A Case Study on the
Ford / Firestone Debacle
Submitted by: Group 5 Eliel Daang Maui Rillon Saddy Rillorta Dianne Seril Pete Tan Ren Tangco
Submitted on: October 9, 2008
I. Facts of the Case The Ford Motor Company has a history of a damaged safety reputation. Its Bronco II SUV, designed to have a high center of gravity, was subjected to 800 lawsuits due to rollovers. The rollovers were said to be due to the placement of the engine above the Twin I-Bean suspension. Because of the widely publicized notice to the public to avoid buying the Bronco II, Ford consequently developed a strategy to reposition itself as the industry’s most socially and consumer-focused automaker – investing its future on creating a reputation for honesty and fairness. Ford replaced the Bronco II with the Ford Explorer model which was designed like the Ranger. However, in 1988, test reports showed that it has more chances of rollover than the Bronco II at 5 out of 12 tests. In 1989, Ford engineers proposed a design change to increase the vehicle’s stability by lowering the engine, replacing the Twin I-beam suspension, lowering tire pressure, and mounting the wheels 2 inches apart. The management rejected the re-design proposal as this would impede the planned launch in 1990. They just agreed to install stiffer springs, shorten the suspension, and lower the tire pressure. Ford also requested a tire from Firestone that combined characteristics of a truck tire with passenger tire performance at certain price specifications. Firestone, then, developed the ATX and ATX II tires. Firestone initially recommended 30 to 35 psi for the 15-inch tires but Ford engineers recommended telling buyes to maintain a tire pressure of 26 psi when stability problems developed on the Explorer. Firestone, on the other hand, experienced failures in its leading steel-belted radial, the Firestone 500 – found to be involved in hundreds of accidents and injuries. About 14.5 million Firestone 500s were recalled estimating its value at $160 million which consequently damaged the company’s reputation. The company continued to have legal battles and settlements which led to the closure of seven tire plants. Eventually, Firestone was sold for $2.6 billion to Bridgestone, a Japanese tire company that wanted to establish production operations in the United States. The Japanese company had a highly efficient production and the highest quality standards. Unfortunately during the integration, Firestone failed to be “Bridgestonized”, thus affecting plant operations and product quality. Problems with the Explorer started in 1993 when several lawsuits were filed alleging that the tires when mounted on the explorer were prone to catastrophic failures that resulted to rollovers. Firestone’s warranty claims data also showed that the tread sometimes separated from the tires and peeled off, particularly in hot regions. From 1996 to 1999, claims and lawsuits were filed against Ford and Firestone due to the same complaints from Saudi Arabia, Venezuela and Asia, which led Ford to recall Firestone tires and replaced them with Goodyear tires. The company called this as a “consumer satisfaction program” and not a “recall” which might trigger a large recall in the United States. In February 2000, a Houston television station aired a program on Explorer rollover accidents. Right after the airing of the show, the U.S. National Highway Traffic Safety Administration received a number of calls from US Ford Explorer users who experienced the same rollover accidents with their vehicles. This led the NHTSA to launch an investigation of Ford and Firestone. Afterwhich, the two companies announced that they were recalling 6.5 million ATX, ATX II, and Wilderness AT tires which the customers can exchange for new Firestone tires or other brands. On October 9, 2000, the Washington post published a study which showed that the Explorer had a higher rate of accidents due to tire failures than other SUV’s whether these were equipped with Firestone or Goodyear tires, thus implying that the problem lay with the design of the Explorer rather than with the tires. In effect, by the end of 2000, Ford’s stock lost 15 percent of its value and Bridgestone’s lost 50 percent. Ford sales also fell by 6 percent. Consumer’s confidence also dropped to 50 – 60% based on surveys. In May 2001, Ford decided to withdraw its support on Firestone saying that they had lost confidence in the company and would no longer use its tires on the Explorer. During this time, Ford announced that it would recall an additional 13 million Wilderness AT tires despite Firestone’s confidence that those tires were not defective.
II. Ethical Issues
Did Ford and Firestone act ethically in communicating the problem? Did the company act ethically in resolving this crisis? How much focus was there on consumer safety and not company profits? Was justice served to those who were injured? Did they protect the health and well-being of their stakeholders? Did these companies assume social responsibility right away? Is it ethical for the companies to keep the defects of their tires secret?
III. The Affected Parties (the Stakeholders) 1) 2) 3) 4) 5) 6) 7) 8)
Ford company: stockholders, managers, and engineers Firestone company: stockholders, managers, and engineers Bridgestone company: stockholders, managers, engineers, other employees Insurance companies The consumers/public and their families National Highway Traffic Safety Authority (US) Clientele from countries abroad Potential investors and clients
IV. Consequences …Long-Term Versus Short-Term Consequences. 1) As a short-term effect, the recall definitely affected the stocks and sales performance of Ford and Firestone. In the long-term, this would cause the loss of confidence of the consumers and potential investors. Ford and Firestone would find this loss of consumer confidence more difficult to handle because sales projections and production forecasts (strategic planning) all depend on the basic assumption that their products will be bought. But if they lose the confidence of their potential consumers, how would they be able to make such assumption and how would they go about with their planning? 2) Both Ford and Firestone are liable and they should be strict in implementing designs that would ensure finished products would be based on the highest standards of quality. This would avoid finger-pointing when/if problems arise. Initially this would entail additional development/design costs and will definitely affect product launch timelines. However, in the long-run, this would improve product performance thus maintaining and enhancing consumer confidence, which would translate to greater market share. 3) Ford and Firestone’s decision to keep the recalls and tire replacements within the confines of the company resulted to more accidents, insurance claims and lawsuits. With this, the two companies incurred greater losses in terms of settlement costs. Symbolic Consequences. The main symbolic consequence here points towards consumer confidence. If neither Firestone nor Ford do something to gain back the confidence in their products, they might end up closing their companies down or being taken over by another company (with total brand, product, design, and management revamp). Consequences of Secrecy.
