tv Street Signs CNBC April 1, 2014 2:00pm-3:01pm EDT
here on "street signs" as soon as it begins. before that, though, huge fireworks on cnbc in the past hour, whether the market is rigged or not. sue and bob were part of the conversation and guys, before we begin our little session, i just want to congratulate you both. i saw tyler here, i know mandy did as well. that was some television. that was some of the most compelling viewing i can ever remember seeing on financial or any other television. sue, tyler, bob, you guys proved what pros you are. you showed us how it's done trying to manage that. i will give you guys a little credit as well. >> you are very kind. thank you very much. >> thank you. >> no problem. well deserved. sue, i'll tell you this much. i will give bill o'brien a little credit, because he waded into the lion's den. the nyse is no fan of his. >> no, absolutely. i think he was obviously tough in the body language, you could tell from what he said to brad and also to michael that he feels very strongly as though they have been wronged. he basically accused michael
lewis of having some untruths in that book. he feels as though lewis did not do his due diligence in terms of contacting some of the high frequency exchanges, bats, direct edge, and he was very vehement about it but remember, he really feels like he's under attack. i think bob would agree with that. >> i'll tell you something. we haven't had so much fun in a long, long time down here. the entire floor stopped and did not trade, turned the sound up and watched and people were gathered around. i haven't seen so many people gathered around totally frozen watching cnbc in a long, long time, maybe since i did the story on the porn business in '97. but i'll tell you about bill o'brien. i think, i'm not trying to put words in mr. o'brien's mouth but i think he was upset there was no other coverage of the other side in the cbs report. nobody went to goldman sachs or the new york stock exchange and said what's your side of the story. a lot of people feel that their point of view never really got
out. i think he reflected that frustration. >> for those who are frustrated out there who missed the debate, let's replay some of the best moments for them. >> i have been shaking my head a lot, quite frankly, the last 36 hours. i think first thing i would say is michael and brad, shame on both of you for falsely accusing literally thousands of people and possibly scaring millions of investors in an effort to promote a business model. sue, it's a very, very old tactic to try to build a business on the planks of fear, mistrust and accusation. this has certainly taken that to a new level and it reflects either an unwillingness -- a continued lack of understanding about how the market operates or just an unwillingness to acknowledge it, because you're trying to launch a new business and you want to get volunteer platform. >> let me try to weigh in here. we want to get more on what you thought. you are very respected on the street. i have known you a little while. you are thought very highly of. do you think the markets are rigged? >> i think it's really hard to -- >> he said it in the book.
you said it in the book. that's when i knew the markets were rigged. it's disgusting that you are trying to parse your words now. okay? you can't say that -- >> you are quoted that way in the book. >> okay. let's walk through an example. >> do you believe it or not? because you said it. >> let me walk you through an example. >> it's a yes or no question. do you believe it or not? >> i believe the markets are rigged. >> okay. there you go. >> i also think that you are part of the rigging. if you want to do this, let's do this. >> i really do. >> let's walk through, he is talking about the technical operation of an exchange. when you look at an exchange or dark pool, the responsibility of that venue is to fairly price trades between slower participants and faster participants. so you have some participants have microwave towers, some are colocated. some participants are not. they are trading over an internet connection, they are slower. you will never bridge the speed. the battle is not between fast and slow traders. in order for a disadvantage to happen, in order for someone to get scalped, the fast and slow traders have to trade against each other. that trade happens on a market, okay?
it's the market's responsibility or at least it should be the market's responsibility to fairly price trades between fast and slow traders. how does it do that? it does that with its understanding of the broader market. the information that the exchange is taking in to fairly price trades. my question to bill if he is launching these accusations -- >> i'm launching accusations. >> what market data do you use to price trades on direct edge? >> we use the data and sip in combination. >> not what you used to route. what do you use to price trades in your matching engine on direct edge? >> we use direct feeds. >> no. >> yes, we do. you had a 300 page commercial, okay? let me talk. let me talk for a few minutes. >> you respond, then you respond, then michael, i want you to weigh in. >> we will bring michael back in in a minute. >> the direct feeds you are talking about that you are claiming is a source of this vast inequity, 96% of the volume executed on our system is by customers using those data products. that runs the gamut from retail
brokerage firms and their advocates. you don't understand that the market has always had intermediaries since the beginning of financial markets at scale, there will be someone who at the time needs to be in the middle. they are using technology to manage the risks of providing that service to the market and we help them and other types of brokers and investors use technology in a way that's consistent with their business model to manage the risks and the desires of their customers. that's a good thing. >> can i tell you why this is incorrect? >> this is 96% you're referring to is the proprietary feeds. >> right. >> that everybody has been arguing about. >> brad, then michael. >> there's a difference between a subscriber using a proprietary feed versus what -- a pegged order, price sliding. any time -- >> you use the same data we do. >> absolutely not. you use the sip to price trades. >> that is not true. >> what is the sip, for those who don't know? >> it's the quality of feed. what i'm saying is the exchange's view of the market is
slower than that of some of its fastest participants. their view of the market is slower. they are looking at a different price than the fastest traders. >> therefore? some investors are at a disadvantage? >> in concert, when you allow colocation to occur, your ability to fairly price trades is diminished. you can't do it because you don't even know what the market is. >> bats uses direct feeds. nasdaq uses direct feeds. >> let me jump in, gentlemen. >> can i finish, just one second, okay? >> yes, please. >> what iex has done, we use direct feeds to price trades. we are not as fast as the fastest hfts. what we have done is slowed down hft's ability to react on our exchange which means if anyone in this room, if anyone at home, if a mutual fund or hedge fund gives an order to iex and it's our responsibility to price it, hft cannot pick that order up. >> they have the same customers we do only they say they are providing a valuable service. they say we are ripping off the market. >> you aspire to be an exchange. >> absolutely. >> you have a model of how you want your exchange run.
