How did Ford get into this situation?

MGT 429.31: Executive Strategies & Policies
Summer 2016
Ethical Dilemma Ford Pinto Fire Case
On August 10 1978 three teenage girls died horribly in an automobile accident. Driving a 1973 ford Pinto to their church for volley ball practice in Goshen Indiana they were struck from behind by a Chevrolet van. The Pintos fuel tank ruptured and the car exploded in flames. Two passengers Lynn Marie Ulrich 16 and her cousin Donna Ulrich 18 were trapped inside the inferno and burned to death. After three attempts Lynn Maries sister 18-year-old Judy Ann was dragged out alive from the drivers seat but died in agony hours later in the hospital.
They were merely the latest in a long list of people to burn to death in accidents involving the Pinto which Ford had begun selling in 1970. By the time of the accident the car had been the subject of a great deal of public outcry and debate about its safety especially its susceptibility to fire in low-speed rear-end collisions. This particular accident however resulted in more media attention than any other auto accident in U.S. history. Why? Because it led to an unprecedented court case in which the prosecution brought charges of reckless homicide against the Ford Motor Co. the first time that a corporation had been charged with criminal conduct and the charge was not negligence but murder. At stake was much more than the maximum penalty of $30000 in fines. Of immediate concern a guilty verdict could have affected 40 pending civil cases nationwide and resulted in hundreds of millions of dollars in punitive damage awards. Of perhaps greater concern however were larger issues involving corporate social responsibility ethical decision making by individuals with corporations and ultimately the proper conduct of business in the modern era.
How did Ford get into this situation? The chronology begins in early 1968 when the decision was made to battle the foreign competition in the small care market specifically the Germans but also the growing threat from the Japanese. This decision came after a hard-fought two-year internal struggle between then president Semon Bunky Knudsen and Lee Iacocca who had risen quickly within the company because of his success with the Mustang. Iacocca strongly supported fighting the competition at their own game while Knudsen argued instead for letting them have the small car market so Ford could concentrate on the more profitable medium and large models. The final decision ultimately was in the hands of then-CEO Henry Ford II who not only agreed with Iacocca but also promoted him to president after Knudsens subsequent forced resignation.
Iacocca wanted the Pinto in the showrooms by the 1971 model introductions which would require the shortest production planning period in automotive history to that time. The typical time span from conception to production of a new car was more than three and a half years; Iacocca however wanted to launch the Pinto in just over 2 years. Under normal conditions chassis design styling product planning advance engineering component testing and son were all either completed or nearly completed prior to tooling of the production factories. Yet because tooling had a fixed time frame of about 18 months some of these other processes were done more or less concurrently. As a consequence when it was discovered through crash testing that the Pintos fuel tank often ruptured during rear-end impact it was too late (in other words too costly) to do much about it in terms of redesign.
A closer look at the crash-test reports reveals that Ford was aware of faulty fuel tank design. Eleven Pintos were subjected to rear-end collisions at average speeds of 31 miles per hour to determine if any fuel would be lost after impact. All eight of the Pintos equipped with the standard fuel tank failed. The three remaining cars however survived the test because special measures had been taken to prevent tank rupture or fuel leakage. These measures included a plastic baffle placed between the axle housing and the gas tank a steel plate between the tank and the rear bumper and a rubber lining in the gas tank.
It should be noted that these tests were done under guidelines established by Federal Motor Vehicle Safety Standard 301 which was proposed in 1968 by the National Highway Traffic Safety Administration (HHTSA) but not officially adopted until the 1977 model year. Therefore at the time of the tests the Pinto met the required standards. Standard 301 had been strenuously opposed by the auto industry and specifically Ford Motor Co. In fact the lobbying efforts were so strong that negotiations continued until 1976 despite studies showing that hundreds of thousands of cars burned every year taking 3000 lives annually; the adoption of the standard was projected to reduce the death rate by 40 percent. Upon approval of FMVSS Standard 301 in 1977 all Pintos were provided with a rupture-proof fuel tank design.
