CASE STUDY 9.2: FORDFIRESTONE CLOSE COOPERATION COMES TO AN END AFTER TIRE RECALL For nearly 100 years, Firestone, the American tire company that was a pioneer in the mass production of tires for automobiles, was the main supplier for the American automaker Ford. The close business relationship between the two companies started with a handshake of the founders, Henry Ford and Harvey Firestone, after Firestone sold a set of four wheels to Ford. Finding Firestones tires superior to those his company was producing, Ford made Firestone his main supplier. Fast forward to May 2001, and an almost century-old corporate cooperation came to an end with Firestone announcing that it was severing its ties with Ford. In a letter addressed to Fords chief executive and president, Jacques A. Nasser, Firestones chairman and chief executive, T. Lampe, wrote, Business relationships, like personal ones, are built upon trust and mutual respect. We have come to the conclusion that we can no longer supply tires to Ford since the basic foundation of our relationship has been seriously eroded. Noting a major tire recall controversy that began in August 2000, industry experts did not find Firestones decision surprising. The widely publicized recall was issued due to a high incidence of Firestone tire failures and accidents on Ford Explorers, and it covered 14.4 million tires that were supplied as factory equipment on the vehicles produced from 1990 through January 2000. Firestone and Ford blamed each other for the tire failures, which were linked to 174 traffic accident deaths. A statistical analysis performed by Ford found that Firestone tires on Explorers had higher rates of problems than tires made by other manufacturers. Firestone was not convinced and questioned whether Fords vehicles, not the tires, might be at fault in these incidences. The company requested that Ford share its safety data on Explorers, but the request was denied. In defense of Firestone, its other big customers, such as GM and Nissan, indicated that they had not detected any problems with the tires, and they would continue buying them. Firestone bluntly expressed its objections by stating, Our analysis suggests that there are significant safety issues with a substantial segment of Ford Explorers. We have made your staff aware of our concerns. They have steadfastly refused to acknowledge those issues. Ford insisted that the vehicles did not have any safety issues and those equipped with Goodyear tires in the mid-1990s had performed with industry-leading safety standards. Some experts concluded that while neither Ford Explorers nor Firestone tires were unsafe in their own right, the combination of the two sometimes led to catastrophic consequences. A closer look into the design of the vehicle and the tires may offer a hint on what might have gone wrong. It is important to note that Firestone custom-made the tires, called Wilderness AT, for the Explorer according to Fords specifications. However, it has been reported that starting from the prototypes, Explorer seemed to have some stability issues. To increase stability, Ford wanted to lower the tire pressure, but this worsened fuel economy. Ford asked Firestone to fix this problem, and Firestones solution was to reduce the weight of the tire about 3%. A number of design changes later, the SUVs stability problem was exacerbated as the SUVs center of gravity was raised. Shortly after, incidents with Explorer rollovers became frequent, not only in the United States but also in markets such as Saudi Arabia, Thailand, and Venezuela. Ford focused on the issues in the foreign markets and replaced Wilderness AT tires on Explorers in nine countries. Ford was not required to report these replacements to the authorities in the United States, and Ford did not give any notifications. However, when the National Highway Traffic Safety Administration (NHTSA) launched an investigation into the high incidences of rollovers and tire failures, Ford worried that it would face stricter safety standards in the future and agreed to replace the tires on its own. Furthermore, the company was trying to protect its credibility during a time when Ford was trying to reinvent its brand as a socially responsible, consumer-oriented company. Firestone was not pleased and asked Ford to share the data so the company could make the decision for itself. The two companies had strong disagreement on whether the federal data justified a recall. Eventually, the feud between the once closely cooperating companies led to one of the biggest product recalls in the United States, costing the companies approximately $5 billion. Ford also faced $600 million in lawsuits. In response to the incidents and product recalls, the U.S. Congress passed a federal law, called the TREAD Act (Transportation Recall Enhancement, Accountability and Documentation), to enable NHTSA to collect data and notice trends with the goal of increasing consumer safety.

69 Questions What type of supplierbuyer relationship did Ford and Firestone have over the years?

Firestone custom-made Wilderness AT tires for the Explorer according to Fords specifications. What did the two companies want to achieve with this decision, and what are the risks associated with it?

One of the mandates brought by the TREAD Act is that vehicle manufacturers report to NHTSA when they conduct a safety recall in a foreign country.

How do you think this mandate affects manufacturers decisions on entering a certain foreign market?