do you think all the other exchanges' models should be legislated out of business? >> no. not at all. no. >> what do you feel should happen? >> to say that someone is not allowed to sell a microwave tower, i don't think, again, it's capitalism, right? i think to render a microwave tower irrelevant is exactly what we are trying to do. it's not about technology legal versus illegal. it's about the market providing a solution. just to respond to what bill just said, do we have computerized trading on our market, absolutely. i think the word high frequency trading should be eliminated from the industry vocabulary. >> you used it 20 times in the book. >> not his book. >> you are quoting. >> computerized trading and comput computerized scalping. people will trade with computers until the end of time. people use computers to scalp. you cannot scalp trades, orders that are on iex. >> all right. obviously that was just part of the debate discussion slash fight, whatever you want to call it, on "power lunch" earlier. i'm sure most of it will be up on cnbc.com later.
eamon javers is on capitol hill. we are awaiting the gm ceo testimony before the committee on energy and commerce. there you see the preambles. let's get back to sue and bob pisani. basically bill o'brien said to michael lewis when were you at bats? he called him out. >> he did. and you know, michael fumbled a little bit on that. basically, alluded to the fact that he had talked to some bats employees, bill said they were ex-employees. i think it goes to bob's point that bill felt that his side of the industry, for better or for worse, no matter what you think about those particular companies, good or bad, was not well represented. he did a fairly vehement job of defending himself. i think it goes to the point, you and i were talking about this over coffee earlier this morning, it goes to the point that there have always been ways to get an edge in the market.
there has always been front-running and then it was made illegal. some people think that this high frequency trading should be made illegal because it's legal front-running in some people's opinion. other people, as we were talking about, think that the fed keeping interest rates artificially low for so long has changed the complexion of the market. some people call it rigging. there are a lot of different ways to characterize that word but one of things that i put to michael lewis, and i think that is when he called me insane, was whether or not using the word "rigged" in the market and bob, you asked him the same thing, was really appropriate because the message that it sends to main street can be very dangerous. >> eamon, let me -- because we are running out of time. we have to get to the gm testimony. eamon, very quickly, it certainly wouldn't be anything new for authorities to look into the pros and cons of hft and whether it should be more highly regulated or some people have said maybe outlawed but nonetheless, what do you think
is going to come out of this in light of the fact that so much more awareness is being brought to this? >> well, look, i think what's going to come out of this segment that was just on cnbc is when brad says you want to do this, let's do this, that's going to go down as the "you can't handle the truth" moment of this debate over high frequency trading. what you saw there was the old order versus the new order and what was so fascinating to me was the response there that you can hear from the traders on the floor. these are in many ways the guys who have been disaggregated by high frequency trading. they were clearly rooting for brad's side of this debate, cheering when he made his points, when he made that comment. >> he was a rock star after that interview. >> these are the guys who have already been killed off by hft in many ways, the floor traders. they are rooting for the guys who are trying to kill off the electronic exchanges. >> one point i just want to bring up, mr. lewis did say he had tried to contact dave cummings, who was one of the founders of bats. mr. cummings messaged me and said michael lewis did not
contact me. so i don't know if that adds anything. know what's amazing about all of this? michael lewis was the side show. he at one point basically disappeared and the battle was here on the floor between brad and mr. o'brien. he basically sat back like a lot of us and just watched the fist fight. >> that is where the battle is. the battle is right here on the floor of the new york stock exchange. over how the future of trading is going to take place and whether or not we have disenfranchised the retail investor who now does not trust wall street. >> good point, sue. >> we both tried to clarify from mr. lewis that he is not telling everyone it's unsafe to invest in the market. he tried to distance himself from that. but i think you will agree, sue, that was certainly the implication and a lot of people are very upset about that. >> absolutely. we tried three or four times to get him to clarify it. but then brad said when he was pressed by bill o'brien, do you think the markets are rigged, he
said yes. so i mean, given the profile of michael lewis, i think if anything is going to get the s.e.c. to open this up and take a look, bob, at what you suggested, the mns rule, that might be it. >> i think you will see the s.e.c. get very interested in this and i would not be surprised to see hearings. i have called for it. i think they are probably moving in that direction. by the way, brad would not say it's unsafe to invest in the market. i'm quite sure about that. i have spoken with him. >> excellent work, all of you. thank you very much for replaying it for us. in fact, for our viewers and listeners, if you did miss any of the really powerful moments of tv during "power lunch" you can see it in its entirety right now. just go to cnbc.com and it's there for you. let's get now to dominic chu, who has a market flash. because there are other things going on today. >> there are. specific companies stories as well. check out what's happening with darden restaurants, currently trading up a percent. it did spike a little during the afternoon. it issued a statement in response to one of its major
shareholders, an activist fund, they are calling to spin off the red lobster unit. the company said we are confident in the initiatives we have announced to improve performance and enhance shareholder value. optimizing the value of darden's properties has always been a focus for the company. so again, remember, darden has retained goldman sachs as an advisor. the board itself has retained morgan stanley so this battle continues. back over to you. >> yeah. it's actually interesting, i got that starboard presentation late, late, late last night from a source and i went in basically, they're saying darden, you got a lot of money in real estate. if you split off red lobster, you will trap the real estate, potentially losing $850 million in shareholder equity. it's a lobster fight. an olive garden lobster fight. thank you very much. still ahead, we are just minutes away from general motors ceo mary barra's opening remarks on capitol hill. what did they know and when? we will take that as soon as it begins. in my world, wall isn't a street...
