GM GETS TOUGH WITH ITS CRITICS Angered by ''low blows,'' the auto giant is lashing out at plaintiffs' lawyers, safety advocates, and the media. Ralph Nader says he'll gladly return the fire.
By Andrew Evan Serwer REPORTER ASSOCIATE Rosalind Klein Berlin

(FORTUNE Magazine) – AS A YOUNG MAN, Harry Pearce dreamed of piloting F-101s but washed out of flight training at the U.S. Air Force Academy because he was colorblind. Grudgingly, he became a trial lawyer. Today, at 50, Pearce is general counsel of the world's largest industrial corporation, manages a team of 350 lawyers, and is one of General Motors' top five executives. Lately, he has been seeing red, though still only figuratively. He is riled at what he considers unfair attacks on the safety of GM's products. After decades of playing the punching bag for what Pearce calls ''low blows'' from plaintiffs' lawyers, safety experts allied with them, and the media, GM is fighting back. Pearce and his colleagues are speaking out against critics at press conferences and public forums. Most notably, they forced Dateline NBC into a public apology for running a trumped-up demonstration of a GM truck bursting into flames. Last month GM refused a federal request to voluntarily recall 4.7 million of the same model trucks, which the government says are prone to catch fire in side-impact collisions. Pearce & Co.'s militance reaches beyond that. Says William O'Neill, head of North American public relations at GM: ''We have declared war.'' O'Neill argues that GM's critics are using the media -- primarily television magazine shows -- to create public hostility toward GM products. The intention, he says, is to sway juries and encourage accident victims to sue. O'Neill says GM is determined to put these people ''out of business.'' The new don't-tread-on-me strategy is fraught with controversy. ''GM is right to fight back,'' says Richard Epstein, a law professor at the University of Chicago. ''Product liability cases must now be viewed as multifront wars. You battle in the courts, in Washington, and on television.'' But GM must push this pedal carefully. In 1966, stung by criticism from a fresh-faced young man named Ralph Nader, it embarrassed itself by hiring private detectives to snoop on him. (The company later apologized and paid Nader $425,000 to settle a lawsuit.) ''We have done dumb things in the past,'' admits Pearce, ''but we aren't going to be dumb going forward.'' Nader sounds only too happy to cross swords. ''I think it's great that GM is coming out into the open and fighting,'' he says. ''It's easier to battle them that way.'' The vehicle in question now is the so-called C/K pickup, manufactured between 1973 and 1987. At issue is whether its gas tank, located on the side of the truck outside the frame, makes it more vulnerable than competitors' trucks to fiery, fatal crashes. The company maintains that the pickups are safe. Security analysts say a recall could cost up to $1 billion, money the ailing automaker would be hard-pressed to spare. It might also encourage lawsuits that would cost millions more, since it could be cited as evidence of defectiveness. If the price of a recall is high, so might be the price of fighting one. Nader and others argue that taking the trucks off the road would be in GM's best interest, since a protracted brawl with the National Highway Traffic Safety Administration (NHTSA) could cost the company hundreds of millions in negative publicity and future sales. The hardening of GM's line began last year, around the time of the departure of CEO Robert Stempel. His successor, Jack Smith, whose Good Humor-man looks belie his tenaciousness, has handpicked a passel of outspoken executives as his closest confidants. Smith (no relation to Roger, please) promised to push authority down to his managers, and by all accounts he is doing it. ''To be successful we must accomplish that,'' he recently told FORTUNE. ''I have confidence in our people to know when, and how, to fight.'' Pearce knows. He broke into bigtime law trying a Corvair case for GM in his hometown of Bismarck, North Dakota, when he was 28. ''GM agreed to hire me only if my father, with whom I practiced, sat next to me,'' says Pearce. The driver's estate charged that the Corvair had spun out of control, killing him. Like many other Corvair suits GM faced in the Sixties and Seventies, the case hinged on the car's suspension system, made notorious in Nader's book Unsafe at Any Speed. After Pearce won the case by impressing the jury with a filmed demonstration, GM hired him to litigate more suits. The company brought him in-house in 1985 and made him general counsel two years later. Since most general counsels come up through corporate law, the appointment was unusual, and it seems safe to say that Pearce is extra- sensitive to product liability