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GM, supplier dispute over heated wiper fluid still smolders

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GM, supplier dispute over heated wiper fluid still smolders

Ryan Beene

CRAIN'S DETROIT BUSINESS -- June 15, 2010 - 11:44 am ET

DETROIT -- A dispute continues to smolder between General Motors Co. and the successor to the supplier of HotShot, which dispenses heated windshield wiper fluid.

The newest rift potentially raises further hurdles to the individuals trying to get the product back on the market.

For the second time in two years, GM has recalled vehicles because of the risk of fires -- pointing to the HotShot device as the source of those fires.

The company that made HotShot went bankrupt after the first such recall. But the new owners of the technology dispute GM's claim that HotShot was responsible for the fires. They say the electrical system in GM vehicles may have been responsible. HotShot ties into that electrical system.

The dispute may hold the key to getting the feature, widely popular with consumers, back into vehicles. It also raises questions about the federal government's procedures for testing and vehicle recalls, which have been under scrutiny in the wake of Toyota Motor Corp.'s recalls for unintended acceleration.

‘Another obstacle'

“This latest recall may hurt,” in part by reminding customers of a stain on the technology's reputation, said Peter Jacullo, president of the investor group that bought the HotShot technology. “It may be another obstacle that we have to overcome.”

On June 8, GM recalled 1.5 million vehicles from the 2006-09 model years because of the risk of fires. In August 2008, GM recalled about 850,000 vehicles for a fire risk similar to last week's recall. The automaker subsequently canceled its contract for several hundred thousand units with Microheat Inc., of suburban Detroit. Microheat then filed for Chapter 11 bankruptcy and closed its doors.

But a core team of former Microheat employees is working to get the technology behind HotShot back on the market under a new company, AlphaTherm USA. They are using Microheat's intellectual property and operating out of the same offices the defunct company used.

First step back?

AlphaTherm has signed its first deal to get the product into new cars, a contract that could be a steppingstone to deeper re-entry into the market.

Last February, AlphaTherm signed a long-term technology licensing agreement with KCW Corp., of South Korea. KCW is a member of the Kyung Chang Industrial Group and a major supplier of windshield wiper products in Korea, with 2007 revenues of more than $67 million.

KCW bought one of the two assembly lines formerly owned by Microheat and shipped the systems to South Korea, where it plans to manufacture AlphaTherm's latest-generation heated washer system for Korean automakers beginning next year.

Earlier versions of Microheat's heated wash devices are the ones implicated in the GM recalls.

AlphaTherm also has been selling heated wash units as an aftermarket product. It recently signed a distribution agreement to build about 15,000 units for sale in Russia.

The ultimate goal, said AlphaTherm General Manager Joe Trubak, is to link up with additional established Tier 1 suppliers that will evaluate the technology, license it and bring it back as an original-equipment part.

“We need one decent company that truly understands the technology,” Trubak said. “We're looking for a current Tier 1 that has enough credibility and interest to invest their time and money into it.”

Jacullo, the president of AlphaTherm's investment group, expressed tempered optimism about what the agreement with KCW would bring.

“KCW may end up being a worldwide supplier, and that would be fine by us,” he said.

AlphaTherm is a shadow of its predecessor. Its sales are a fraction of the $20 million annually they were as Microheat. AlphaTherm operates on a shoestring budget with about 10 employees, down from about 120 at its peak as Microheat.

Then there are the GM recalls. In its recall filing last week, GM said it has learned of instances where part of the wash unit can overheat and potentially cause a fire. During the first recall in 2008, GM said internal investigations pointed to the HotShot units supplied by Microheat in the 2006-08 model years as being the source of electrical system malfunctions that could result in vehicle fires.

But Microheat, and now AlphaTherm, assert instead that heavy surges of electricity created elsewhere in the electrical system make the unit short-circuit.

Flameout of a rising star

For much of the past decade, Microheat was a rising star in the industry.

The technology was invented in the late 1990s by Solomon Franco, an Israeli law student in England. While scraping his frosty windshield on a frigid day, he was baffled by the lack of a technology to defrost it quickly.

“As I stood out in the freezing cold, I remember thinking to myself, ‘We have had the technology to send men to the moon since the 1960s, but no one has created a simple solution to automatically clear windshields,' ” he said in a 2003 press release.

Franco later partnered with Slava Ivanov, a former aerospace engineer from Russia, and founded Microheat. By 2003, the company had roughly 100 employees and r&d operations in Russia, Israel and suburban Detroit, according to past Microheat press releases.

After selling in limited volume to the aftermarket, Microheat got its big break in 2003 when it landed its first deal with GM to supply future full-sized sedans and SUVs. After spending five years refining HotShot with GM engineers, the product first appeared on the 2006 model year Buick Lucerne and Cadillac DTS.

It was soon featured on nearly all full-sized GM trucks and SUVs on the GMT900 platform from 2007 to 2009, along with many sedans including the Cadillac CTS and crossovers such as the Buick Enclave.

HotShot was a finalist for an Automotive News PACE award in 2006.

