From: Moral Issues in Business 8th ed. Shaw & Barry (pp. 83-86)
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 "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 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 way--for 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 Ford's 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 Pinto's 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 don't 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, today's figure would, of course, be considerably higher). It broke down the costs as follows:
|Future productivity losses|
|Legal and court expenses||$3,000|
|Victim's pain and suffering||$10,000|
|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:
|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|
|Sales:||11 million cars, 1.5 million light trucks|
|Unit cost:||$11 per car, $11 per truck|
|Total cost:||12.5 million X $11 = $137.5 million|
Thus, the costs of the suggested safety improvements outweigh their benefits, and the "Fatalities" report accordingly recommends against any improvements--a recommendation that Ford followed.
Likewise in the Pinto case, Ford's management whatever its exact reasoning, decided to stick with the original design and not upgrade the Pinto's fuel tank, despite the test results reported by its engineers. Here is the aftermath of Ford's decision:
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 government's own standards. But what the company doesn't 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, Ford's 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 Ford's 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 Moseley's 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 truck's defective fuel-tank design. Finding that the company had known that its "side-saddle" gas tanks which are mounted outside the rails of the truck's frame, are dangerously prone to rupture, the jury awarded $4.2 million in actual damages and $101 million in punitive damages to Moseley's 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 jury's verdict in the Shannon Moseley case on a legal technicality--despite 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.