But for the Pintos 1971 debut Ford decided to go with its original gas tank design despite the crash-test results. Because the typical Pinto buyer was assumed to be extremely price conscious Iacocca set an important goal known as the limits of 2000: the Pinto could not cost more than $2000 and could not weigh more than 2000 pounds. Thus to be competitive with foreign manufacturers ford felt it could not spend any money on improving the gas tank. Besides during the late 1960s and early 1970s American consumers demonstrated little concern for safety so it was not considered good business sense to promote it. Iacocca echoed these sentiments when he said time and time again Safety doesnt sell a lesson he had learned after a failed attempt to add costly safety features to 1950s Fords.
Ford had experimented with placing the gas tank in different locations but all alternatives reduced usable trunk space. A design similar to that of the Ford Capri was successful in many crash tests at speeds over 50 miles per hour but ford felt that lost trunk space would hurt sales too much. On Ford engineer when asked about the dangerous gas tank said Safety isnt the issue trunk space is. You have no idea how stiff the competition is over trunk space. Do you realize that if we put a Capri-type tank in the Pinto you could only get one set of golf clubs in the trunk?
The last of fords reasons for not making adjustments to the fuel tank design however was unquestionably the most controversial. After strong lobbying efforts Ford and the auto industry in general convinced NHTSA regulators that cost/benefit analysis would be an appropriate basis for determining the feasibility of safety design standards. Such an analysis however required the assignment of a value for a human life. The study concluded that every time someone died in an auto accident there was an estimated cost to society of $200725.
The chart below from a 1971 study by the National Highway Traffic Safety Administration is a break-down of the estimated cost to society every time someone is killed in a car accident. The Ford Motor Company used the $200725 total figure in its own cost-benefit analysis.
Future productivity losses
Direct $132300
Indirect $ 41000
Medical costs
Hospital $ 700
Other $ 425
Property damage $ 1500
Insurance administration $ 4700
Legal and court $ 3000
Employer losses $ 1000
Victims pain and suffering $ 10000
Funeral $ 900
Assets (lost consumption) $ 5000
Miscellaneous accident cost $ 200
Total per fatality $ 200725
Having this value in hand Ford calculated the cost of adding an $11 gas tank safety improvement versus the benefits of the projected 180 lives that would be saved (via an internal memo entitled Fatalities Association with Crash-Induced Fuel Leakage and Fires). This is presented in the table entitled The Cost of Dying in a Pinto. As is demonstrated the costs outweigh the benefits by almost three times. Thus the cost/benefit analysis indicated that no improvements to the gas tanks were warranted.
These figures are from a Ford Motor Co. internal memorandum on the benefits and costs of an $11 safety improvement (applicable to all vehicles with similar gas tank designs) that would have made the Pinto less likely to burn.
Savings: 180 burn deaths 180 serious burn injuries 2100 burned vehicles.
Unit Cost: $200000 per death $67000 per injury $700 per vehicle.
Total Benefit: (180 x $200000) + (180 x $67000) + (2100 x $700) = $49.5 million.
Sales: 11 million cars 1.5 million light trucks.
Unit Cost: $11 per car $11 per truck.
Total Cost: (11000000 x $11) + (1500000 x $11) = $137.5 million.
Ford decided to go ahead with normal production plans but the Pintos problems soon surfaced. By early 1973 Fords recall coordinator received field reports suggesting that Pintos were susceptible to exploding in rear-end collisions at very low speeds (under 25 miles per hour). Reports continued to indicate a similar trend in subsequent years but no recall was initiated despite the mounting evidence. At every internal review those responsible decided not to recall the Pinto.
Prior to the Indiana accident the most publicized case concerning the Pintos gas tank was that of Richard Grimshaw. In 1972 Richard then 13 was riding with a neighbor on a road near San Bernardino California when they were hit from the rear. The Pinots gas tank ruptured causing the car to burst into flames. The neighbor was burned to death in a crash that would have nee survivable if there had been no fire. Richard suffered third-degree burns over 90 percent of his body and subsequently underwent more that 60 operations with only limited success. A civil suit was settled in February 1978 when a jury awarded a judgment of over $125 million against Ford most of which consisted of punitive damages (later reduced to $6 million by a judge who nonetheless accused Ford of callous indifference to human life). This judgment…