Reference no: EM131497734

Question: General Motors: Like a Rock? (A) In 1992 the General Motors Corporation struggled through rocky management shake-ups and its third consecutive year of red ink. If any silver lining could be found in GM's financial cloud, it was its line of pickup trucks. Large pickups were one of GM's few profitable products from its ailing North American operations. Sales of Chevy and GMC full-size pickups exceeded half a million in 1991. Greater expectations for 1992 and 1993 coincided with a beefed-up marketing campaign centering on the theme "Like a Rock." However, as events unfolded, GM management found itself between a rock and a hard place. In 1992 the Center for Auto Safety (CAS) petitioned NHTSA to recall some 5 million Chevrolet and GMC full-size pickup trucks. The CAS claimed that more than 300 people had died in side-impact accidents involving the trucks. Unlike most other pickups, GM class C/K pickups built during the years 1973-1987 were equipped with twin "side-saddle" gasoline tanks positioned outside the main frame rails. In 1987 GM made a design change in its trucks and brought the tanks inside the frame. The CAS petition was not the first sign of a potential problem in GM's pickups. For years GM had managed to avoid the eye of the media by fighting on a case-by-case basis as many as 140 fuel tank-related lawsuits. Most were settled out of court with settlements occasionally exceeding $1 million.

Throughout these legal proceedings, GM steadfastly defended the overall safety of its trucks. GM regularly pointed out that the NHTSA standard called for crashworthiness at 20 mph, and its pickups easily met that standard. In the 1970s GM regularly tested its trucks with side-impact crashes at 30 mph. In the mid- 1980s it increased its internal standard to 50 mph. That fires sometimes broke out in the highest speed tests was not disputed but rather was viewed by GM as evidence that it was pushing its tests to the limit in an effort to make its trucks safer. Data and interpretations concerning the relative safety of GM trucks were mixed. According to NHTSA, GM's sidesaddle trucks were 2.4 times as likely as Ford's to be involved in deadly side-impact crashes. According to the Insurance Institute for Highway Safety-a research group supported by insurance companies-the GM trucks might be slightly more prone to fire than similar models built by Ford and Chrysler, but they could be far safer in certain kinds of accidents. This conclusion, according to GM, suggested a need for a broader and more appropriate criterion of safety-that of overall crashworthiness.

At least one large database on accidents indicated that in terms of the overall probability of a fatal accident, GM trucks were marginally safer than their competitors. In November 1992, NBC's Dateline aired a 15-minute segment entitled, "Waiting to Explode?" Its focus was the GM series C/K pickup trucks. In preparation for the segment, the NBC news crew hired three "safety consultants" to assist in conducting two crash tests of GM pickups on a rural Indiana road on October 24. Each test simulated a side-impact crash by using a tow truck to push a Chevy Citation along the road into a pickup. The pickup was parked on the road perpendicular to the oncoming car, which slammed into the pickup's passenger side. A minute-long videotape of the tests was aired, and correspondent Michele Gillen stated that the tests were "unscientific." In the first of the tests, Gillen stated that the car was moving at about 40 mph. The truck was jolted significantly, but no fire ensued. In the second test, a fire broke out at a speed stated to be 30 mph. In the broadcast one safety consultant described the fire as "a holocaust." After the nationally televised broadcast that reached approximately 11 million viewers, GM officials examined the NBC test segment in slow motion. Suspicions arose.

GM wrote to NBC almost immediately, stating that the show was unfair and requesting NBC's test data. NBC refused to comply. In a follow-up contact, GM asked NBC to allow it to inspect the pickups. On January 4 the producer of Dateline told GM the vehicles were "junked and therefore are no longer available for inspection." In the meantime, 32-year-old Pete Pesterre, editor of the magazine Popular Hot Rodding, had been pursuing some suspicions of his own. He was intimately familiar with GM trucks. He had owned four of them and once was involved in a side-impact crash from which he emerged unscathed. After Pesterre wrote an editorial criticizing the Dateline segment, a reader from Indiana called Pesterre and informed him that he knew a Brownsburg, Indiana, firefighter who was at the scene of the NBC crash tests. When the Brownsburg Fire Department is on assignment, as it was the day NBC staged the crashes, its firefighters customarily videotape the action for subsequent use in training. GM contacted the fire chief, who provided a copy of the tape. Similarly, GM learned that an off-duty sheriff's deputy was on site and had also videotaped the tests. GM also acquired his tape. To analyze the tapes (including NBC's), GM called on its Hughes Aircraft subsidiary to deploy digital-enhancement techniques for sophisticated frame-by-frame analysis. These investigations revealed that NBC had been less than precise about both the sequence and speeds of the two tests. The first test conducted was the second test aired. The GM/Hughes analysis suggested the actual speed was 39 mph instead of the 30 mph stated in the Dateline segment.

