MGT 331 Managerial Ethics & Social Issues-Case Analysis #3

The Firestone Tire Controversy: Introduction In May 2000, the National Highway Traffic Safety Administration (NHTSA)1 in the United States (US) issued a letter to the Ford Motor Co. (Ford)2 and Firestone Inc. (Firestone)3 asking for information about the high incidence of tire failures on the Ford Explorer Sport Utility Vehicles (SUVs). During July, Ford analyzed the data on tire failures. The analysis revealed that Firestone Radial 15 inch ATX and ATX II tires produced in North America and Wilderness AT tires produced at Decatur, Illinois Plant had very high failure rates with the treads peeling off. When the tires failed, the vehicle often rolled over and killed the occupants. In August 2000, Firestone amid concerns over tread separation, accidents, injury and death announced a voluntary recall of all Radial ATX and ATX II and Wilderness AT tires. Around 6.5 mn tires were recalled which included 3.8 mn Radial ATX and ATX II tires, and 2.7 mn Wilderness AT tires. These tires were original equipment on certain Ford Explorer SUVs, Mercury Mountaineer, Ford Ranger pick up trucks and Mazda Navajo and B-series pick up trucks. (Refer Table I). TABLE I FIRESTONE TIRES INSTALLED ON VEHICLES MANUFACTURER MODEL MODEL YEARS Ford Explorer 1991-2000 Mercury Mountaineer 1996-2000 Ford Ranger (pick up trucks) 1991-2000 Ford F series light trucks 1991-1994 Ford Bronco 1991-1994 Mazda B-series (pick up trucks) 1994-1996 Mazda Navajo 1991-1994 Source: compiled from various sources. The Firestone tire recall was perhaps the biggest auto safety crisis in the US history. NHTSA put the death figure in February 2001 at 174 (Refer Exhibit I), which has risen from 101 deaths reported in September 2000. However, analysts felt that there were as many as 250 deaths and more than 3000 injuries associated with the defective tires. Most of the deaths occurred in accidents involving the Ford Explorer and the victims and their families filed hundreds of lawsuits. (Refer Exhibits II-VI for a history of Firestone /Ford related incidents in the US). In May 2001, Firestone announced that it was severing its ties with Ford and alleged that the problems in the Ford Explorer caused 174 deaths. Firestone alleged that Ford was trying to divert attention from the problems with Explorer. (Refer Exhibit VII for a chronology of events leading to Firestone’s decision to stop supplying new tires to Ford.) The Controversy Ford and Firestone seemed to have known about the flaws in the tires for almost a year prior to the recall but it wasn’t until NHTSA launched a preliminary investigation that Firestone announced a voluntary recall. Questions were raised about how Ford and Firestone responded to the first evidence of tire problems. Ford officials said that the issue first surfaced in Saudi Arabia, where drivers were prone to deflate their tires for better traction while driving in the desert sand. When they returned to hard pavement, they failed to reinflate the tires and the combination of low pressure and extreme climate led to tire disintegration. Ford replaced the tires on some 45,000 vehicles in the Middle East and in several other countries with extreme temperatures. Ford and Firestone then studied 63 vehicles in the Southwestern US to see if similar failures occurred but concluded in March 2000 that the tires were fine. However, when NHTSA launched its investigations in May 2000, Firestone officials were at a loss to explain the tire failures. The officials however said that its data showed many of the tires were produced at a factory in Decatur, Illinois plant and that 80% of the incidents occurred in Arizona, California, Florida and Texas. Firestone said there was a correlation between heat and tire problems and also blamed the motorists for not keeping the tires properly inflated. However, that it was Ford Explorer which was affected more than other vehicles. General Motors Corp4, which used the same type of tires on many of its 1999-2001 trucks, said their performance has been “excellent”. Ford said that it was affected more because of the sheer volume of Explorers on the road. But NHTSA officials felt that Explorers were too heavy for the 15-inch tires. However, there was no definitive evidence to indicate that Ford’s design specification for Explorer’s tires was to blame. But Ford was switching over to 16-inch tires in its redesigned Explorer, which would be launched in 2002. Commented Ralph Hoar, a lawyer representing some of the victims, “There are a lot of smoke and mirrors going on, Ford can say it’s Firestone’s fault, and Firestone can say it’s Ford’s fault.”5 Firestone’s Response to the Crisis Ever since Firestone announced its voluntary recall of Firestone tires in August 2000, its Chief Executive, Yoichiro Kaizaki (Kaizaki) did not make a public appearance. In September 2000, Business Week wrote that Firestone’s behavior spoke volumes about the huge gap that existed between the US and the Japanese management. All the Firestone executives in Japan were unwilling to respond to pleas from investors and the media for explanations and reassurance. Said an analyst, “This is a huge crisis, but Bridgestone and Kaizaki are handling it terribly.” In September 2000, Firestone announced that it would offer free inspection of the 1.4 mn tires not covered in the August 2000 recall. Firestone officials said that the tire models identified by NHTSA which were subject to higher than average rates of tread separation would be inspected without charge at the company owned stores and authorized retailers. However, NHTSA recommended that the tires included in the inspection should be recalled as preliminary investigation by NHTSA of some of the tires not included in the recall showed an incidence of tread separation that sometimes exceeded the rate for the recalled tires. But Firestone declined to include the tires in the recall. John Lampe, Executive vice president, Firestone, said that Firestone would replace any tires found to be unsafe. Said Susan Sizemore, public relations manager at Bridgestone’s US headquarters in Nashville, “This is not a recall. It’s a customer satisfaction initiative. If necessary, we are replacing those tires with either our tires or a competitor’s.” Ford’s Response Analysts felt that Ford’s response to the crisis was also