the country. I mean, the knock on that, the economic effect would've had to have been measured probably in the hundreds of billions and possibly even trillions.
LUTZAs it was, recapitalizing GM and finding a solution for Chrysler and getting those two companies back in business with a clean balance sheet was vitally important to avoiding economic collapse at the time. So...
SESNOMicki Maynard, why is this so controversial still with so many Americans if as...
SESNOMr. Lutz, let me let Micki jump in here. I'll come back to you in a second.
MAYNARDWell, first of all, I think, looking back now from five years, if the Obama Administration hadn't saved General Motors, Chrysler, and the rest of the industry that we could've had a worse economic collapse than we did. It offered the nation some economic stability. The thing that makes it controversial is that General Motors, Ford, and Chrysler are no longer all of the American auto industry. They sell about 45 percent of the vehicles sold in this country.
MAYNARDWe have foreign-based auto company plants spread across the American south. That American south tends to be a Republican area. And people look at those factors and say, hey, we have an auto industry. Why did we have to save Detroit? I'm not saying that that's right. I'm just saying that that's the attitude.
SESNOOr, Dave Shepardson, that they should've been just left to go into bankruptcy -- an orderly bankruptcy, and the taxpayers would've stayed out of it.
SHEPARDSONAnd I think if this had happened at really any other time -- remember, the decision was made by President Bush with literally days left in his administration. He opted to give them 25 billion. President Obama gave another 60 billion. And Bob Lutz is right that the economic costs would've been far more than the 10.5 billion taxpayers lost on GM. That doesn't mean they couldn't have done the bailout in a different way and saved taxpayers money.
SESNOWhen we come back, we'll talk more about the U.S. auto industry and some electrifying new developments. You're listening to "The Diane Rehm Show."
SESNOWelcome back to "The Diane Rehm Show." I'm Frank Sesno sitting in for Diane today. And we are talking to David Shepardson, Washington bureau chief for The Detroit News, from Micki Maynard, contributor to Forbes.com and visiting professor of business journalism at Arizona State University, and Bob Lutz, founder and director of Lutz Communications, former vice chairman at General Motors, former chairman of the Ford Motor Company in Europe and author of a book called "Icons and Idiots: Straight Talk on Leadership."
SESNOSo, Mr. Lutz, you might be in very high demand these days in Detroit and elsewhere for all of that. I want to shift gears -- if I can get a bad pun in here -- for just a moment or two before opening it up to the phones and our listeners at 1-800-433-8850. Mr. Lutz, I don't know if you remember. But a few years ago, I came out to Detroit for a documentary I was working on, and you and I climbed around a thing that you were working on and others were working on at the time called the Chevy Volt.
SESNOIt was a big deal, and it was -- you know, as we know, it's an electric vehicle. It's the first -- one of the first vehicles that turns the wheels through electricity and the power that it generates, has a gasoline backup engine that serves as a sort of generator. We also have Tesla, car of the year. Where are we with electric vehicles, ahead or behind where we thought -- where you thought we would be those few years ago when you and I chatted?
LUTZI'd say it's fair to say that we're slightly ahead of where I thought we'd be, and we're light years behind where the media hype led the American public to believe we'd be about three or four years ago. Because of the way the headlines and the breathless TV announcements were going, it was like the next time everybody would be driving an electric car. And those of us in the industry knew that that simply wasn't possible because battery technology is not yet at a point where the battery-powered vehicle from a range standpoint can fulfill the needs of the average American driving...
SESNOSo how fast do you think electric vehicles become a major part of the U.S. auto fleet?
LUTZWell, they always say by 2025 or 2030, we'll have about 10 percent of the market electric. And if we have some more breakthroughs in batteries, which will come, and we get, like, five times the energy storage or 10 times the energy storage of today's batteries and the prices for the batteries aren't exorbitant, then I see the electric vehicle becoming highly relevant in the marketplace in about, you know, 15, maybe 20 years.
SESNOMicki, Tesla's having a little trouble in New Jersey these days. (laugh) You want to tell us about that? Here's Gov. Christy again in the middle of things.
