Automotive News - November 17, 2008 - (Page 21) NOVEMBER 17, 2008 • 21 Down in flames Tiny supplier Microheat, killed by recall, says GM hides real fire problem Robert Sherefkin and David Barkholz rsherefkin@crain.com Players in the drama Solomon Franco: As a law student in London, he disliked scraping ice off his windshield. So he invented a device called HotShot to heat washer fluid. Ronnie and Gerald Chan: Hong Kong billionaire brothers backed a $30 million loan to Microheat, maker of HotShot. Jeffrey Quandt: NHTSA official opened an investigation into fires in 41 GM vehicles, then closed it after GM issued a recall, blaming HotShot. Peter Jacullo: Employee of the Chans says only 2 of the 41 fires may have been linked to HotShot. DETROIT — General Motors seemed to have both right and might on its side. After recalling almost a million vehicles because of a risk of fires, GM dropped the supplier that sold the suspected component. The supplier closed its doors. Not so fast. Peter Jacullo, an irate investor, vows that “we will ultimately find out” if GM used supplier Microheat Inc. as a scapegoat for a series of vehicle fires that Jacullo says cannot be blamed on the company’s HotShot, a hot-spray windshield washer. At first blush, this looks like David vs. Goliath. Microheat was a oneproduct startup with projected 2008 sales to GM, its only customer, of just $21 million. But GM’s phalanx of lawyers finds itself facing off against the deep pockets of Ronnie and Gerald Chan, Hong Kong billionaire backers of Microheat. Forbes magazine puts the Chan brothers’ net worth at $2.75 billion. In August, GM recalled 944,000 2006-08 vehicles equipped with HotShot, citing the potential for electrical fires. The washer sprays hot liquid on windshields to clean the glass of ice and debris. Microheat’s creditors went to court looking to get their money back. Among them: the Chan brothers, who with Jacullo hold a $30 million loan to Microheat. Jacullo, 53, of Ridgefield, Conn., is an investment partner for the Chans’ investment arm, Morningside Group Ltd. They were among many investors and automakers drawn into the HotShot saga. Inspired by ice In the late 1990s, Israeli Solomon Franco was a law student in London. One morning he discovered that his windshield had iced over. He wasn’t used to icy windshields in Israel, and he came up with a new solution to the problem. After dropping out of school to develop HotShot, he met Vycheslav Ivanov, who had worked for the Soviet space agency. Ivanov became Microheat’s chief technology officer. The company at one point had r&d operations in Netanya, Israel, and St. Petersburg, Russia. “It was a good product,” says Dennis Pawley, a former Microheat direc- tor and a former Chrysler Corp. manufacturing chief. “GM was looking to move it across still more lines of trucks.” Microheat was funded by groups of private investors. In November 2006, Jacullo and the Chans joined the $30 million loan. By then, GM was installing HotShot on premium SUVs and other vehicles. Ford Motor Co. was scheduled to begin taking the system in the spring of 2009. Then GM announced the recall. Says Jacullo: “That was the nail in the coffin.”c Inside the numbers Earlier this year, GM told the National Highway Traffic Safety Administration that the carmaker knew of 41 multiple-cause underhood fires, and the problem could affect potentially 2.5 million vehicles. In March, the agency opened an investigation into the cause of the blazes. Of the 41 vehicles, only 13 had the HotShot system. Of those 13, just two of the vehicles’ fires may have been linked to HotShot, GM told NHTSA. GM alerted Microheat technicians, who spent months in the lab trying to replicate a HotShot fire. They couldn’t. Microheat concluded that it was not the source of the fires. GM spokesman Tom Wilkinson says GM had to order a full recall. “Even if you do not have a lot of data, you have to prepare for the possibility that the problem will accelerate,” he says. “The GM preference is ‘If you think there will be a problem you try to get at it early, particularly if it involves safety issues.’ ” NHTSA closed its investigation on Sept. 8, after GM decided to order a recall, says a NHTSA spokesman. “GM has fire problems, but it appears not due to Microheat,” says Jacullo. He contends that GM’s recall of Microheat’s HotShot diverted attention from fires caused by other components in GM vehicles. “GM has not initiated a recall related to the cause of the fires in the 39 other vehicles,” he says. The GM recall, and the automaker’s refusal to pay Microheat for three months’ worth of parts, forced the suburban Detroit supplier to shut down in September. In October it filed for Chapter 11 protection. BRING SOME LIFE TO YOUR SALES WITH AUTONET MOBILE. 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Table of Contents Feed for the Digital Edition of Automotive News - November 17, 2008 Automotive News - November 17, 2008 Automotive News - November 17, 2008 - (Page Intro) Automotive News - November 17, 2008 - (Page BB1) Automotive News - November 17, 2008 - (Page BB2) Automotive News - November 17, 2008 - (Page 1) Automotive News - November 17, 2008 - (Page 2) Automotive News - November 17, 2008 - (Page 3) Automotive News - November 17, 2008 - (Page 4) Automotive News - November 17, 2008 - (Page 5) Automotive News - November 17, 2008 - (Page 6) Automotive News - November 17, 2008 - (Page 7) Automotive News - November 17, 2008 - (Page 8) Automotive News - November 17, 2008 - (Page 9) Automotive News - November 17, 2008 - (Page 10) Automotive News - November 17, 2008 - (Page 11) Automotive News - November 17, 2008 - (Page 12) Automotive News - November 17, 2008 - (Page 13) Automotive News - November 17, 2008 - (Page 14) Automotive News - November 17, 2008 - (Page 14a) Automotive News - November 17, 2008 - (Page 14b) Automotive News - November 17, 2008 - (Page 15) Automotive News - November 17, 2008 - (Page 16) Automotive News - November 17, 2008 - (Page 17) Automotive News - November 17, 2008 - (Page 18) Automotive News - November 17, 2008 - (Page 19) Automotive News - November 17, 2008 - (Page 20) Automotive News - November 17, 2008 - (Page 21) Automotive News - November 17, 2008 - (Page 22) Automotive News - November 17, 2008 - (Page 23) Automotive News - November 17, 2008 - (Page 24) Automotive News - November 17, 2008 - (Page 25) Automotive News - November 17, 2008 - (Page 26) Automotive News - November 17, 2008 - (Page 26a) Automotive News - November 17, 2008 - (Page 26b) Automotive News - November 17, 2008 - (Page 27) Automotive News - November 17, 2008 - (Page 28) Automotive News - November 17, 2008 - (Page 29) Automotive News - November 17, 2008 - (Page 30) Automotive News - November 17, 2008 - (Page 31) Automotive News - November 17, 2008 - (Page 32) Automotive News - November 17, 2008 - (Page 33) Automotive News - November 17, 2008 - (Page 34) Automotive News - November 17, 2008 - (Page 35) Automotive News - November 17, 2008 - (Page 36) Automotive News - November 17, 2008 - (Page 37) Automotive News - November 17, 2008 - (Page 38) Automotive News - November 17, 2008 - (Page 39) Automotive News - November 17, 2008 - (Page 40)
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