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welcome back to "street signs." you are seeing a live picture there on capitol hill. we are awaiting the general motors ceo mary barra. she is going to be testifying before a congressional panel about the massive and expanding recall at the automaker. of course, there are a lot of answers that we need in all of this and hopefully today's proceedings will fill in some of those blanks. in the meantime, we have eamon javers standing by. he is also on capitol hill. what exactly can we expect to
hear from mary barra and what do we hope to hear from mary barra, eamon? >> reporter: yeah, that's right, mandy. look, there's not going to be as much heat here as there was in this hft debate we were just talking about before the commercial break but there is definitely going to be some emotion here, because we have some of the families of the victims of this ignition switch problem here in town today. they held a press conference up on capitol hill, tearful families holding up pictures of their dead loved ones, talking about what gm didn't do to protect them as they drove in those vehicles. remember, the ignition switch issue here is relatively easy for the vast public to understand. it has to do with exactly how you turn the key in the ignition, whether weight on the key from a heavy key chain or bump from a pothole could turn the ignition off while the car is going 50 miles an hour or something like that. that's an obviously dangerous situation. mary barra's job today is going to be to try to put that into context, to apologize as we know she will do, then to answer some questions from these lawmakers
who are going to be very angry and very concerned about what they see happening to their constituents. >> thank you very much. the question is also what should gm's new ceo say during her testimony today to try and win back the public's trust. becky shanbeau, you are an expert on being a leader. what does she need to do? >> this is the first testimony, ceo job is never easy. this is a tough one for mary barra. right now, what i have watched and seen mary in action here, she is doing three things that a ceo should do. number one, name it and take responsibility. for the actions that gm has done here. i think it's also important, which she has, is to sympathize and empathize with the people that have been impacted, all the families here in d.c. today, congress, but number three, just as important, be decisive and take the right action, really walk that talk to take responsibility and making sure that they take care of the people that have had damages and
losses and you know, she probably has more to do from here but i think any good leader i think she has really followed those three steps. >> becky, it's going to be an interesting testimony because you wonder how much she did know, right. so when we look at this testimony and you think well, i didn't know this, i didn't know that, is it in her best interest to continue to simply say whatever it is, we are going to fix it or to maybe go back a little bit and not put herself in personal jeopardy? >> well, i think this happened between 2003 and 2009, i believe, somewhere around there. i don't think that she was in a position on the project but right now it's about admitting the mistakes, taking responsibility for it and you know, she stated not too long ago i can guarantee you going forward on my watch, nothing like this will happen again. i can guarantee you she will probably go in to gm and make course corrections. i think it's now going forward and making the acknowledgments and what she has to do to make sure she takes care of the people that have been impacted.