MAYNARDRight. So not only New Jersey but Texas and Arizona as well. Basically Tesla wants to sell its electric vehicles, its $70,000 Model S directly to the public. It doesn't want to set up a dealer franchise network the way all the other car companies have done. And one of the things for listeners to know is that at any state legislature, car dealers are one of the most important lobbying groups.
MAYNARDSo what happened in New Jersey was Tesla would like to sell directly to the public in New Jersey, as it would like to do everywhere. And the New Jersey car dealers made their case to the governor. And the New Jersey Motor Vehicle Commission basically said, we will only have cars sold in this state directly -- to consumers by dealers, not directly from car companies. So it's...
SESNOWant to go to the phones now and bring in some listeners to join the conversation, if I may. And we've got Paul from -- let's see, Paul, where are you from? It looks like you're from Illinois.
PAULNew Athens, Ill.
SESNONew Athens, Ill. Not a town I'd heard of.
PAULOh, it's across the river from St. Louis.
SESNOI've got to come visit. Go ahead with your question.
PAULAs I understand it, GM broke the law by not reporting the defect in time, presumably to save money. And people died as a result. Now, to me, that sounds like second-degree murder. If I committed second-degree murder, I wouldn't be fined like GM would. The police would come and put me in handcuffs. And I'd have a trial, and I'd go to prison. My question is, how likely is it that anyone at GM will go to prison for this?
SHEPARDSONWell, here's the important point to remember. Cars have many, many problems. Auto companies are only required to fix something that they determine to be an unreasonable risk to driver safety. So the issue here -- certainly GM knew it had problems with the ignition switch. What's not clear is whether they knew that this posed a serious risk to safety early on.
SHEPARDSONNow, if it -- it's true, if they had determined that or the evidence shows that it was an unreasonable risk and they didn't report it within five days, then they can be punished. But it really raises a question for auto companies, which is that these vehicles have 4,000 or so parts. How many of these issues actually pose a -- you know, as the government test says, this unreasonable risk to safety?
MAYNARDWell, one thing to remember here is that these vehicles were built by the old General Motors. And literally there is an old GM that resides in bankruptcy and the new GM that emerged from bankruptcy. And this can be a very interesting situation to see ultimately what kind of liability GM faces in this case. Because, in the bankruptcy case, the liability for defects rests with the old version of General Motors, and its liability may be limited. So in terms of people going to jail, I doubt anyone will go to jail.
SESNOBob Lutz, what's the old GM, new GM?
LUTZI think it's largely -- I mean, old -- there's two things. One is a purely financial reference which with the old GM is the company that was taken into bankruptcy and had the -- you know, the underutilized or unwanted assets of the old GM. And the new GM is the new cleaned up company with a clean balance sheet that was created through the Chapter 11 process.
LUTZBut the term is frequently used to define a so-called old, encrusted, bureaucratic, cautious, non-communicative culture versus now it's open, it's fast, it's streamlined. And I would say that the latter definition of old versus new GM is largely fiction. Certainly when I was there, we had good communications. We made decisions. Problems weren't hidden. We dealt with them as quickly as we could.
LUTZWe had a very efficient product development process which, by the way, developed all of the new products that have come out of GM since bankruptcy because they weren't started after GM emerged. They were done from, like, 2002, 2003 on. And I'm sure that Mary, as Dan Akerson did before, are doing the very best they can to take unnecessary time and complexity out of the company. But this -- while the old GM hid problems and the new GM doesn't, frankly, that's that -- I would term that as hogwash.
SESNOJoined now by another caller from Quincy, Ill., Chris, go ahead.
CHRISHi, good morning.
CHRISI have a few questions but first what advice would you have for me. I just bought a 2001 Camry.
SESNOA 2001 Camry, a Toyota.
CHRISRight. And so in regards to both GM and Toyota, what models and model years were affected? And, second, to roll forward, what does this fine and the recalls -- how will they affect the auto industry in the future?
SHEPARDSONIn the Toyota sudden-acceleration recalls, they recalled over 14 million vehicles worldwide. The best advice I have is go to the government's website SaferCar.gov, type in the make and model of your car. You can determine what recalls you had. But I think in general, you know, cars have gotten much, much safer, in part because, you know, there's intense competition. And, you know, certainly there are, you know, still 40, 50,000 complaints and, you know, 15 to 20 million vehicles recalled a year.
