GM's Supplier-Squeezing Days Gave Birth to Flawed Models: Cars.

Byline: Keith Naughton, David Welch, Jeff Green and Mina Kimes

The cars at the center of General Motors Co.'s February recall were still on the drawing board when a top engineer gathered more than a dozen managers and delivered a fateful message: Build them for less.

At the time, around 2000, GM's profit margins were shrinking as worker- and retiree-benefit costs rose and its U.S. market share leadership was eroding. GM's grand plan to make money on small cars, by developing them jointly with Fiat SpA, was crashing.

As it became clear that GM's planned Chevrolet Cobalts and Saturn Ions wouldn't get made on a money-saving global design, Gary Altman, the models' chief engineer, told the group they needed to find other ways to reduce costs, including a suggestion to pull parts from existing models, said a person who was at the meeting in the automaker's suburban Detroit technical center.

Those same Cobalts and Ions are among 1.6 million vehicles that GM recalled last month over an ignition-switch flaw the company says is behind 12 deaths. U.S. investigators and regulators want to know what went wrong, who knew about it and why the nation's largest automaker took so long to mount a recall of models made a decade ago.

Altman's message, while by no means a directive to build unsafe vehicles, reflected the environment at GM: The cars were the product of a culture of cutting costs and squeezing suppliers, as described by five people with knowledge of the automaker's engineering, management and suppliers in the decade preceding its 2009 bankruptcy.

'China Cost'

GM also began pressing its supplier and former parts division, Delphi Automotive Plc, to shave pennies off the price of every part to match what several of the people familiar with GM called the "China Cost'' -- a rock-bottom price pegged to cheap Chinese labor. If suppliers couldn't match it, these people said, GM would threaten to outsource production overseas.

"It was a chaotic situation inside General Motors back then,'' said Maryann Keller, a veteran auto analyst who has written two books on the company. "It was a company suffering from falling margins and desperate to lower costs. So engineers and parts suppliers were under extreme pressure to do whatever they could to take costs out.''

In that environment, basic components could take low priority, such as the ignition switch that GM sourced for Ions, Cobalts and other models. The right to manufacture the switch had been won by Dublin...