>> all right. thank you very much for joining us on cnbc. do appreciate it. so what do shareholders want to hear in mary barra's testimony? let's bring in revenue shares' vince lowrey increased his gm stake since march as well as morningstar analyst dave winston. vince, you own stock, about 340,000 shares of gm according to our notes. are you going to sell or hoping to buy more based on what she says? what do you want her to say? >> well, we just got our shares about two weeks ago so we have no intention of selling. i think mary's in a position where there is a couple aspects to this. there's the moral aspect of the whole issue but there is also the legal aspect of it all. for us shareholders, we want to know what she's taking responsibility for. everything we have looked at, i'm not sure anybody knows who is responsible for what. but what she should focus on is we are going to find out what happened, we are going to do the
best we can do and will have transparency here, and we are going to lay blame where it is. remember, this is a new general motors. under the law, because i think the courts are going to end up going after this all of a sudden. she was in a meeting last night or the other night with senator blumenthal, i read a report, and he wants to put $1 billion in a fund for them and some trial lawyers to go after. let's wait just a minute, let's get the facts before we start raiding the coffers of general motors because typically these things can be handled on a fair basis but remember, this is a new general motors. most of the investors in this company now believe that all the liabilities were in the past. so mary needs to be careful about what she's taking responsibility for, because these investors here have been in here since the new offering and we have been led to believe that the liabilities in the past are over. that's a very serious legal issue so there is the moral
issue and they can handle that on their own. but those of us who are shareholders are going to be very focused on, you know, this unholy alliance of politics and trial lawyers creating hyperbole around here where there are no facts yet. there may be some that others know but there's not a lot of facts about this. >> the very fact that we have not had all of those facts yet laid out to us but nonetheless, you are still going ahead and since the recall, you have added to your position in gm, as brian said, it doesn't bother you either way. why not? >> well, because if you look at past events like this, take the worst case scenario. right now, they're talking about 13 deaths. general motors can be very fair -- look, you can't bring back a loved one, but there will be some type of financial renumeration for people involved. >> it doesn't shake your confidence in the stock at all, is what i'm trying to get at? >> no, no, no. it's not going -- the history of
it all, we saw the ford pinto, union carbide, it goes on and on over time that these companies survive this. it's very short term effect. it's more of a moral issue right now about the deaths of all these people. but the company is going to do fine going forward. this is not going to put them out of business. it could slow up sales for a quarter or so but it's not going to hurt the company. the company is already with the price that has dropped year to date has already discounted some serious problems and i think it's well overdone. >> i hope vince is right because obviously america needs gm. certainly michigan and detroit need gm to do well. if i look at toyota, go back a few years to their recall, it impacted market share. you think this will happen with general motors? >> in the short run you can see consumers staying away but in the long run i don't think it will matter a whole lot. it's a very, very different
company now. look at the new impala, got the best rating from consumer reports compared to a jaguar. these ignition switch recall cars are not even made anymore. some of the brands don't even exist anymore like pontiac and saturn. >> that might be the case but a lot of the consumers out there who want to get a car don't necessarily know all that, or they might not even do all the research to find that out. for example, if i just went looking for a car, i'm the mother of two kids and i want the very safest car out there, listening to all these headlines every single day about what's going on with gm, i think i would probably stay away from a gm car. >> it depends on the consumer. i'm not going to dispute your point. i think it's a matter of are you willing to go to the showroom, sit in something like a buick enclave and say wow, i didn't know gm could make cars like this. it will depend on the consumer. >> so dave, are you recommending to your clients, morningstar's clients, they buy shares of general motors? >> gm is on our best ideas list. i have a fair value of 57. i have not set aside any money
yet for a settlement. i would like to get more clarity on all the complex legal issues here. even at $5 billion, i wouldn't even be $3 off my valuation. >> i wanted to ask you, i don't know if you had the time to do this work. all right. i believe -- actually, don't have time to ask you. i believe they are now addressing the questions and the statement directly to gm ceo. let's listen to mary barra. >> she has held a number of positions in this company from 2008 to 2009, miss barra served as vice president of global manufacturing, engineering and from 2005 to 2008 she was executive director of vehicle manufacturing engineering. she has also served as a plant manager and director of competitive operations engineering as well as numerous other positions. i will now swear in the witness. miss barra, you are aware that the committee is holding an investigative hearing and in doing so, has a practice of taking testimony under oath. do you have any objections to testifying under oath? >> no. >> the chair that advises you that under the rules of the house and the rules of the
committee, you are entitled to be advised by counsel. do you desire to be advised by counsel during today's hearing? >> no. >> in that case, if you would please rise and raise your right hand, i will swear you in. do you swear that the testimony you are about to give is the truth, the whole truth and nothing but the truth? >> i do. >> thank you. miss barra, you are now under oath and subject to the penalties set forth in title 18, section 1001 of the united states code. you may now give a five-minute summary of your written statement. >> thank you, mr. chairman and committee members. >> please put your microphone close to your mouth and make sure it's on. thank you. >> can you hear me? thank you, mr. chairman and committee members. my name is mary barra. i am the chief executive officer of general motors. i appreciate the opportunity to be here today. more than a decade ago, gm embarked on a small car program. sitting here today, i cannot tell you why it took so long for a safety defect to be announced for this program.
but i can tell you we will find out. this is an extraordinary situation. it involves vehicles we no longer make but it came to light on my watch so i am responsible for resolving it. when we have answers, we will be fully transparent with you, with our regulators, and with our customers. while i cannot turn back the clock, as soon as i learned about the problem, we acted without hesitation. we told the world we had a problem that needed to be fixed. we did so because whatever mistakes were made in the past, we will not shirk from our responsibilities now or in the future. today's gm will do the right thing. that begins with my sincere apologies to everyone who has been affected by this recall. especially the families and friends who lost their lives or were injured. i am deeply sorry. i have asked former u.s.
