Pinto Case

There was a time when the 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 match their domestic counterparts, the proud products of Yankee know-how. But by the late 1960s, an invasion of foreign-made goods chiseled a few worry lines into the countenance of the U.S. industry. 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.

Never 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 as Lees 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 various prototypes, in part to learn whether they met a safety standard proposed by the National Highway Traffic Safety Administration (NHTSA) to reduce fires from traffic collisions. This standard would have required that by 1972 all new autos be able to withstand a rear-end impact of 20mph without fuel loss, and that by 1973 they be able to withstand an impact of 30 mph. The prototypes all failed the 20-mph test. In 1970 Ford crash-tested the Pinto itself, and the result was the same: ruptured gas tanks and dangerous leaks. The only Pintos to pass the test had been modified in some wayfor example, with a rubber bladder in the gas tank or a piece of steel between the tank and the rear bumper.

Thus, Ford knew that the Pinto represented a serious fire hazard when struck from the rear, even in low-speed collisions. Ford officials faced a decision. Should they go ahead with the existing design, thereby meeting the production timetable but possibly jeopardizing consumer safety? Or should they delay production of the Pinto by redesigning the gas tank to make it safer and thus concede another year of subcompact dominance to foreign companies? Ford not only pushed ahead with the original design but stuck to it for the next six years.

What explains Fords decision? The evidence suggests that Ford relied, at least in part, on cost-benefit reasoning, which is an analysis in monetary terms of the expected costs and benefits of doing something. There were various ways of making the Pintos gas tank safer. Although the estimated price of these safety improvements ranged from only $5 to $8 per vehicle, Ford evidently reasoned that the increased cost outweighed the benefits of a new tank design.

How exactly did Ford reach that conclusion? We dont know for sure, but an internal report, Fatalities Associated with Crash-Induced Fuel Leakage and Fires, reveals the cost-benefit reasoning that the company used in cases like this. This report was not written with the pinto in mind; rather, it concerns fuel leakage in rollover

accidents (not rear-end collisions), and its computations applied to all Ford vehicles, not just the Pinto. Nevertheless, it illustrates the type of reasoning that was probably used in the Pinto case.

In the Fatalities report, Ford engineers estimated the cost of technical improvements that would prevent gas tanks from leaking in rollover accidents to be $11 per vehicle. The authors go on to discuss various estimates of the number of people killed by fires from car rollovers before settling on the relatively low figure of 180 deaths per year. But given that number, how can the value of those individuals lives be gauged? Can a dollars-and-cents figure be assigned to a human being? NHTSA thought so. In 1972, it estimated that society loses $200,725 every time a person is killed in an auto accident (adjusted for inflation, todays figure would, of course, be considerably higher). It broke down the costs as follows:

Future productivity losses

Direct

$132,000

Indirect

$41,300

Medical costs

Hospital

$700

Other

$425

Property damage

$1,500

Insurance administration

$4,700

Legal and court expenses

$3,000

Employer losses

$1,000

Victims pain and suffering

$10,000

Funeral

$900

Assets (lost consumption)

$5,000

Miscellaneous accident costs

$200

Total per fatality

$200,725

Putting the NHTSA figures together with other statistical studies, the Ford report arrives at the following overall assessment of costs and benefits:

Benefits

Costs

Sales: Unit cost: Total cost:

11 million cars, 1.5 million light trucks $11 per car, $11 per truck

12.5 million X $11 = $137.5 million

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 X $200,000) + (180 X $67,000) + (2,100 X $700) = $49.5 million

Thus, the costs of the suggested safety improvements outweigh their benefits, and the Fatalities report accordingly recommends against any improvementsa

recommendation that Ford followed.

Likewise in the Pinto case, Fords management whatever its exact reasoning, decided to stick with the original design and not upgrade the Pintos fuel tank, despite the test results reported by its engineers. Here is the aftermath of Fords decision:

Between 1971 and 1978, the Pinto was responsible for a number of fire-related deaths. Ford puts the figure at 23; its critics say the figure is closer to 500. According to the sworn testimony of Ford engineers, 95 percent of the fatalities would have survived if Ford had located the fuel tank over the axle (as it had done on its Capri automobiles).

NHTSA finally adopted a 30-mph collision standard in 1976. The pinto then acquired a rupture-proof fuel tank. In 1978 Ford was obliged to recall all 1971-76 Pintos for fuel-tank modifications.

Between1971and1978, approximately fifty law suits 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, eighteen-year-old Judy Ulrich, her sixteen-year-old sister

Lynn, and their eighteen-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 in the case 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 has always denied that the Pinto is unsafe compared with other cars of its type and era. The company also points out that in every model year the Pinto met or surpassed the governments own standards. But what the company doesnt say is that successful lobbying by it and its industry associates was responsible for delaying for seven years the adoption of any NHTSA crash standard. Furthermore, Fords critics claim that there were more than forty European and Japanese models in the Pinto price and weight range with safer gas-tank position. Ford made an 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.

Has the automobile industry learned a lesson from Fords experience with the Pinto? Some observers thought not when, in February 1993, an Atlanta jury held the General Motors Corporation responsible for the death of a Georgia teenager in the fiery crash of one of its pickup trucks. At the trial, General Motors contended in its defense that when a drunk driver struck seventeen-year-old Shannon Moseleys truck in the side, it was the impact of the high-speed crash that killed Moseley. However, the jury was persuaded that Moseley survived the collision only to be

consumed by a fire caused by his trucks defective fuel-tank design. Finding that the company had known that its side-saddle gas tanks which are mounted outside the rails of the trucks frame, are dangerously prone to rupture, the jury awarded $4.2 million in actual damages and $101 million in punitive damages to Moseleys parents.

What undoubtedly swayed the jury was the testimony of former GM safety engineer Ronald E. Elwell. Although Elwell had testified in more than fifteen previous cases that the pickups were safe, this time he switched sides and told the jury that the company had known for years that the side-saddle design was defective but had intentionally hidden its knowledge and had not attempted to correct the problem. At

the trial, company officials attempted to paint Elwell as a disgruntled employee, but his testimony was supported by videotapes of General Motors own crash tests. After the verdict, General Motors said that it still stood behind the safety of its trucks and contended that a full examination by the National Highway Traffic Safety Administration of the technical issues in this matter will bear out our contention that the 1973-1987 full size pickup trucks do not have a safety related defect.

Since then, however, the Department of Transportation has determined that GM pickups do pose a fire hazard and that they are more prone than competitors pickups to catch fire when struck from the side. Still, GM has rejected requests to recall the pickups and repair them. Meanwhile, the Georgia Court of Appeals has thrown out the jurys verdict in the Shannon Moseley case on a legal technicalitydespite ruling that the evidence submitted in the case showed that GM was aware that the gas tanks were hazardous but did not try to make them safer to save the expenses involved.

The End

What are the ethical principles applied in each case?

Based on the new understating of Stakeholders concept, which Stakeholder group (s) got affected (from least to most) by each this and how?

What was/were the legal obligations, if any, and how it was/were differentiated from ethical and moral ones?

While there are four responsibilities in theCarroll's Pyramid of Corporate Social Responsibility, how does this case prioritized each responsibility?

In your judgment, did each management satisfy the interest of their stockholders? How.

If you were in the decision maker back then, what could you have done to deal with the issue at hand in this case?