cases. Beyond that, he has plenty of responsibility: The heads of Electronic Data Systems and GM Hughes, subsidiaries with $21 billion in combined annual sales, report to him. Pearce's guerrilla band includes gunfighters from public relations, O'Neill and his boss, Bruce MacDonald, 55, vice president in charge of all corporate communications. ''Jack Smith never told us to go after anyone,'' says O'Neill, a self-described hothead who grew up street-smart in Elizabeth, New Jersey. ''He just told us to do what we had to. I have tremendous respect for journalists, but when I see plaintiffs' lawyers and the safety experts who testify as their witnesses spoon-feeding reporters with lies and half-truths, I get angry.'' GM got more than angry at the infamous Dateline show last November. It got even. When O'Neill, a former radio and TV producer for Detroit's NBC affiliates, got a tip that the crash test had been rigged, he and Pearce flew into action. After 24 days of blitzkrieg detective work, Pearce gave GM's side of the story in a stunning litigator's soliloquy broadcast by satellite to GM employees and dealers, and to NBC executives. The general counsel revealed that NBC had used incendiary devices to increase the possibility of fire when the truck was rammed by a car. Pearce's presentation was a public relations triumph for GM -- and a humiliating setback for NBC, which besides apologizing on the air accepted the resignation of three producers and the network's news division head. THE COMPANY next took on Inside Edition, a syndicated TV magazine show. Three months ago one of the correspondents asked to interview a GM manager for a piece alleging that the company, in presenting evidence at trials involving its pickups, itself used rigged crash tests (see box). O'Neill and his colleagues erupted. Says Inside Edition correspondent Steve Wilson: ''GM made it clear they would sue if we defamed them.'' The company answered written questions for the 14-minute segment but declined to have a spokesman interviewed on air. O'Neill says the piece was ''one-sided.'' As is typical, he charges, it was heavily influenced by trial lawyers and allied safety experts who are only too eager to talk on television about alleged product defects over which they are litigating. Inside Edition used as a major source the partner of James E. Butler, a Columbus, Georgia, attorney who appeared in NBC's Dateline piece. Butler recently won a $105 million judgment, now on appeal, against GM for the parents of Shannon Moseley, an Atlanta teenager who died in a fiery crash after a drunken driver broadsided his pickup. The Atlanta case was a major loss for GM, but it has won three of the other six pickup cases that have gone to trial. They cost the company a total of about $6 million. Butler recently filed a class action suit against GM for all Georgians who own the company's pickups. ''GM can't win this case in front of a jury,'' he says. ''Sooner or later it will have to recall the trucks.'' Another source for Inside Edition was Mick McBee, a Dallas lawyer who has settled three pickup cases for millions of dollars and is working on several others. ''I talked to the producer for Inside Edition, as I talk with other journalists,'' says McBee. ''But I don't actively seek them out.'' There are certainly plenty of journalists to seek out, given the proliferation of TV magazine shows. A few years ago, about the only programs doing investigative pieces were CBS's 60 Minutes and ABC's 20/20. Today more than a dozen are on the prowl for spicy stories, including Primetime Live, Street Stories, and Inside Edition. Coming soon, perhaps, is The Naked Eye, a show in development for NBC produced by Michael Moore, director of the outrageously successful GM-bashing film Roger and Me. Three safety experts in particular make GM's corporate blood boil:

-- Bruce Enz, vice president of a company called the Institute for Safety Analysis (TISA), was hired as a consultant by NBC and conducted the Dateline crash test. Enz tests vehicles for trial lawyers and insurers, and offers expert-witness testimony. Company literature says TISA will help file lawsuits for accidents involving ''automobiles, motor homes, industrial machinery, toys, cribs, small boats, pipelines, and dangerous chemical tank farms.'' Enz, a former policeman and stock-car driver, is not an engineer. He has a BA in Asian studies from the University of Illinois. Before the NBC test, he had never conducted a crash test with gasoline in the tank; for safety reasons, a nonflammable solution is usually substituted. Enz has testified frequently as a witness for plaintiffs and has appeared on many television shows as an auto safety expert. A car buff who owns three GM models, including a 1969 Corvette, Enz says, ''I have no ax to grind against any manufacturer.''