attorney anton veluquez to conduct a thorough and unimpeded investigation into the, actions of general motors. i've received updates from him and he tells me he is well along with his work. he has free rein to go where the facts take him regardless of outcome. the facts will be the facts. once they are in, my leadership team and i will do what is needed to help assure this does not happen again. we will hold ourselves fully accountable. however, i want to stress, i'm not waiting for his results to make changes. i have named a new vice president of global vehicle safety, a first for general motors. jeff boyer's top priority is to quickly identify and resolve any and all product safety issues. he is not taking on this task alone. i stand with him and my senior leadership team stands with him as well. we will welcome input from outside of gm, from you, from
nhtsa, from our customers, our dealers, and current and former employees. the latest round of recalls demonstrates just how serious we are about the way we want to do things at today's gm. we have identified these issues and we have brought them forward and we are fixing them. i have asked our team to keep stressing the system at gm and work with one thing in mind, the customer and their safety are at the center of everything we do. our customers who have been affected by this recall are getting our full and undivided attention. we are talking directly to them through a dedicated website with constantly updated information and through social media platforms. we have trained and assigned more people, over 100, to our customer call centers and wait times are down to seconds. and of course, we are sending customers written information through the mail. we have empowered our dealers to take extraordinary measures to
treat each case specifically. if people do not want to drive a recalled vehicle before it is repaired, dealers can provide them with a loaner or a rental car free of charge. to date, we have provided nearly 13,000 loaner vehicles. if a customer is already looking for another car, dealers are allowed to provide additional cash allowances for the purchase of a lease or new vehicle. our supplier is manufacturing new replacement parts for the vehicles that are no longer in production. we have commissioned two lines and have asked for a third production line, and those parts will start being delivered to dealers next week. these measures are only the first in making things right and rebuilding trust with our customers. as i have reminded our employees, getting the cars repaired is only the first step. giving customers the best support possible throughout this process is how we will be judged.
i would like this committee to know that all of our gm employees and i are determined to set a new standard. i'm encouraged to say that everyone at gm up to and including our board of directors supports this. i'm a second generation gm employee and i'm here as our ceo but i'm also here representing the men and women who are part of today's gm and are dedicated to putting the highest quality, safest vehicles on the road. i recently held a town hall meeting to formally introduce our new vp of safety. we met at our technical center in michigan. this is one of the places where the men and women who engineer our vehicles work. they are the brains behind our cars but they are also the heart of general motors. it was a tough meeting. like me, they are disappointed and upset. i could see it in their faces, i could hear it in their voices. they had many of the same
questions that i suspect are on your mind. they want to make things better for our customers and in that process, make gm better. they particularly wanted to know what we plan to do for those who have suffered the most from this tragedy. that's why i'm pleased to announce that we have retained kenneth fineberg as a consultant to help us evaluate the situation and recommend the best path forward. i am sure this committee knows mr. fineberg is highly qualified and is very experienced in handling matters such as this, having led the compensation efforts involved with 9/11, the bp oil spill, and the boston marathon bombing. mr. fineberg brings expertise and objectivity to this effort. as i have said, i consider this to be an extraordinary event and we are responding to it in an extraordinary way. as i see it, gm has civil responsibilities and legal
responsibilities. we are thinking through exactly what those responsibilities are and how to balance them in an appropriate manner. bringing on mr. fineberg is the first step. i would now be happy to answer your questions. thank you. >> thank you, miss barra. i also want to acknowledge the families are here today. know that we are aware and have the sympathy of all the committee here. kelly erin rudy of scranton, pennsylvania is one of those we offer sympathy to the families. we have all of you in our hearts. miss barra, our committee reviewed more than 200,000 pages of documents. what we found is that as soon as the cobalt hit the road in 2004, drivers began to immediately complain to general motors that the car's ignition systems didn't work properly. you can imagine how frightening it is to drive a car and suddenly lose your power steering and power brakes. when the switch for the cobalt was being built in 2002, gm knew the switch did not meet its
specifications for torque, am i correct? >> yes. >> gm engineers began to look at the problem and try to figure out how to address it. gm understood the torque and the switch is measured below its own specifications, is that right? >> yes. >> is it common practice for gm to accept a part that does not meet gm specification sns? >> no. but there is a difference between a part meeting or not meeting specifications and a part being defective. >> so under what scenario is accepting parts that don't meet gm specs allowable? >> an example would be when you're purchasing steel. you will set a specification for steel but then because of the different suppliers and availability of steel to make products, you will assess the performance, the functionality, the durability, you know, the aspects of the part or in this case, steel, that is necessary to live up to what the performance and the durability, the safety needs to be. that's an example of when you would have a part or have material that doesn't meet the
spec that was set out but is acceptable from a safety, from a functionality perspective. performance as well. >> is that switch acceptable? >> the switch -- i'm sorry -- >> is the switch acceptable? >> at what time frame, i'm sorry? >> at the beginning. it didn't meet the specs for gm so is that what you would consider acceptable? >> as we clearly know today, it's not. >> so in 2006, gm changed its ignition switch and gm switched, delphi put in a new spring to increase the torque, is that correct? >> i didn't hear the last part. >> a new spring was put in to increase the torque, is that correct? >> there was a new part. >> thank you. now, in that binder next to you, if you would turn to tab 25. this is an e-mail exchange between delphi employees in 2005 discussing the changes to the ignition switch. the e-mail notes that a gm engineer is asking for information about the ignition switch because, quote, cobalt is
blowing up in their face in regards to turning the car off with the driver's knee, unquote. if this was such a big problem, why didn't gm replace the ignition switch on the cars already on the road? the cars where the torque fell well below gm specifications instead of just new cars? why? >> what you just said does not match under tab 25. >> it's the bottom of the page. there should be something there. just note that what i said, a positive apologize for that. there was a statement made cobalt is blowing up in their face just by a bump of the driver's knee. >> clearly there were a lot of things that happened. there has been a lot of statements made as it relates. that's why we've hired anton to do a complete investigation of this process. we are spanning over a decade -- >> you don't know why they didn't just replace the switch on the old cars as well as the new cars? >> i do not know the answer to that. that's why we're doing this investigation. >> given the number of complaints about ignitions turning off while driving, why wasn't this identified as a safety issue?