NHTSA investigation

But in early 2008, things started to go downhill.

The National Highway Traffic Safety Administration's Office of Defect Investigation received two complaints that a 2007 Chevrolet Tahoe spontaneously combusted while parked with the engine turned off.

NHTSA soon opened a preliminary investigation, requesting that GM provide data about reports of underhood fires in its full-sized trucks and SUVs from model years 2006 to 2008.

In an April 25, 2008, letter to NHTSA, GM said it found 41 reports of underhood fires in nearly 2.5 million vehicles but “no pattern or trend” as a cause. Not all the vehicles that caught on fire were equipped with the HotShot unit. But the report also said GM found three failures of HotShot, one that melted wires in the wiring harness and two that “indicated that the heated washer fluid module was likely the origin of the engine compartment fires.”

When GM instituted the recall of roughly 850,000 vehicles in October 2008, it said the HotShot units could short-circuit and create a chain reaction of sorts that could cause the failure -- and sometimes melting, smoking and combustion -- of components inside GM vehicles.

After GM canceled its contract with Microheat, Ford Motor Co. canceled an early stage supply agreement. GM was Microheat's only automaker customer at the time, providing nearly all of the supplier's roughly $20 million in annual revenue.

Microheat then filed for Chapter 11, saw its case converted into a liquidation and sold most of its assets for less than $500,000 to its largest creditor, M-Heat Investors, led by Jacullo.

Suit and countersuit

GM and M-Heat Investors have filed claims against each other, with the old GM, officially known as Motors Liquidation Co., seeking to recoup about $21 million to cover the cost of its initial recall.

The trustee overseeing Microheat's Chapter 11 case has objected to old GM's claim, essentially saying that Microheat was not responsible for GM's first recall, thus the claim is invalid. But a hearing about the objection has been put on hold until the bankruptcy judge overseeing the Motors Liquidation case in a New York bankruptcy court gives the green light.

Microheat is also seeking to recover $11.4 million from Motors Liquidation in unpaid receivables for parts installed in vehicles that had yet to be paid for prior to the 2008 recall, in a separate claim.

A lawsuit filed by Microheat against GM in 2008 in Oakland County, Mich., Circuit Court was administratively closed last summer because of GM's bankruptcy.

In that lawsuit, which also charged GM with defamation, Microheat argued GM is responsible for “nonconforming high voltage transients” that caused the short circuit. Voltage transients are bursts of electricity that occur randomly and circulate throughout a vehicle's electrical system and overload components.

The jolts were so high that they caused the HotShot unit to short-circuit, Microheat claimed. That short-circuit overheated a grounding wire connecting the component to the wiring harness. Microheat contended that harness was “undersized,” citing internal tests conducted to evaluate conditions in which the HotShot unit would short-circuit, according to court documents.

Microheat also pointed to GM's initial fix for the recall in 2008, which connected a fuse to that grounding wire. The fix was designed to prevent a HotShot short-circuit from overheating the grounding wire and causing other components to fail, but it did not address the HotShot unit itself.

“If the HotShot truly had a safety defect, it would have been removed from the vehicle,” Microheat said in court documents.

GM insists that the short-circuits were not caused by voltage transients.

“Our electromagnetic compatibility expert has explained that the testing Microheat did to create a fault in their module was nearly 300 times more severe than could actually occur on a vehicle,” GM spokesman Alan Adler said in an e-mail.

The initial fix was chosen to mitigate the risk of a short-circuit in the heated wash unit crossing over into other electrical components via the wiring harness, Adler said. In GM's analysis of 80,000 trucks and SUVs, performed before the first recall, the automaker found 36 confirmed cases of a short-circuit in the heated wash unit.

Because of the relatively low occurrence of shorts, GM opted for a fix that prevented the short from spreading, rather than fixing the HotShot unit for the recall.

But GM installed a later-generation HotShot module that was designed by Microheat to handle higher-voltage currents on about 77,000 vehicles.

GM found no cases of failure in those specific units but said it found other cases of melting and saw the potential for fires caused by another part within the HotShot module. That finding prompted the June 8 recall of 1.5 million vehicles.

$100 for loss of HotShot

Owners of those vehicles are being paid $100 for the loss of that feature, as GM is removing the units from recalled vehicles brought back to dealers, Adler said.

The recall could cost GM more than $150 million, assuming every recalled vehicle is brought back to a dealer. Adler said the usual recall completion rate is about 80 percent within 18 months.

AlphaTherm's Trubak said the recall will eliminate the failure of the heated wash unit, but it will leave unresolved the voltage spikes that he said caused the failures.

“There's something else in the vehicle that is causing this, and there could be other parts in the vehicle that could be subject to this failure mode,” he said.

Jacullo of M-Heat Investors said he is still dismayed that NHTSA let GM close the book on the vehicle fires by blaming HotShot.

“Whatever GM tells them,” Jacullo said, “they're OK with that.”

Read more: http://www.autonews.com/article/20100615/OEM01/100619915/1147#ixzz0qxMIArxm

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