SHEPARDSONBut in general, you know, cars are far safer. Just one stat, in the 1950s, the fatality rate was about 16 people killed per 100 million miles traveled. Today, it's about one person killed per 100 million miles traveled. So, you know, in general cars have gotten safer, but I think, you know, have your car taken to a mechanic, you know, that sort of thing if you have any concerns, or your dealership. You know, but generally cars are a very, very safe way of traveling.
SESNOAll right. Let's go to Jerry in O'Fallon, Mo. Hi, Jerry.
JERRYGood morning. And as a lifelong car person, I'm very disappointed. And Mr. Lutz knows better than ignoring a 50-year history of a company that essentially -- I'm not saying it's poor communication, but GM invited the Japanese competition in because they figured quality doesn't matter if you put a padded vinyl top on a car.
JERRYMy second point it, your first caller, larger than the automotive piece here, but, you know, Ford actually made a deliberate decision to pay for the few people that would be killed in Pintos instead of re-engineering the area of the car that made it prone to explosion (unintelligible) ...
SESNOYou're going way back. Ford Pinto from the 1970s with rear engine -- rear fuel tank explosions.
JERRYExactly. But what I'm saying is -- yeah, in the context of Citizens United where corporations have all the rights of people, it seems they have no responsibilities. And, as he said, it seems that you have to know if your airbags won't deploy. Then you are potentially putting people in a position where they may die unnecessarily. But, as the first caller said, who's going to jail? You know, the usual -- since the Corvair, the usual...
SESNOI'll tell you what, Jerry, let me -- you've put a lot on the table. Let me ask Mr. Lutz to respond to some of what you've said.
LUTZI'm not going to dignify those comments with a response.
SESNOAll right. Why?
LUTZBecause they're ill advised, ill informed, and accusatory in nature. And I'm just not going to participate in that.
SHEPARDSONWell, you know, I think -- I don't think it's accurate to say that the U.S. companies invited the Japanese companies into the market. Certainly Detroit made -- and as Micki's book points out -- a lot of mistakes, you know, back in the '70s and '80s that led to the sharp decline in the market share. And certainly there are examples in the 1970s of auto companies deciding not to fix some defects because it was cheaper.
SHEPARDSONThat certainly -- there is evidence of that from the '70s. But I think in this environment today no auto company would, you know, dare do that given the massive costs that Toyota, for example, has faced.
SESNOAnother call. Sue from Minnesota -- no, sorry, Michigan. Hi, Sue.
SESNOGo ahead with your question.
SUEOh, OK. I have a question about why people do not know about their neutral position on their power -- automatic acceleration problem...
SESNOWhat do you mean, their neutral...
SUEIf you put the car in neutral, it's no longer going to feed gas to the engine -- or at least that's the way cars were when I was young. And so the engine is not getting gas in order to propel itself.
SESNOOK. Dave Shepardson.
SHEPARDSONNow, she actually raises a point that was a big deal during the sudden acceleration problems, which is that -- and it's good advice for everybody to remember, that if your gas pedal, accelerator pedal is ever stuck, put the car in neutral, turn the car off, and you can stop the -- you know, the -- as she said, the gas from flowing to the engine.
SESNOI'm Frank Sesno, and you're listening to "The Diane Rehm Show." Our conversation today about the U.S. auto industry and the liability of corporations, car companies especially, in light of today's big announcement of a $1.2 billion settlement with Toyota over unintended acceleration some years ago.
SESNOMicki, I want to come back to you on something you said earlier, and, Bob Lutz, I'd love to hear your thoughts on this, zooming out a little bit more on this larger issue. Micki, you talked about changing attitudes towards cars, changing attitudes among young people towards cars in particular. And I'm fascinated by what you're seeing and whether you think the love affair, the American love affair with the car, are you saying that's over? We still have a lot of people going into car shows. I was at a car show here in Washington a few weeks ago. It was crawling with people.