>> again, i can't answer specific questions at that point in time. that's why we're doing a full and complete investigation. >> another one. in the chronology gm submitted to nhtsa, gm states it didn't make the connection between the ignition switch problems and the airbag nondeployment problems until late 2013. my question is when gm decided to switch the ignition in 2006, did the company ever examine how a faulty ignition switch could affect other vehicle systems like the airbags? >> again, that's part of the investigation. >> should they? >> should we understand -- >> should they look at how it affects other vehicle systems? >> yes. >> let me ask another question. so when gm concluded, you heard from my opening statement that the tooling cost and price pieces are too high, what does that mean? >> i find that statement to be very disturbing, as we do this investigation and understand it in the context of the whole timeline, if that was the reason the decision was made, that is unacceptable. that is not the way we do business in today's gm.
>> well, how does gm balance cost and safety? >> we don't. today, if there's a safety issue, we take action. if we know there is a defect on our vehicles, we do not look at the cost associated with it. we look at the speed in which we can fix the issue. >> was there a culture in gm at that time that they would have put cost over safety? >> again, we are doing a complete investigation but i would say in general, we have moved from a cost culture after the bankruptcy to a customer culture. we have trained thousands of people on putting the customer first. we have actually gone with outside training. it's a part of our core values and it's one of the most important cultural changes we are driving in general motors today. >> i understand today. we are asking about then. i'm out of time. >> miss barra, gm knew about the defect in the ignition switches as far back as 2001, 13 years
before the recall, correct? yes or no will work. >> the investigation will tell us that. >> you don't know when gm knew about the defect? >> i -- >> take a look at tab seven in your notebook, ms. barra. this is a gm document. what this gm document talks about is this switch. it says tear down evaluation on the switch revealed two causes of failure, low contact force and low plunger force. do you recognize that document, ma'am? >> this is the first i have seen this document. >> okay. well, so you don't know how long gm knew about this? >> that's why i'm doing an investigation. >> okay. in fact, delphi, the manufacturer of the ignition switch, informed gm in 2002 that
the switch was supposed to be 15 minimum torque specification, but in fact, these switches were between four and ten, didn't it? >> the specifications correct that it was supposed to be 20 plus or minus five. >> and these switches were between four and ten, correct? yes or no will work. >> we know that now. >> and gm was notified by delphi of this, correct? yes or no? >> i'm not aware of being notified. can i also correct, i was -- >> i need a yes or no. i only have five minutes. i'm sorry. so as far back as 2004, ten years ago, gm conducted a problem/resolution tracking inquiry after it learned of an incident where the key moved out of the run condition in a 2005 chevrolet cobalt. is that correct? >> again, you are relating specific incidents that happened -- >> you don't know? you don't know about that?
take a look at tab eight, please. by the way, ma'am, i'm getting this information from the chronology that gm provided to nhtsa. >> right. >> so let me ask you, again, as far back as 2004, gm conducted a problem/resolution tracking system inquiry after it learned of an incident where the key moved out of the run condition. is that correct? >> yes. >> thank you. now, after the prts inquiry, one engineer advised against further action because there was quote, no acceptable business case to provide a resolution and the prts was closed. is that correct? >> if that is true, that is a very disturbing fact. that is not the way we make decisions. >> okay. again, in 2005, gm received more reports of engines stopping when the keys were jerked out of the run condition. further investigations were
conducted and engineers proposed changes to the keys, is that correct? >> it's part of our investigation to get that complete timeline. >> much of this i'm taking from the timeline gm has already done. >> which was a summary. >> okay. so as a result of the investigation, a technical service bulletin was issued to dealers that if car owners complained, they should be warned of this risk and advised to take unessential items from the key chain but this recommendation was not made to the public. no public statements were issued, no recall sent. is that correct? >> that's my understanding. yes. >> thank you. in 2006, gm contracted with delphi to redesign the ignition switch to use a new plunger and spring that would increase torque force in the switch, is that correct? >> yes. >> and for some reason, though, the new switch was not given a part number and instead, shared a number with the original defective switch. is that correct? >> yes.