This test yielded the so-called holocaust. In the other test NBC claimed a speed of 40 mph, but GM/Hughes concluded the speed was 47 mph. No fire occurred in this test. Another revelation came from the audio portion of the firefighter's tape. After the first test-which, although slower, did produce a fire-the firemen were noticeably unimpressed with the outcome. It was clear that the fire was confined to the grass, short lived, and not life endangering. One firefighter laughed, and one said, "So much for that theory." Meanwhile, GM was able to locate and acquire the two wrecked Citations and the two wrecked pickups. The recovered pickups were sent to GM's plant in Indianapolis where workers discovered a model rocket engine in the bed of one truck. Inspections of the bottom of the truck uncovered flare marks and remnants of duct tape in two places where GM's video analysis had curiously shown both smoke and fire in frames prior to impact in the crash. Additional inspection of tapes and photographs fueled suspicions that a detonator or starter device had been wired to the rocket engine. GM officials wanted to examine the trucks' fuel tanks but they had been stripped from the trucks. GM immediately went to court seeking a restraining order to bar one of the NBC consultants from disposing of the fuel tanks. Days later, through his attorney, GM learned that the consultant had given the tanks to a neighbor.

Eventually GM obtained the tanks. Having obtained the pickups and the tanks, GM identified and contacted the trucks' previous owners. From the owner of the truck that was struck and caught fire, GM learned that the gas cap was nonstandard. The owner had lost gas caps several times and in the last instance obtained one that did not fit correctly. GM also strongly suspected that the tank had been "topped off" with gasoline prior to the test. (Tanks are designed with five gallons of excess space to make topping off impossible with properly functioning fuel pumps.) GM sent the gas tank of the truck to an X-ray lab and a metallurgist to test whether, as NBC correspondent Gillen claimed, the tank was punctured and therefore was responsible for the fire. According to the experts, it was not punctured. GM had therefore amassed considerable data that supported a different theory about the crash results and the Dateline segment. The pieces of the puzzle were as follows:

• A possibly topped-off tank

• A faulty fuel cap in the truck involved in the fiery accident

• Rocket engines that flared prior to impact

• Footage indicating that the fire was confined primarily to grass and did not engulf the cab of the pickup

• Fuel tanks that, contrary to NBC claims, had not been punctured Additionally, GM conducted background checks on NBC's "safety experts" and learned the following:

• The consultant referred to by NBC as "vice president of the Institute for Safety Analysis" had no engineering background but was a former stock-car driver with a BA in Asian studies.

• The second consultant worked as a "safety consultant" for trial lawyers and had worked as a consultant for ABC News in seven segments on auto safety. He majored in industrial design but did not complete college.

• The third was from the Institute for Injury Reduction, a nonprofit organization that tests products for plaintiffs' attorneys. He had no college degree but studied Japanese and had a diploma in Korean from the U.S. Government's Defense Language School. On Monday, February 1, 1993, GM's executive vice president and general counsel, Harry Pearce, presented these findings to GM's board of directors. When asked how the directors responded, Pearce said, "They were shocked." In January, GM had sent yet another letter to Robert Read, the Dateline producer, this time detailing GM's specific findings. Read responded without informing either NBC President Robert Wright or NBC News President Michael Gartner. In a subsequent letter to Read dated February 2, GM carbon-copied Wright and Gartner, finally bringing the case to the attention of top NBC officials. NBC management responded by having its top public relations advisers and NBC General Counsel Richard Cotton draft a letter from Gartner to GM.

The letter asserted three separate times that the NBC story was entirely accurate. "NBC does not believe that any statements made...were either false or misleading...the Dateline report was and remains completely factual and accurate."34 On February 4, 1993, an Atlanta jury awarded $101 million in punitive damages and $4.2 million in compensatory damages to the parents of a 17-year-old boy killed in a fiery death in a GM C/K pickup. The parents had argued that the placement of the fuel tank outside the frame of the pickup made it vulnerable to puncturing during a collision. GM's defense in the trial had been that the boy had died instantly during the collision which, the GM attorney argued, occurred at such a high speed that the death could not be blamed on the truck's design. On Friday, February 5-the morning after the verdict in the liability case and a few days before a scheduled press conference by the CAS-GM management had a weekend to consider some delicate strategic options. One major option was to file a defamation suit against NBC.

Defamation was the communication (e.g., by journalists) to a third party (e.g., viewers) of an untrue statement of fact that injures the plaintiff (GM). A second major option was to go public with the information it had developed on the Dateline segment. With the liability verdict and its aftermath fresh in the news, GM would be taking a significant risk in drawing still more attention to its pickups. Said one Wall Street analyst, "A successful rebuttal won't make anybody go out and buy trucks. The publicity [of an aggressive defense by GM and an attack on GM's critics] can't do anything but harm GM."35 This perspective reflected the rule of thumb that "any news is bad news" when it involves a major company, a less than perfectly safe product, and a high level of public sensitivity toward product safety.

1. From GM's perspective, what are the nonmarket issues? What are their sources? Where are they in their life cycles?

2. Should GM fight the Dateline issue as a matter of principle? Why or why not?

3. What kind of media coverage should GM anticipate over the next week? Does GM have any control or influence over this situation?

4. Should GM file a defamation suit and/or go public with its findings about the Dateline segment?

5. In the position of Mr. Gartner at NBC, what would you have done upon receiving GM's letter and findings?