Ford's Pinto

Ethics Case: The Value of Life

There was a time when "Made in Japan" label brought a predictable smirk of superiority to the face of most Americans. The quality of most Japanese products usually was as low as their price. In fact, few imports could mater their domestic counterparts, the proud products of "Yankee know-how." But by the late 1960's an invasion of foreign-made goods chiseled a few worry lines into the countenance of American industry. And in Detroit, worry was fast fading to panic as the Japanese, not to mention the Germans, began to gobble up more and more of the subcompact auto market.

Neve one to take a back seat to the competition, Ford Motor Company decided to meet the threat from abroad head-on. In 1968, Ford executives decided to produce the Pinto. Known inside the company and "Lee's car," after Ford president Lee Iacocca, the Pinto was to weigh no more than 2,000 pounds and cost no more than $2,000.

Eager to have its subcompact ready for the 1971 model year, Ford decided to compress the normal drafting-board-to-showroom time of about three-and-a-half years into two. The compressed schedule meant that any design changes typically made before production-line tooling would have to be made during it.

Before Producing the Pinto, Ford crash-tested eleven of them, in part to learn if they met the National Highway Traffic Safety Administration (NHTSA) proposed safety standard that all autos be able to withstand a fixed=barrier impact of 20 miles per hour without fuel loss. Eight standard-design Pintos failed the tests. The three cars that passed the test all had some kind of gas-tank modification. One had a plastic baffle between the front of the tank and the differential housing; the second had a piece of steel between the tank and the rear bumper; and the third had a rubber-lined gas tank.

Ford officials faced a tough decision. Should they go ahead with the standard design, thereby meeting the production time table but possibly jeopardizing consumer safety? Or should they delay production of the Pinto be redesigning the gas tank to make it safer and thus concede another year of subcompact dominance to foreign companies?

To determine whether to proceed with the original design of the Pinto fuel tank, Ford decided to use a capital budgeting approach, examining the expected costs and the social benefits of making a change. Would the social benefits of a new tank design outweigh design costs, or would they not?

To find the answer, Ford had to assign specific values to the variables involved. For some factors in the equation, this posed no problem. The costs of design improvement, for example, could be estimated at $11 per vehicle. But what about human life? Could a dollar-and-cents figure be assigned to a human being?

NHTSA thought it could. It had estimated that society loses $200,725 every time a person is killed in an auto accident. It broke it down the costs as follows:

Ford used NHTSA and other statistical studies in its cost benefit analysis, which yielded the following estimates:

Benefits:

Savings:180 burn deaths, 180 serious burn injuries, 2,100 burned vehicles

Unit cost:$200,000 per death, $67,000 per injury, $700 per vehicle

Total Benefit:(180*$200,000) + (180*$67,000) + (2,100*$700) = $49.5 Million

Costs:

Sales:11 Million cars, 1.5 million light trucks

Unit cost:$11 per car, $11 per truck

Total cost:12.5 million * $11 = $137.5 Million

Since the costs of the safety improvement outweighed its benefits, Ford decided to push ahead with its original design.

Here is what happened after Ford made this decision:

Between 700 and 2500 persons died in accident s involving Pinto fires between 1971 and 1978. According to sworn testimony of Ford engineer Harley Copp, 95% of them would have survived if Ford had located the fuel tank over the axle (as it had done on its Capri automobiles).

NHTSA's stand was adopted in 1977. The pinto the acquired a rupture-proof fuel tank. The following year Ford was obliged to recall all 1971-1976 Pintos for fuel-tank modifications.

Between 1971-1978, approximately fifty lawsuits were brought against Ford in connection with rear-end accidents in the Pinto. In the Richard Grimshaw case, in addition to awarding over $3 million in compensatory damages to the victims of a Pinto crash, the jury awarded a landmark $125 million in punitive damages against Ford. The judge reduced punitive damages to $3.5 million.

On August 10, 1978, 18-year-old Judy Ulrich, her 16-year-old sister Lynn, and their 18-year-old cousin Donna, in their 1973 Ford Pinto, were struck from the rear by a van near Elkhart, Indiana. The gas tank of the Pinto exploded on impact. In the fire that resulted, the three teenagers were burned to death. Ford was charged with criminal homicide. The judge presiding over the 20-week trial advised jurors that Ford should be convicted if it had clearly disregarded the harm that might result from its actions and that disregard represented a substantial deviation from acceptable standards of conduct. On March 13, 1980, the jury found Ford not guilty of criminal homicide.

For its part, Ford had always denied that the Pinto is unsafe compared with other cars of it type and era. The company also points out that in every model year the Pinto met or surpassed the government's own standards. But what the company doesn't say is that successful lobbying by it and its industry associated was responsible for delaying for 9 years the adoption of NHTSA's 20 miles per hour crash standard. And Ford critics claim that there were more than forty European and Japanese models in the Pinto price and weight rang with safer gas-tank position. "Ford made and extremely irresponsible decision," concludes auto safety expert Byron Bloch, "when they placed such a weak tank in such a ridiculous location in such a soft rear end."

Questions:

1. Do you think Ford approached this question properly?
2. What responsibilities to its customers do think Ford had? Were their actions ethically appropriate?
3. Would it have made a more or ethical difference if the $11 savings had been passed on to Ford's customers? Could a rational customer have chosen to save $11 and risk the more dangerous gas tank? Would that have been similar to making air bags optional? What is Ford had told potential customers about its decision?
4. Should Ford have been found guilty of criminal homicide in the Ulrich case?
5. If you, as a financial manager at Ford, found out about what had been down, what would you do?