not very positive. They chided Ford CEO, Jacques Nasser (Nasser) for appearing too stiff on Television as a spokesman for Ford. Analysts also felt that Nasser should have gone to the scene of the crisis and demonstrated his concerns for the individuals involved. However in an interview to Fortune6, Nasser commented, “We feel morally and emotionally connected to the people who buy our vehicles. If I could find a magic wand that would give me 6 ½ mn 15 inch tires that I could personally hand carry to every customer, I’d do it.” Analysts also felt that during the crisis, Ford’s spokesman should have been its chairman, Bill Ford Jr. (the man with his name on Ford cars and trucks). The chairman addressed the issue only once at a press conference in mid September 2000. However, Ford officials said that Nasser was better qualified to speak in this crisis because of his operational responsibilities and his knowledge of Ford products. The Controversy Deepens In mid 2001, a committee was formed consisting of the members of the US House Energy and Commerce to look into the problem of tread separation of Firestone tires. During the same time, Ford announced plans to replace about 13 mn Firestone tires used on its vehicles. However, Firestone insisted that those tires were safe and that Ford was replacing them to divert attention from safety problems with its Explorer. Nasser said that Ford had no choice but to replace the tires based on its data. He said about 1 mn of the 13 mn tires involved in the latest recall had already been replaced. He also defended the Explorer saying its statistics had shown it was safer than other vehicles. But Firestone blamed the Explorer for the safety problems. Said a Firestone spokesman, “No one cares more about the safety of the people who travel on our tires more than we do. We are doing our part. We are taking responsibility for our products. We did a massive recall. And now we are doing what’s right by asking the tough questions about Ford Explorer.” Firestone alleged that Ford Explorer without Firestone tires were still experiencing rollover problems. Nasser conceded that some of the Firestone tires involved in the recall were apparently world-class tires and did not appear to have safety problems but said the tires needed to be included in the recall because of loss of customer confidence in the Firestone tires. The committee after hearing from both the sides said that there was a need for further analysis by an independent source such as NHTSA about both the Explorer and the tires. The Trial Begins In August 2001, out of the hundreds of lawsuits filed by the victims and their families, only one made it to the trial. This case involved a South Texas family injured in a crash in a Ford Explorer (Refer Exhibit VIII). The trial came more than a year after NHTSA said that it was looking into the problem. The trial involved Dr. Rodriguez (Rodriguez) whose Firestone equipped 1998 Ford Explorer suffered a blowout and flipped over an Mexican highway. The Trial Begins Contd… This injured Rodriguez, his brother Jorge and three-year son Joelito and left his wife Marisa, wheelchair-bound for life. Ford was already out of the lawsuit having settled the case with Rodriguez for an undisclosed amount. However, the jury said it would still consider whether Ford was responsible for the crash. If the jury found that both Ford and Firestone were responsible for the crash, the companies would have to share the financial liabilities on a percentage basis. If they found Firestone responsible for more than half of the crash, then Firestone would be responsible for the entire payment instead of a percentage. The Future of Firestone and Ford In mid 2001, Firestone announced that it would shut down one of its US plants, which could be its Decatur, Illinois, plant by no later than December 31, 2001. This would eliminate some 1, 500 jobs. The Decatur Illinois plant produced many of the 6.5 mn Firestone tires recalled in August 2000. Bridgestone recorded a net loss of 30.57 bn yen ($ 250.3 mn) for the first half of 2001 because of the tire recall. In the first half of 2000, Bridgestone recorded a net profit of 18.90 bn yen. An extraordinary loss of $ 570 mn taken by Firestone in June 2001 to pay lawsuits and clear up other costs related to the tire recall was the main reason behind the loss. Company sourced said that they would try to revive their North American operations by shifting focus to the Bridgestone brand. Shigeo Watanabe, president of Bridgestone said, “I don’t think the Firestone brand will disappear, but the Bridgestone brand will grow.” The recall of 6.5 mn Firestone tires on the Ford Explorer in August 2000 cost Ford about $ 500 mn. In 2001, Ford was expected to take a $ 2.1 bn after-tax charge to replace 13 mn more Firestone tires. Explorer sales had plunged 21% in 2001. The company’s earnings were expected to sink by 65% in 2001 to $ 2.3 bn. Ford’s share of the US automobile market had fallen by 1.7 percentage points in 2001 to 23.1%. Nasser felt that the future of Ford (Explorer) would depend on how customers responded to Ford’s reaction to the crisis. Said Nasser, “My message to consumers is, if you don’t think we have behaved in the way the world’s leading consumer company should behave, then tell us, because we want to earn that loyalty and respect.”7 Commenting on Ford’s future relationship with Firestone, Nasser said, “Given the importance of the relationship between tires and vehicle safety, and the importance of brand perception, how can you put Firestone tires on the new Explorer that comes out next January?” ASSIGNMENT: Write an essay in which you analyze the above case study in light of Chapter 6 of your textbook. Consider all sides of this complex situation fairly and fully, and explain what your position is on this issue, and what you believe is the right thing to do. Specifically: In your View, and in light of the three theories of the manufacturer’s responsibilities discussed in Chapter 6 (The Contractual Theory, The Due Care Theory and the Social Costs View), what, if anything, did Ford do wrong and what, if anything, should it have done differently? In light of the same three theories, what if anything did Firestone do wrong and what, if anything, should it have done differently?

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