Why was the family of Ms. Gray awarded less compensatory damages worth $665,000 as an opposed to $2.84m for Mr. Grimshaw who also received $127.8min punitive damages?

Case study the Ford Pinto Finally, try the following case of the Ford Pinto. What do you learn about the extent to which NTV calculations are appropriate in management situations, and its implications for the way management should use NPV? The case study is based upon contemporary newspaper reports. It is not intended to imply criticism or blame of any of the parties concerned. Introduction In 1978 a Californian court awarded more than $128 million to Richard Grimshaw - sum then worth 66 million in compensation and punitive damages against the Ford Motor Company. Grimshaw had been a passenger in a Ford Pinto, a car never sold in the UK. It was a 'sub-compact car and the jury found that Ford had sold two million such cars knowing that they were of a dangerous design A key aspect of the case was an internal memorandum of 1972, part of which is reproduced in Fig. 15.3. 2/4 BENEPISE Savings - 10 bum death, 180 serious luminarie, 2.100 bumed vehicles Unit cost-$200,000 per death, 67,000 per injury, 700 per vehicle Total benefit 180 x 200,000+ 150 (367,060 + 2.100 x 7001 - 49.5 COSTS Sales - 11 million can, 1.5 million light tracks. Unit coo$11 per cut, $11 per truck Total cost-11.600.000 x 5f1) + 1,500,000 ($11) - 137 million Figura 5.3 The arithmetic that costs million On the basis that Ford considered the savings of $19.5 million to be less than the cost of altering the car and light trucks lo conform with safety standards then being proposed by Congress ($137 million), it was concluded that no design change should be made. It was felt by Grimshaw's lawyers that the massive damages were punitive and were result of the jury's dissatisfaction with Ford's attitude, as evidenced by the testimony given and the memorindum reproduced in Pig W5.3. The events On 28 May 1972 Richard Grimshaw, then 18, was offered a lift in a new Ford Pinto by a friend of his family, Mrs Lily Gray. They were heading for the southern California desert rest of Barstow on Interstate route 15 when MM Gray's Pinto walled because of a faulty carburettor and was hit from behind by another car. The Pinto's petrol tank, located only seven inches behind the rear bumper, was ruptured by the impact. Fumes from the petrol that escaped mixed with air in the passenger compartment, a spark ignited the mixture and the Pinto was enveloped in flames Lilly Gray was so badly burned that she died in hospital two days later. Richard suffered 90 per cent burns: he lost his nose, left ear and four fingers, Mimculously he survived. After 2 operations he now has a new nose and ear, but his face will always be a mass of twisted scar tissue and there are more operations to come. He has also been awarded 66 million in damages, the highest ever personal injury award. I don't want to sound like I'm ungrateful, he said last week after his award was announced, but I had a choice of whether to take this money and go through all these bums and stuff just lead a normal life, then I'd lead a normal le. (Mrs Gray's family was awarded about 340,000.) It was more than five years after the crash that Richard's suit against Ford aume up in the Santa Anna Superior Court, and by then his Lawyers could fall back on several case historien. A court in Florida had awarded $3.3 million damages about 1.6m) against Ford in 1975 following an accident in which a Pinto's petrol tank had exploded. A year later, an Alabama jury had awarded $1.2 million to the plaintiff in a very similar Pinto crush. And as Richard's case began, a Virginia court ordered Ford to pay $625,000 following another incident of a Pinto's petrol tank going up in flames. In none of those cases, however, were punitive damages sought against Ford. Richard's lawyers were determined to press for a punitive judgment, which would involve convincing the jury that Ford had 'consciously and wilfully disregarded the safety of people who bought Pintos. They knew that Ford's contra defence in Richard's case would be that Mrs Gray's Pinto had, at the time of the accident, conformed to all existing government safety regulations and that the leaking petrol was not necessarily the major factor in the tragedy Richard's legal team had access to valuable background material before the case began. The hazards presented by the design and positioning of the Pinto's petrol tank had been investigated by several independent organiza- tions strice the model went into production in August 1970. A study in 1973 by the University of Miami's accident analysis unit, examining four years of car crashes, had singled out the Pinto for comment. Under the heading 'Gas Tank Integrity/Protection (Ford Pinto)', the Miami unit observed: 'In each case the