>> now, this new switch also did not meet gm's minimum torque specifications either. this one delphi said was in the range of 10 to 15 and it really should have been 15 at a minimum, is that correct? >> i have not seen the test results from that. >> you don't know that. okay. now, despite these facts, gm continued to manufacture cars with the same ignition switches for the model years 2008 to 2011, is that correct? >> yes. >> and between 2004 and 2014, no public notices were issued as a result of gm's knowledge of these facts and no recalls were issued for the over 2.5 million vehicles manufactured with these defective ignition switches. is that correct? >> yes. >> finally, three recalls were made this year. 2014, two in february and one just last friday. is that right? >> related to this ignition switch? >> no, i have just a couple more
questions. the first question i have, miss barra, gm is intending to replace all the switches for those cars beginning on april 7th. is that right? >> we will begin shipping new parts next week. >> are you going to put a completely redesigned switch or are you going to put the old switches from 2006 into those cars? >> it's going to be a switch that meets the -- >> is it going to be a newly redesigned switch or is it going to be the old switch from 2006? >> it's the old design that meets the performance that's required. >> i have more questions, mr. chairman. perhaps we can do another round. >> but an important follow-up. you are saying there is an ongoing investigation, you cannot comment on these yet. are you getting updates on a regular basis as this is going on? from anybody in the company regarding these proceedings, are you getting updates? >> yes, i am. >> thank you. now go to chairman of the full committee for five minutes. >> miss barra, thank you for being here this afternoon.
i want to make sure that we ask similar questions of both you and of nhtsa. we want to learn about the documents that were submitted on a timely and appropriate basis to nhtsa and in fact, what did they do with that information. the documents that we have looked at has produced, show that gm received complaints about its cobalt ignition switches for about two years, that ultimately resulted in a redesigned ignition switch in 2006. who within gm would have known about those specific complaints? what was the process back then? >> i was not a part of that organization at the time. that's why i'm doing the investigation to understand that. >> so you don't know the folks that would have been reported to at this point, is that right? >> i don't know the people who would have been handling this issue at that point. >> but you are getting updates. what's supposed to happen? looking back, what should have happened when these reports came
in? >> in general, when you have an issue, a product issue, a safety issue, a field incident, any type of issue that comes in, you have a team of engineers that are the most knowledgeable that work on that. if they see there is an issue, they elevate it to a cross-functional team that looks at it and then it goes to a group for decision. >> now, we know that the ignition switch was in fact redesigned because it didn't meet the specs that were there, is that right? >> yes. >> now, i would guess that engineering 101 would normally require that when you assign a new part or replace a new part, replace a part with a new part, that that newly redesigned part in fact should have a different number on it. is that right? >> that is correct. >> so that didn't happen, right? did not happen? >> that's correct. >> who within gm made the
decision to move forward with that redesigned switch without a new part number? do you know who that is? >> i do not know the name of the individual. >> are you going to be able to find that out for us? >> yes, i will. >> will you give that name to our committee? >> i can provide that. >> is it likely that that same person was the one that decided not to recall the defective version? where in the timeline is that? >> i don't know but that is part of the investigation that we are doing. >> do you know when it was that it was discovered, what year, where in the timeline that it was discovered that in fact, a new part number was not assigned? >> i became aware of that after we did the recall and the timeline was put together. >> so that was just in the last month or so, is that right? >> that's when i became aware. >> when did gm realize that no new part number had been assigned? >> again, that's part of our investigation. i want to know that just as much
as you, because that is an unacceptable practice. it is not the way we do business. >> so you stated publicly that something went wrong with our process. how is the process supposed to work? how are you redesigning the process to ensure that in fact, it should work the way that it needs to work? >> well, one of the things we're doing is the investigation, i have some early findings. as we look across the company, it appears at this time there was information in one part of the company and another part of the company didn't have access to that. at times they didn't share information just by coarse of process or they didn't recognize that the information would be val valuable to another area of the company. we have fixed that. we announced a new position, jeff boyer, vice president of global vehicle safety. all of this will report to him.
he will have additional staff and will have the ability to cut across the organization and will also have the right functional leadership that understands what's going on in the different areas so that's a fix we have already made. and he is operating that way too. >> so when gm received complaints about ignition switches for a number of years, ended up resulting in the redesigned ignition switch in '06, when was it that anyone linked up the ignition switch problems to look at the cobalt's air bags not deploying. was that at about the same time? was that later? what's the time line on that? >> that is something i very much want to understand and know, but, again, this is -- we are doing an investigation that spans over a decade, and it's very important because designing a vehicle is a very complex process, that we get a detailed understanding of exactly what happened because that's the only way we can know that we can fix processes and make sure it never happens again. >> when was it that gm informed
nhtsa that, in fact -- did, in fact, gm inform nhtsa that the ignition switch had been redesigned? >> i don't know that. >> i yield back. >> chairman yields back. now recognize the ranking member of the full committee, mr. waxman, for five minutes. >> thank you, mr. chairman. >> miss barra, we heard about how in 2002 gm approved the use of faulty ignition switches in cobalts, ions, and other cars. that's what caused many of the problems that led to the recall of the cars from model years 2003 to 2007. so new ignition switches were designed and approved by general motors. these were switches that were in use in the model years 2008 to 2010. does that all sound right to
you? am i correct in what i'm saying? >> there's a couple statements you made at the beginning that i don't know to be true. >> well, in 2002 gm approved the use of what turned out to be faulty ignition switches in several -- >> they were parts that went in noo a 2003 was the earliest model. >> the tests were done in 2002, but the cars were 2003 to 2007, so we had a recall of those cars. >> right. >> and then there was a new switch, new ignition switch, designed and approved by gm, and these new switches were in use in the model years 2008 to 2010 cobalts and ions. >> to the best of my knowledge, that's correct. >> okay. in a briefing last week, delphi told committee staff that these new switches also did not meet gm specifications.
