The general public believes that General Motors (GM), or for that matter any automaker, would not knowingly allow an unsafe product on the market. They know that honest mistakes happen from time to time, but also expect that once discovered, they will be dealt with immediately, especially where safety is concerned.
Why did GM take 10 years to recall a faulty ignition switch on 2.6 million small cars? The malfunctioning switch, which can cause the engine to cut off in traffic, disable power steering, power breaks and air bags, has been linked to 13 traffic deaths. This apparent violation of the public trust brought in the House of Representatives Energy and Commerce Subcommittee on Oversight and Investigation. They want to know what went wrong inside GM that allowed a culture to exist that evidently was more focused on profits than safety.
GM is a C corporation with a primary fiduciary responsibility to its stockholders to produce a profit and long-term security. A narrow-minded culture focused only on short-term profitability is like stooping over dollars to pick up dimes. Sure, there are the all-important quarterly reports. Stock prices are based on a steady stream of profitability from quarter to quarter. But if the company makes decisions that actually hurt the long-term profitability of the company just to look good in the short run, the would-be savings are cancelled out by the long-term cost.
In this case, it will not just be the cost of the recall, or even the cost of the compensation, it will be the cost to the GM image. People have died. People going forward can’t help but wonder if the products they are getting are safe, since now it appears that products known to be unsafe will be left on the market, and continue to be manufactured and sold. This is a perception, whether justified or not, that will hurt the brand’s sales and thus its profits.
The Subcommittee found 133 warranty claims over a period of 10 years by customers complaining about the issue. Even when GM engineers proposed solutions to the switch problem in 2005, GM decision makers decided that none of the claims represented “an acceptable business case.” Apparently the potential long-term damage to the profits of the business was not considered at that time. Nor was the safety of their customers.
The GM CEO said, “I think we in the past had more of a cost culture.” But again the real cost was not considered. Unfortunately, large companies tend to have a culture not of cost, but of self-preservation where decision makers will actually make decisions that are in their own short-term best interests and not in the company’s long-term interests. If executives get the idea that costs must be cut (at any cost) for job security, promotion, or status, short-sighted decisions can and will be made. What kind of a culture will the new GM have beyond the term “new?” Will it have the “customer focus” that the CEO says it is now moving towards?
We have always said that any successful entrepreneur must put the customer on top, then the sales and customer service departments (who actually talk to the customers), followed by everybody else in “sales support.” Sales support includes production, marketing and administration. So, if GM sincerely wants a change, we suggest they start by dismantling the old pyramid that puts self-preservation on top and effect a major reorganization that truly does put the customer (and their safety) on the very top!
Who Are We.
Having built and sold a bestselling national brand, we appreciate the value of brands and everything it takes to make them successful. Companies are valued by their brand equity. Achieving and maximizing brand equity requires tremendous respect for all your customers, from your wholesaler to your end user.
Starting in our laundry room with no money and no knowledge of the industry, we built the famous Barefoot Wine brand. We learned a lot they don’t teach in school and much of it the hard way. Although our success was in consumer products, our real world experience will be helpful to anyone looking for information and advice about brands.
We have written the New York Times Bestselling Business Book, The Barefoot Spirit: How Hardship, Hustle and Heart Built America’s #1 Wine Brand, which chronicles the history of the famous brand from its inception through its acquisition. Our book is now required reading in schools of entrepreneurship across the country. We hope this book will provide inspiration and encouragement for all those contemplating starting a brand or wanting to improve their existing brand.
Michael Houlihan and Bonnie Harvey
-Barefoot Wine Founders