gas tank was buckled and gas spewed out. In each case the Interior of the vehicle was totally gutted by the ensuing fire. It is our opinion that three such conflagrations (all experienced by one rental agency in a six month period) demonstrates a dear and present safety hazard to all Pinto owners'. Shortly before Richard's case began, Dr Leslie Ball former safety chief for the NASA manned space programme and founder of the International Society of Reliability Engineers had publicly asserted that the release to production of the Pinto was the most reprehensible decision in the history of American engineering. Ball was particularly scathing about the design and location of the Pinto's petrol tank. There were, he said, a large number of European and Japanese cars in the same price and weight range as the Pinto which were more safely designed. Most used a 'saddle style' petrol tank placed above the car's back axle, out of the line of direct impact. The basic patent on the saddle-tank, Bell noted, was owned by Ford. A lot more was required to win punitive damages-and Richard's lawyers got it. The production of Fard's own confidential documents and the cross- culmination of senior Ford executives about their contents made an enormous impact upon the jury. And the greatest damage to Ford's case was done by its own analysis of the price of building greater safety into Ford cars against the expected benefit derived from saving Ford owners from death or injury by burning The evidence to the court The figures were buried in a seven-page report from the company's 'Environ mental and Safety Engineering division, which was circulated under the title Fatalities associated with crash-induced fuel lenkages and fires. Ford's experts doubted the government statistics of between 2,000 and 3,500 such deaths every year their research suggested that most of the deaths in fire accompanied crashes were due to injuries caused by the impact not the flames. They concluded that between 600 and 700 fire deaths a year is probably more appropriate The report pointed out that the chance of petrol spilling from a ruptured tank was significantly greater when a car was hit from behind than from the front, side or after being rolled over. None the lesa, Ford's engineers based their calculations of the sums at stake if proposed new regulations were adopted, on the less common hazard of 'static rollovens'. Some common measure was required to make the comparison. The r 3/4 noted: the measure typically chosen is dollars'. Ford's calculations a value of a human life were based on a 1972 study by the National High Traffic Safety Administration (NHTSA), which sought to establish the cash cost of death in a car crash by breaking down and valuing ten separate components. 'Future productivity losses were so much, medical costs so much, Insurance administration and legal expenses so much there was even a figure - $10,000 -- for victim's pain and suffering', though the NHTSA steadfastly refused to say how it had been arrived at. The overall societal cost' came to $200,000. Ford also allowed a figure of $67,000 for non-fatalbum injuries. From official statistics ford extracted the figure of 180 deaths per year from burns in rollover acedents. Where some experts disagree with Ford is in their further estimate that numbers emerging alive from such accidents, but suffering severe bura, would also be 10 a year. Same authoritative studies have put this figure ten times higher at 1,800 a year. Based on the benefits of saving 180 lives and preventing another 180 people from being bumed, with an allowance for the cost of damaged cars, Ford put the total benefit of a design change at slightly less than $50 million. That was set against the costs -$il worth of modifications per Ford vehicle sold-of $137 million. That, Ford's engineers observed, was almost three times greater than the benefits, even using a number of highly favourable benefit assump tions'. They could not envisage any developments which would make compliance with the rollover requirement cost effective On the heels of that memo, the Santa Anna jury heard something of the background to Ford's decision to place the Pinto's petrol tank in such an exposed position. First, Richard Grimshaw's lawyers produced their star 'defector Harley P. Copp, a senior design engineer with Ford for 20 years, now retired. Against a stream of objections from Ford's team of lawyer, Copp demonstrated with blackboard, wall chart models to the evident discomfort of his former employers. (He was helped by occasional indulgence from the bench: I will allow hearsay the fudge declared at one time, provided it to reliable hearsay.) Copp had worked on Ford's successful Capri range in which the petrol tank rode, saddle-style, above the back axle; he was certain that this was the safest design (Ford had, In fact, considered using the Capri design on the Pinto). What could a designer like him do, Richard's lawyers asked, if corporate management specified the location of the petrol tank? Follow corporate policy. Copp replied. Had Ford's top management, in fact, issued a design directive for the Pinto's tank? 