-- Byron Bloch was interviewed on the Dateline program and was at the crash site. He majored in industrial design at UCLA. He clearly knows cars, but he just as clearly works as a safety consultant for trial lawyers. He has testified in dozens of cases against automakers for over 20 years and has been ! called before Congress as a safety expert several times. He has been a consultant for ABC News in seven segments on auto safety, two of which have won Emmys.

-- Benjamin Kelley solicits contributions from plaintiffs' attorneys and from other members of his nonprofit organization, the Institute for Injury Reduction (IIR), to test products ranging from autos to toys. GM likes to point out that Kelley, a sharp-witted, Jack Nicholson-like character who favors bow ties, has no formal safety training or even a college degree. He studied Japanese and has a diploma in Korean from the U.S. government's Defense Language School. Over the past 25 years he has written scores of articles on auto safety, testified before Congress many times, and appeared as a plaintiffs' witness. In January, Kelley wrote IIR's 300 members asking for funds to crash-test a GM pickup. Using language only a lawyer could love, he said the test would have ''a modified design further enhancing the likelihood of real-world impact resulting in fire due to defect.'' GM translates this to mean that Kelley would fiddle with the test to make sure the truck blew up. Kelley says he meant only that the test would be designed more realistically than the Dateline crash. Also on GM's enemies list: Clarence Ditlow, head of the Center for Auto Safety (founded by Nader). Ditlow, the son of a service manager at a GM dealership in Harrisburg, Pennsylvania, has an engineering degree from Lehigh and law degrees from Georgetown and Harvard -- no quibbling over his qualifications. He has filed dozens of petitions with NHTSA demanding recalls. More than half have been denied. One high-profile petition that was accepted involved the Ford Pinto. It was Ditlow who asked NHTSA to recall the GM truck. ''When GM starts complaining about critics,'' he says, ''it is sending up a smoke screen to cover safety issues.'' Just how safe are GM's pickups? The answer is complicated. Like other large trucks, GM's, which weigh around 4,500 pounds, have a lower rate of fatal crashes than light trucks or cars. Overall, their fatal-crash rate is only marginally higher than that of Ford or Chrysler trucks of the same class. But government statistics used by both NHTSA and the Insurance Institute for Highway Safety, the auto insurers' trade group, show that fatal side-impact crashes with fires occur 2.5 times more frequently in GM's trucks than in Ford's or Chrysler's. These nationwide statistics, collected between 1987 and , 1991 by the federal government's Fatal Accident Reporting System (FARS), also show that fatal side-impact collisions with fires dropped significantly in GM trucks built after 1988, when the gas tanks were moved inside the frame. When pressed, GM officials don't deny that their trucks have a higher fatality rate in side-impact collisions in which fires occur. No one knows precisely how many people have died in such fires. A GM executive says perhaps two more people per year die in the company's trucks than in trucks made by competitors. In its letter to GM requesting the recall, NHTSA says the side-saddle tank design ''is likely to lead to five or six additional fatalities per year.'' IN CRASS TERMS, the question is, Should GM spend hundreds of millions of dollars modifying its trucks to save a few lives a year? Suppose for the sake of argument that all 4.7 million GM trucks remain on the road for the next ten years. Using NHTSA's estimate of five to six additional deaths per year, that means 50 to 60 more people would die in the pickups. If a recall cost $1 billion, GM would be spending $16 million to $20 million to save each life. W. Kip Viscusi, a Duke University economist who specializes in the value of life, says government agencies today put a value of $3 million to $7 million on a human life. Says Brian O'Neill of the relatively neutral Insurance Institute: ''GM's trucks do have a fire problem. It was sufficient basis for the government to investigate, but by themselves the statistics are not dramatic enough to warrant a recall unless there is an easy way to fix the trucks.'' Ditlow of the Center for Auto Safety claims to have one. He thinks GM should put a metal cage around the gas tank to keep it from splitting open in side- impact collisions. He estimates the fix would cost about $65 per truck, or $300 million if all the trucks came back. GM says Ditlow's cages would cost more than that and might not be