Who is Leading Whom in the General Motors Recall

Understanding Media Impact on Public Relations Efforts, Public Awareness, and Financial Markets

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EXECUTIVE SUMMARY

Who is Leading Whom in the General Motors Recall: Understanding Media Impact on Public Relations Efforts, Public Awareness, and Financial Markets

Purpose of the Study

The recall by General Motors (GM) in 2014 was one of the largest crises in the history of the automotive industry. According to The Guardian (2014), U.S. Attorney Kenneth Feinberg announced 229 deaths and 1,986 injury claims had been made in December 2014 as more than 16.5 million cars had been recalled for ignition-related defects (Ivory, 2014).

This study investigated the antecedents (i.e., GM trading volume, press releases), agenda-setting (i.e., public awareness) and agenda-building process (i.e., corporate coverage, product coverage), and consequences (i.e., stock price) of news coverage in the GM recall. Agenda-building and agenda-setting theory relate to how influential the media or a corporation are on setting the public or media agenda. After conducting an extensive literature review, the author proposed a model to test the relationships among the variables (see study).

Method

Data were collected from January 1 through December 31, 2014 from four searchable databases including trading volume and share price on Yahoo Finance, press releases on the GM official website, news coverage from Factiva, and public awareness using Google trends. Specifically, data on news coverage were available from PRIME Research, which is one of leading global companies in media analysis since 1987. To analyze the causal relationships among GM trading volume, press releases, news coverage on products and corporations, public awareness, and share price in this crisis, a vector auto regression (VAR) model and pairwise granger causality test were applied for data analysis.  These have been widely applied in time series analysis of agenda-setting research.

Discussion and Conclusion

Results revealed that with the context of the GM recall, media coverage was a useful predictor, playing a strong role as an agenda-setter, and could lead to setting of public and organizational agendas. Therefore, the increase of media coverage led to the increase of other variables, for example, and when more coverage emerged, public awareness of this recall event also increased. In this way, media agenda acts as a predictor, or an agenda-setter of the public agenda. Based on the findings, there are three theoretical and practical implications of the results:

Strong impact of media agenda

Data supported the impact that media coverage has on public opinion and corporate brand reputation in a crisis. First, the increasing amount of corporate and product news effectively predicted the increase of public attention toward this recall. The media coverage demonstrated a statistically-significant relationship with public awareness which supported the agenda-setting effects in a corporate crisis context. Second, results also showed the media coverage on GM seemed to influence the organization’s public relations efforts, With the heated discussion on controversial issues (e.g., cost- or customer-oriented GM culture) and an increasing amount of negative news (Himsel, 2014), the media coverage about GM superseded the organization’s desire and ability to lead the agenda under high-risk conditions.

Lack of effects on media agenda

This study also found that GM lacked influence on media coverage, which challenged the traditional wisdom of agenda-building theory. When GM began to conduct more accommodative activities such as expanding recalls significantly in February, apologizing to the public in March, and compensating the victims in June, the tonality of media coverage actually became more negative and generated higher visibility from the general public. Several factors listed below could help explain this phenomena.

The first factor could be the timing for crisis responses. As Huang & Su (2009) suggested, timely crisis responses could successfully improve crisis response effectiveness. In the GM recall, this ignition switch problem first occurred in 2001, however, the company did not report this issue officially. These delayed crisis responses left enough time for large quantities of news reporting to frame  the event.

Second, as an organization, GM went through bankruptcy in 2009, reorganized itself, and became a company with a new culture. As the new CEO Mary Barra promised, the new GM was focusing on the safety of customers instead of the cost-driven production in the old GM (Himsel, 2014). However, the restructuring of the company, changes in corporate culture, and the high cost of recalls restrained GM from an active and timely response to the ignition-switch problem, which led to a large amount of negative news coverage before its official responses (Business Insider, 2015).

Third, the nature of the crisis event could constitute another important contingency factor. In the crisis situation, especially within which more deaths occurred, the corporation could easily lose its credibility and draw attention from both media and publics (Sweetser & Brown, 2008). Journalists also attributed the product problem to the corporation itself and intensified the crisis (Putnam & Shoemaker, 2007).

Comparison between corporate and product media coverage.

 It was well-known that this recall occurred because of the quality of products. However, data showed it was not the products that were most frequently reported by the media. Media coverage on GM corporate led its product coverage in this crisis with larger quantities, more negativity, and higher visibility of reports. Moreover, the corporate media coverage led the organization’s agenda through the crisis and journalists framed this crisis as a corporate management issue rather than only reporting it as a product issue. In this way, although GM had differentiated its brands such as GMC, Buick, and Chevrolet, the public awareness focused on the whole company instead of specific products.

Recommendations for practice:

1. Public relations practitioners may proactively and consistently monitor and analyze media coverage on both corporations and products to prevent and manage crises through both online and offline communication.
2. GM and other automotive companies might consider applying a more transparent, consistent, thematic, and dialogic communication model at the earliest stages of communication in order to gain trust and retain good stakeholder relationships (Balser & McClusky, 2005).
3. Future GM crisis communication strategies should diverge attention from the corporate brand to products by providing a transparent disclosure of information on certain types of products and minimizing the media coverage on the whole corporation.

References

Balser, D., & McClusky, J. (2005). Managing stakeholder relationships and nonprofit organization effectiveness. Nonprofit Management and Leadership, 15(3), 295-315. doi: 10.1002/nml.70

Himsel, D. (2014, May 16). General motors, Avon, and the devastating power of entrenched corporate culture. Forbes. Retrieved from http://www.forbes.com/sites/forbesleadershipforum/2014/05/16/general-motors-avon-andthe-devastating-power-of-entrenched-corporate-culture/

Huang, Y. H., Su, S. H. (2009). Determinants of consistent, timely, and active responses in corporate crises. Public Relations Review, 35 (1), 7-17. doi: 10.1016/j.pubrev.2008.09.020.

Ivory, D. (2014, September 15). G.M.’s ignition problem: Who knew what when. The New York Times. Retrieved from: http://www.nytimes.com/interactive/2014/05/18/business/gms-ignition-problem-who-knew-what-when.html

Putnam, L. L., & Shoemaker, M. (2007). Changes in conflict framing in the news coverage of an environmental conflict. Journal of Dispute Resolution, 1, 167-175.

Sweetser, K. S., Brown, C. W. (2008). Information subsidies and agenda-building during the Israel–Lebanon crisis. Public Relations Review, 34(4), 359-366.

The Guardian. (2014, December 1). Death toll from crashes linked to faulty GM ignition switches rises to 36. The Guardian. Retrieved from: http://www.theguardian.com/business/2014/dec/01/gm-faulty-ignition-switch-car-crashe