'Behind the rear oude, beneath the floor.' Could he estimate how much extra it would have cost to place the Pinto'a tank above the axle? 'About $9 more per car. Copp's testimony was reinforced by more memos from Ford's confidential files, demonstrating. Richard's lawyers argued, how Ford had disregarded danger signals in its rush to get the Ford on to the lucrative US small car market the company's share of this market had been declining at an alarming rate in the face of competition from European and Japanese modela). Shortly After Pinto's production began, several Capris with saddle-style tanks came through crash tests with flying colour; next day, Capris with modified tanks placed, like the Pinto's, behind the rear axde were crash-tested and leaked petrol in every case. Like every company in the ferociously competitive small car market, Ford Mother ones that the Pinto was rigidly governed by the limits of 2,000 - It was was exceedingly price conscious. A fard engineer told the US magazine not to weigh more than 2,000 pounds and not to cost more than $2,000 (the magazine was the first to publish some of the Ford documents used in Richard Grimshaw's case). A $25 increase in production costs could price compact out of its market, so could a marginal reduction in sales features such as the size of the boot. Do you realize that if we put a Capri-type tank in the Pinto you could only get one set of golf clubs in there? another Ford engineer told the magazine. The result It took the jury in Richard Grimshaw's case one minute to reject Ford's argument that the speed at which Mrs Gray's Pinto had been hit - from 50 to 5 m.p.h. - was the chief cause of the tragedy rather than any deficiency in the design of its petrol tank (the jury concluded that impact speed was 35 m.p.h. at the most). Ford's position is that every Pinto it manufactured had met or surpassed the government safety standards applicable at the time, and Pintos produced since September 1976 meet the revised rear-impact standards introduced since Richard was involved in his accident. Mr Grimshaw was awarded punitive damages of more than $128 million against Ford. Ford announced that it would appeal. Case study the Ford Pinto Finally, try the following case of the Ford Pinto. What do you learn about the extent to which NTV calculations are appropriate in management situations, and its implications for the way management should use NPV? The case study is based upon contemporary newspaper reports. It is not intended to imply criticism or blame of any of the parties concerned. Introduction In 1978 a Californian court awarded more than $128 million to Richard Grimshaw - sum then worth 66 million in compensation and punitive damages against the Ford Motor Company. Grimshaw had been a passenger in a Ford Pinto, a car never sold in the UK. It was a 'sub-compact car and the jury found that Ford had sold two million such cars knowing that they were of a dangerous design A key aspect of the case was an internal memorandum of 1972, part of which is reproduced in Fig. 15.3. 2/4 BENEPISE Savings - 10 bum death, 180 serious luminarie, 2.100 bumed vehicles Unit cost-$200,000 per death, 67,000 per injury, 700 per vehicle Total benefit 180 x 200,000+ 150 (367,060 + 2.100 x 7001 - 49.5 COSTS Sales - 11 million can, 1.5 million light tracks. Unit coo$11 per cut, $11 per truck Total cost-11.600.000 x 5f1) + 1,500,000 ($11) - 137 million Figura 5.3 The arithmetic that costs million On the basis that Ford considered the savings of $19.5 million to be less than the cost of altering the car and light trucks lo conform with safety standards then being proposed by Congress ($137 million), it was concluded that no design change should be made. It was felt by Grimshaw's lawyers that the massive damages were punitive and were result of the jury's dissatisfaction with Ford's attitude, as evidenced by the testimony given and the memorindum reproduced in Pig W5.3. The events On 28 May 1972 Richard Grimshaw, then 18, was offered a lift in a new Ford Pinto by a friend of his family, Mrs Lily Gray. They were heading for the southern California desert rest of Barstow on Interstate route 15 when MM Gray's Pinto walled because of a faulty carburettor and was hit from behind by another car. The Pinto's petrol tank, located only seven inches behind the rear bumper, was ruptured by the impact. Fumes from the petrol that escaped mixed with air in the passenger compartment, a spark ignited the mixture and the Pinto was enveloped in flames