effective. Moving the gas tanks inside the frame (where GM places them now) would be prohibitively expensive, possibly as much as $1,000 per truck, or nearly $5 billion altogether. Says William Hoglund, executive vice president of GM: ''We don't know how to fix the truck -- if it needs fixing.'' Brian O'Neill believes that unless NHTSA can point to a feasible solution, it will have a tough time winning its case against GM. The pickups meet NHTSA's standard of being able to sustain a side-impact crash at 20 miles per hour without fuel tank leakage. However, merely complying with a federal standard does not protect an automaker from a recall. The Ford Pinto met federal safety standards and was still recalled in 1978 because of a bolt that punctured the gas tank in rear-end collisions, causing the car to catch fire. PEARCE NEVER doubted that GM should fight to keep its trucks on the road. After NHTSA began its investigation last December, he briefed the GM board at its regular meetings. On April 9, Pearce received a three-page letter from NHTSA requesting the recall. He immediately sent a copy to the directors along with a cover letter outlining his reasons for resisting. Though Pearce was in close contact with CEO Smith and Chairman John Smale during April, the board did not meet to discuss the recall request. The decision about what to do, says Pearce, ''was left to me. It's part of an effort at GM to give responsibility to the best-informed individual.'' Pearce and his team are carefully monitoring public reaction to the showdown. During April they checked with dealers to make sure sales hadn't been affected. On April 27, Pearce touched base one last time with his superiors. Then, three days later, he sent NHTSA a 51-page response, along with supporting documents, explaining why GM would not recall the trucks. Pearce concedes that a groundswell of public antipathy toward GM could make him reconsider, but for now he will await additional data from NHTSA. The ensuing battle could last till virtually all the disputed pickups have been junked. NHTSA's next step will be to study GM's data. After that it could test the pickups again and hold public hearings. If NHTSA still believes the trucks unsafe, it will order a recall (as opposed to its current request for a voluntary recall). If GM refuses, the dispute will move into court. Since 1989, 43 of the 67 vehicles NHTSA has cited for voluntary recalls have been called in. Since NHTSA was founded 27 years ago, only eight cases have gone to trial; NHTSA has won seven. The single exception: GM beat back a claim in the 1980s that the brakes on its X-cars were faulty. Two lead attorneys represented GM. One was Harry Pearce. Whatever happens in the pickup dispute, Pearce says GM will continue to battle its foes. ''When we are criticized unfairly, we would be negligent not to respond,'' he says. But good fighters also know when to hold out the olive branch. Marion Blakey, head of NHTSA during the Bush Administration, believes that the government and the carmakers alike could benefit by finding common ground. Blakey suggests joint testing by automakers, insurers, and reputable safety experts. Chrysler cooperated in a crash test of one of its new LH cars by Ditlow's Center for Auto Safety. Last November, Ditlow announced that the Dodge Intrepid passed with honors. ''Chrysler deserves credit for building a model with superior crash protection,'' he says. While the test was risky for Chrysler, since Ditlow could have lambasted the car, it turned out to be a masterful preemptive stroke. GM's new aggressiveness has both risks and rewards. Battling in public calls attention to a besieged product and can alienate regulators and customers. But without a doubt, GM's Dateline triumph enhanced the company's reputation and improved corporate morale. It may have helped GM influence the media and stifle critics. Says a TV magazine producer with one of the major networks: ''Dateline will make everyone more careful, especially anyone doing an auto safety story.'' TV producers might think twice about hiring plaintiffs' safety experts as consultants, or if they do, carefully identify them as paid expert witnesses. Wall Street generally approves of GM's outspokenness. As Maryann Keller of Furman Selz, dean of the auto analysts, puts it, ''I say, 'Good for GM.' Its approach reflects a company that wants to gain control of its public image. GM is beginning to understand that its executives are public figures and that its products are in 33% of all driveways in this country. It should be able to communicate to the public on its own terms.'' In other words, to win the marketplace for cars and trucks, it must also learn to win in the marketplace for ideas.