they told us the force required to turn these switches was about two-thirds of what gm said it should be, and documents have were provided to the committee also confirm that top gm officials were aware of the out of spec switches in 2008 to 2002 vehicles in december 2013. so there's a document, if you want to look it up, it's tab 39, page 6 of your binder. there was a december presentation for gm's high level executive field action decision committee, and that meeting -- at that meeting they showed that the performance measurement for almost half of the 2008 -- so you go to 2008-2010 model year vehicles, ignition switches were below the minimum gm required specifications.
my question to you is are you concerned that many 2008 to 2010 model year cars have switches that do not meet the company's specifications? >> as we assessed the situation, my understanding that there was work going on to look at the switches again, look at just -- a part, any generic part does not meet specification does not mean it is a defective part. as that analysis was going on at the same time we were doing the look across to make sure we could get all of the spare parts, and when we recognized that spare parts might be -- have been sold through a third parties that have no tracking to know which vin we -- >> we were informed that a lot of these cars, those model years had switches that were just as defective as the 2003 to 2007 cars. those cars were recalled, but you didn't recall the model year 2008 to 2011 vehicles until a
month later on march 28th. why did the company delay in recalling these newer vehicles? >> the company was looking -- my understanding is the company was assessing those switches but in parallel they were looking at the spare parts issue, and the spare parts issue became very clear we needed to go and get all of those vehicles because we couldn't identify which vehicle may have had a spare part put in them. >> but you then -- >> and we recalled the entire population. >> but you recalled those vehicles. you recalled them later. >> yes, we did. >> not when you knew there was a problem. your recall of these later vehicles did not mention the faulty switches that were originally installed in the cars. they mentioned only, quote, faulty switches may have been used to repair the vehicles. why did the company not announce that subpar switches may have been installed in those vehicles in the first place. >> there was an assessment going
on to understand if the parts performance was adequate. >> wasn't it misleading to say that the company didn't tell them subpar switches may be installed in the first place? what if i owned a later model car with the original ignition switch. your recall implies i don't have to do anything but my car might still have a subpar switch. will you company conduct a detailed analysis of these late model vehicles to determine if they're safe and will you provide the committee with warranty reports and other information so we can do our own analysis? >> i believe we're recalling all of those parts. all of those vehicles are being recalled. >> they're all being recalled. well, i must say, in conclusion, mr. chairman, i'm concerned, i know you've taken this job at an inauspicious time, you're trying to clean up a mess that was left behind for you by your predecessors, but i have one last question.
how can gm assure its customers that new switches be installed beginning april 7th will finally meet gm's requirements? >> thank you. >> we are working very closely with our supplier, our executive director responsible for switches is personally looking at the performance of the new switches. we will do 100% end of line testing to make sure that the performance, the safety, the functionality of these switches are safe. >> thank you. gentleman's time expired. miss barra, you're being asked a number of questions. i just want to be clear, did you review the documents that gm submitted to the committee? >> no, i did not. there were over 200,000 pages my understanding. >> how about the document mr. waxman is talking about? >> i saw this for the first time a day ago. >> now recognize miss blackmon for five minutes. >> thank you, mr. chairman. miss barra, you have mentioned several times in your comments
today's gm, so my assumption is that you are going to run gm in a different manner than it has been run in the past and that you are making some changes. i want to ask you just a little bit about time line, helping us to get our hands around this because this is the first investigation we're going to do. we're going to have others and continue to look at this to get answers and figure out what has happened here between you all and nhtsa and also within what happened at gm. so you mentioned in your testimony that this came to light on your watch. so i am assuming that there was no widespread knowledge in gm about this issue until you became ceo. am i correct on that? >> at the senior level of the company, we learned of this after the recall decision was made on january 31st.
i was aware in late december there was analysis going on on a cobalt issue but i had no more information than that, but i can assure you as soon as we understood -- the senior leadership understood this issue and that a recall decision had been made, we acted without hesitation. >> okay. then how did you find out about it? was it through someone bringing the issue to you to say, miss barra, we have a real problem here or in doing your due diligence did you find out about it? >> the leadership committee responsible for making recall decisions made a decision on january 31st. they notified mark royce who immediately picked up the phone and called me. >> okay. and could you submit to me the members of that leadership committee that make those recommendations? >> yes. >> thank you. and then was your predecessor, mr. akerson, was he aware of this issue? >> not to my knowledge. >> he was not. are any of the members of the
leadership committee also -- were they a part of his leadership committee? >> there are members of today's team that were also members of mr. akerson's leadership team, and to my knowledge they were not aware. >> okay. do you think there was a cover-up or it was sloppy work? >> that is the question i have asked the team to uncover and i'm awaiting the results from the study. >> do you think it had anything to do with the auto bailout? >> i'm sorry? >> with the auto bailout? do you think -- >> again, i need to get the results of the study to make all determinations. >> and going back to what mr. upton said, you're going to be sharing that information with us. >> yes. >> as you get those. >> we will be transparent. >> was there -- the engineers that were responsible for this, have you brought them into the process? i know this is something that the part was actually created by delphi, correct? >> correct. >> andhe