Lilly Gray was so badly burned that she died in hospital two days later. Richard suffered 90 per cent burns: he lost his nose, left ear and four fingers, Mimculously he survived. After 2 operations he now has a new nose and ear, but his face will always be a mass of twisted scar tissue and there are more operations to come. He has also been awarded 66 million in damages, the highest ever personal injury award. I don't want to sound like I'm ungrateful, he said last week after his award was announced, but I had a choice of whether to take this money and go through all these bums and stuff just lead a normal life, then I'd lead a normal le. (Mrs Gray's family was awarded about 340,000.) It was more than five years after the crash that Richard's suit against Ford aume up in the Santa Anna Superior Court, and by then his Lawyers could fall back on several case historien. A court in Florida had awarded $3.3 million damages about 1.6m) against Ford in 1975 following an accident in which a Pinto's petrol tank had exploded. A year later, an Alabama jury had awarded $1.2 million to the plaintiff in a very similar Pinto crush. And as Richard's case began, a Virginia court ordered Ford to pay $625,000 following another incident of a Pinto's petrol tank going up in flames. In none of those cases, however, were punitive damages sought against Ford. Richard's lawyers were determined to press for a punitive judgment, which would involve convincing the jury that Ford had 'consciously and wilfully disregarded the safety of people who bought Pintos. They knew that Ford's contra defence in Richard's case would be that Mrs Gray's Pinto had, at the time of the accident, conformed to all existing government safety regulations and that the leaking petrol was not necessarily the major factor in the tragedy Richard's legal team had access to valuable background material before the case began. The hazards presented by the design and positioning of the Pinto's petrol tank had been investigated by several independent organiza- tions strice the model went into production in August 1970. A study in 1973 by the University of Miami's accident analysis unit, examining four years of car crashes, had singled out the Pinto for comment. Under the heading 'Gas Tank Integrity/Protection (Ford Pinto)', the Miami unit observed: 'In each case the gas tank was buckled and gas spewed out. In each case the Interior of the vehicle was totally gutted by the ensuing fire. It is our opinion that three such conflagrations (all experienced by one rental agency in a six month period) demonstrates a dear and present safety hazard to all Pinto owners'. Shortly before Richard's case began, Dr Leslie Ball former safety chief for the NASA manned space programme and founder of the International Society of Reliability Engineers had publicly asserted that the release to production of the Pinto was the most reprehensible decision in the history of American engineering. Ball was particularly scathing about the design and location of the Pinto's petrol tank. There were, he said, a large number of European and Japanese cars in the same price and weight range as the Pinto which were more safely designed. Most used a 'saddle style' petrol tank placed above the car's back axle, out of the line of direct impact. The basic patent on the saddle-tank, Bell noted, was owned by Ford. A lot more was required to win punitive damages-and Richard's lawyers got it. The production of Fard's own confidential documents and the cross- culmination of senior Ford executives about their contents made an enormous impact upon the jury. And the greatest damage to Ford's case was done by its own analysis of the price of building greater safety into Ford cars against the expected benefit derived from saving Ford owners from death or injury by burning The evidence to the court The figures were buried in a seven-page report from the company's 'Environ mental and Safety Engineering division, which was circulated under the title Fatalities associated with crash-induced fuel lenkages and fires. Ford's experts doubted the government statistics of between 2,000 and 3,500 such deaths every year their research suggested that most of the deaths in fire accompanied crashes were due to injuries caused by the impact not the flames. They concluded that between 600 and 700 fire deaths a year is probably more appropriate The report pointed out that the chance of petrol spilling from a ruptured tank was significantly greater when a car was hit from behind than from the front, side or after being rolled over. None the lesa, Ford's engineers based their calculations of the sums at stake if proposed new regulations were adopted, on the less common hazard of 'static rollovens'. Some common measure was required to make the comparison. The r 3/4 noted: the measure typically chosen is dollars'. Ford's calculations a value of a human life were based on a 1972 study by the National High Traffic Safety Administration (NHTSA), which sought to establish the cash cost of death in a car crash by breaking down and valuing ten separate components. 