In 1977, public outcries arose when a memo written by Ford Motor Company executives was published. According to the memo, Ford continued to produce and market the Pinto automobile, even after company crash tests showed that its gas tank would burst into flames when the car was rear-ended at low speeds. The memo indicated that Ford’s managers used a cost-benefit analysis to make their decision. The analysis compared the expected benefit of avoiding future lawsuits fi led on behalf of burn victims with the expected cost to recall and fi x the defective gas tanks. Beginning in 1977, automobiles sold in the United States were required to meet new federal standards requiring automobiles to withstand a rear-end collision at 30 miles per hour without causing fi re. The Pinto met this standard. However, following publication of the Ford memo, the U.S. media became extremely critical of Ford’s actions. This criticism led to an investigation by the U.S. National Highway Transportation Safety Administration (NHTSA), which concluded that the Pinto gas tank represented a safety defect. Ford then recalled 1.4 million Pintos, including 1971–1976 models, which were built before existence of the federal standard. A few months before the recall, a civil jury in California awarded a burn victim a record $126 million. However, a judge later reduced the award to $6.6 million. Ford was indicted for reckless homicide and criminal recklessness by an Indiana grand jury after the burning death of three teenage girls. In this case, Ford was found not guilty. Overall, Pintos were linked to more than 60 deaths. Although Ford redesigned the fuel tank for the 1978 Pinto, sales of the model declined 45% from 1977 sales. Ford ultimately dropped the Pinto brand. Over the next decade, sales of Japanese automobiles continued to increase, causing a long-term decline in the sale of automobiles by Ford and other U.S. manufacturers. Many consumers perceived Japanese automobiles as being higher quality than U.S. autos. U.S. automobile companies were often viewed as callous and unconcerned about safety, reliability, and fuel efficiency. In a 1998 analysis, University of Delaware sociology and criminal justice professor Matthew T. Lee pointed out that the Pinto case occurred during a time of change in federal safety regulation and public expectation. He revealed that cost-benefit analyses had commonly been used by managers of automobile companies as well as NHTSA. His research indicated that NHTSA’s conclusions in the Pinto case represented two important deviations from prior regulatory practice. First, during its investigation, it held the Ford Pinto to a level of performance that was more stringent than existing federal safety guidelines. Second, NHTSA staff used the societal value of human life, rather than the commonly used average corporate payout, in their cost-benefit analysis. In addition, NHTSA staff had focused their investigation on Ford because of the public outcry over the Pinto. Other automobile companies were not held to the same safety standards.

Required:

A. Had you previously heard about the gas tank problems of the Ford Pinto? If so:

1. Describe your previous impressions of the Pinto problem.

2. In what ways do these impressions create potential biases as you address this case?

B. Identify several ethical issues in this case—in other words, areas of conflicts of interest between stakeholders.

C. What were the opportunity costs (qualitative and quantitative) that were apparently overlooked by Ford’s managers in valuing the cost of fixing the gas tanks during their cost-benefit analysis?

D. Ford’s managers measured the potential benefit of eliminating the gas tank problems by using the expected future cost of settling lawsuits fi led on behalf of burn victims. NHTSA used the societal value of human life in its cost-benefit analysis. Explain how these measures are different, and describe the pros and cons of using each measure when analyzing the Pinto problem. Take into account the viewpoints of the following different stakeholders:

• Pinto crash victims and their families

• Pinto owners

• Potential Pinto owners

• Customers of other Ford vehicles

• General public

• NHTSA staff members

• Ford’s managers

• Ford’s employees

• Ford’s shareholders

• Ford’s domestic competitors

• Ford’s Japanese competitors

E. What values did Ford’s managers appear to use in reaching their decision to continue selling the Pinto with its existing gas tank design? Were these values reasonable under the circumstances? Why or why not?

F. What values did NHTSA staff appear to use in drawing their conclusions? Were these values reasonable under the circumstances? Why or why not?