MAYNARDRight. So -- and actually I have a new eBook coming out about this for Forbes. And Bob Lutz is quoted in it because I think he's actually summed up the feeling that a number of young people have about cars versus their phones or their mobile devices.
MAYNARDWe're raising a generation of people born after about 1980 who maybe never got the opportunity to be exposed to automobiles the way other people did. They didn't ever see them as objects of desire. For them the object of desire is their iPhone or their tablet. They don't need to get in an automobile to be with their friends. They can get on Skype. They can get on FaceTime.
SESNOSay it ain't so. Say it ain't so.
MAYNARDThey can text them. And so I'm not saying that younger people will never want automobiles, and I'm certainly not saying that the auto industry is going away. You can't live in North Dakota without a car.
SESNOBob Lutz, for my 29-year-old son, a car is still an object of desire. I've got news for you.
LUTZI think so too. I think a lot of this business of the Millennials don't want cars was probably one study which certainly many market researchers feel was badly flawed.
SESNOA few of them -- fewer of them own cars.
LUTZWell, because they can't afford it because it's a generation which either doesn't -- in many cases doesn't want to work or -- and often right now cannot find work, even though they have a four-year degree. So I think there's a lot of factors at play here that we all know that new car ownership is perhaps more difficult for this generation than for generations in the past.
LUTZBut there's no denying that your own piece -- there's only so much you can do virtually. You know, you can date virtually, but the sort of physical consummation of the date still requires physical presence. And (unintelligible)...
SESNOGo ahead -- let me let Dave Shepardson jump in here.
SHEPARDSONIt's certainly true that younger people are delaying getting driver's licenses. They are delaying buying cars, but Americans are still driving 3 trillion miles a year. When people have families, they still need cars to drive them around. And they still need mobility. I think long term, especially in cities, you're going to continue to see a decline in car ownership. But, you know, at least until, you know, there are some, you know, big paradigm shift in sort of how we view transportation, the car is going to be with us, you know, 50, 100 years from now.
SESNOFolks, we only have a couple of minutes left, and I just want very quickly to go around the horn here. We've got a number of emails and callers from people back on the Toyota and General Motors issues who are asking about the accountability of these auto companies, about potential criminal charges being brought at some point, about why auto companies have gotten bailouts when other companies have not been on the -- you know, online for this have not. Micki, let me start with you. What do you expect to be taking place and are auto companies treated differently, favorably?
MAYNARDWell, first, what I'd expect to take place is pretty much like what happened with Toyota. Congressional hearings are already scheduled. I would expect that Mary Barra, the CEO of General Motors, will be appearing at those hearings. I don't think this will go away quickly. If you note today, the settlement between Toyota and the Justice Department, that's five years after the first problems were reported on the sudden acceleration. This could last years for General Motors.
MAYNARDWhy do car companies get treated differently? They are a huge economic driver, no pun intended. And so you have a lot of people not involved in the auto industry who are affected by the auto industry.
SESNOBob Lutz, quickly...
MAYNARDAnd they have political power.
SESNOBob Lutz, quickly to you for a final thought.
LUTZNo. I agree with what Michelin Maynard said.
SESNOAnd Dave Shepardson.
SHEPARDSONYeah, I think she's right. I think there will be certainly congressional hearings. You know, the Justice Department will continue to investigate. You know, this will drag on for years. You know, GM will -- said it's considering doing something for these victims, but it'll be a long process. And like Toyota, probably the only thing that really convinced people to shift to something else was a big news story. In that case in 2012 it was the deep water horizon oil spill. At some point, you know, the public's attention will probably fade.
SESNOBob Lutz, I have a couple of seconds left, and I do want to close on this note. It's something that Dave Shepardson said a moment ago. The fact of the matter is that the quality of the U.S.-built automobile is vastly superior to where we were 10, 20, 30 years ago. I know people who have got 250,000 miles on their vehicles. They don't rust out. They've got energy-absorbing bumpers. They've got airbags. We have made them safer and better. So you expect more of that to come?
LUTZI do. And it's a good point that you make. The U.S. cars today, whether it's fit, finished, safety, fuel economy...
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