'Future productivity losses were so much, medical costs so much, Insurance administration and legal expenses so much there was even a figure - $10,000 -- for victim's pain and suffering', though the NHTSA steadfastly refused to say how it had been arrived at. The overall societal cost' came to $200,000. Ford also allowed a figure of $67,000 for non-fatalbum injuries. From official statistics ford extracted the figure of 180 deaths per year from burns in rollover acedents. Where some experts disagree with Ford is in their further estimate that numbers emerging alive from such accidents, but suffering severe bura, would also be 10 a year. Same authoritative studies have put this figure ten times higher at 1,800 a year. Based on the benefits of saving 180 lives and preventing another 180 people from being bumed, with an allowance for the cost of damaged cars, Ford put the total benefit of a design change at slightly less than $50 million. That was set against the costs -$il worth of modifications per Ford vehicle sold-of $137 million. That, Ford's engineers observed, was almost three times greater than the benefits, even using a number of highly favourable benefit assump tions'. They could not envisage any developments which would make compliance with the rollover requirement cost effective On the heels of that memo, the Santa Anna jury heard something of the background to Ford's decision to place the Pinto's petrol tank in such an exposed position. First, Richard Grimshaw's lawyers produced their star 'defector Harley P. Copp, a senior design engineer with Ford for 20 years, now retired. Against a stream of objections from Ford's team of lawyer, Copp demonstrated with blackboard, wall chart models to the evident discomfort of his former employers. (He was helped by occasional indulgence from the bench: I will allow hearsay the fudge declared at one time, provided it to reliable hearsay.) Copp had worked on Ford's successful Capri range in which the petrol tank rode, saddle-style, above the back axle; he was certain that this was the safest design (Ford had, In fact, considered using the Capri design on the Pinto). What could a designer like him do, Richard's lawyers asked, if corporate management specified the location of the petrol tank? Follow corporate policy. Copp replied. Had Ford's top management, in fact, issued a design directive for the Pinto's tank? 'Behind the rear oude, beneath the floor.' Could he estimate how much extra it would have cost to place the Pinto'a tank above the axle? 'About $9 more per car. Copp's testimony was reinforced by more memos from Ford's confidential files, demonstrating. Richard's lawyers argued, how Ford had disregarded danger signals in its rush to get the Ford on to the lucrative US small car market the company's share of this market had been declining at an alarming rate in the face of competition from European and Japanese modela). Shortly After Pinto's production began, several Capris with saddle-style tanks came through crash tests with flying colour; next day, Capris with modified tanks placed, like the Pinto's, behind the rear axde were crash-tested and leaked petrol in every case. Like every company in the ferociously competitive small car market, Ford Mother ones that the Pinto was rigidly governed by the limits of 2,000 - It was was exceedingly price conscious. A fard engineer told the US magazine not to weigh more than 2,000 pounds and not to cost more than $2,000 (the magazine was the first to publish some of the Ford documents used in Richard Grimshaw's case). A $25 increase in production costs could price compact out of its market, so could a marginal reduction in sales features such as the size of the boot. Do you realize that if we put a Capri-type tank in the Pinto you could only get one set of golf clubs in there? another Ford engineer told the magazine. The result It took the jury in Richard Grimshaw's case one minute to reject Ford's argument that the speed at which Mrs Gray's Pinto had been hit - from 50 to 5 m.p.h. - was the chief cause of the tragedy rather than any deficiency in the design of its petrol tank (the jury concluded that impact speed was 35 m.p.h. at the most). Ford's position is that every Pinto it manufactured had met or surpassed the government safety standards applicable at the time, and Pintos produced since September 1976 meet the revised rear-impact standards introduced since Richard was involved in his accident. Mr Grimshaw was awarded punitive damages of more than $128 million against Ford. Ford announced that it would appeal