Ford was clearly aware of the problems with their design and Firestone already experienced problems with their tires, as well. Despite this knowledge, the two companies still tried to hide the issue from the public in order to protect their profits and to save on “product recall” costs. This secrecy caused widespread accidents, even several deaths, which eventually caused the companies to incur more costs in lawsuit settlements, insurance claims, and product replacements. V. Obligations 1) Ford Being the producer of the Explorer, Ford should have the primary responsibility of making sure that their product passes the highest safety standards without any loopholes in the design. Under the social costs view which was what Ford did, Ford still paid all the costs of injuries that were sustained because of any of the defects of the product even though Ford believed that it has already exercised all due care in the design and manufacture of the product. True to the theory, Ford under the strict liability principle, paid for the cost of the injuries sustained by its consumers. If Ford followed the theory of due care, it should have tested its product under extreme conditions. The main problem was that the tires were not able to cope with the hot climate conditions. Ford should have instructed Firestone to make tires which were tested under extreme heat to know how much heat the tire can tolerate before it deflates or before it separates from its tread. On this regard, it was the duty of Ford to make sure that the tires of Firestone passed the highest quality standards so that they can warn their consumers, beforehand, of the risks involving their product. 2) Firestone Being the manufacturer of the tires under a contract with Ford, Firestone was remiss in its obligation to make sure that the tires were compatible with the SUV being produced by Ford. Just like Ford, under the social costs, Firestone spent millions of dollars in recalling and paying legal settlements because of the injuries sustained by the consumers of the Explorer. If we look from the angle of Firestone being the seller and Ford being the consumer of the tires, under the contract view, Firestone should have complied with the terms of the sales contract, and it should have disclosed the nature of the product particularly in conditions wherein it would not be advisable to use ATX, ATX II and Wilderness AT tires. VI. Character Integrity Both Ford and Firestone have a fault on this issue. Ford, knowing that the designed SUV is un-safe still pushed with the manufacturing of the cars just meet their launch timelines and maintain their profit margin. On the other hand, Firestone’s manufactured unstable tires because of the recent union strike which lowered its product quality. Both companies had passed experiences on product quality problems. Ford on its Bronco II design problem which had a tendency to rollover at high speeds and Firestone on its Firestone 500 radial tires which separated from the tread causing several vehicle accidents. Both companies also had experienced product recalls and settlement issues but they still did not learn from these passed issues. VII. Potential Actions 1) Initially, Ford should have heeded to the proposal of its engineers to re-design the Explorer in order to make the vehicle more stable.
2) The two companies should have immediately communicated the rollover issue to the consumers and NHTSA to prevent future accidents from happening. 3) Upon hearing of the complaints of rollovers and tread separations, Ford and Firestone should have conducted investigations in order to find the “true” cause of these problems. If this was done, Firestone would have found out that the Decatur Plant was the main cause of their tire quality issue. Thus, Firestone should have closed the plant and transferred the production of ATX tires to another plant. 4) Firestone should also re-design their ATX and Wilderness tires in such a way that these would last in extreme climate conditions. 5) Upon implementing the “recalls”, Ford and Firestone should have put a Contingency Plan in place in order to address all the needs of its consumers (i.e. enough inventory of replacement tires, customer service hotlines where consumers can inquire) 6) The most important action that the two companies should have taken was “Full Disclosure” of the issue their stakeholders and the public. By acknowledging the existence of the problem, Ford may save its reputation as long as measures are taken to halt the spread of the design problem. Awareness among the customers will pave the way for vigilance which in return may help prevent anymore incidents. VII. Gut Ford and Firestone suffered severe consequences for violating the consumers' rights. The consumers have the right to safety, the right to be informed, the right to choose, the right to be heard, and the right to privacy. These two companies violated two of these rights. They violated the consumer's right to safety by selling cars and tires that were not safe and poorly designed. They also violated the consumers' right to be informed by hiding the issue from the public. It seemed then that Ford and Firestone failed to meet its ethical obligations. That is, they didn't report safety-related defect information to government agencies and they also concealed important information related to vehicle safety from the public. As a result, the consumers suffered the consequences of their unethical conduct. Many people died because of the defect in these tires. In fact, these accidents would have not occurred if both companies have solved the problem immediately. The right to be informed is one of the most basic of human rights. Ford and Firestone, violated this right when it decided to keep the situation under wraps. By keeping its customers in the dark, it deprived them of the right to choose whether to continue to patronize its product or not. Safety is a paramount consideration in buying a car. And this cardinal rule was violated by Ford and Firestone when it continued to market the vehicle despite the defects already discovered. It duped the customers into believing that their lives and the lives of those that matters to them are safe whenever they buy a Ford car. It is a great departure from the image of Ford as a vehicle for every American family. By keeping silent, Ford and Firestone grossly violated its ethical obligation to be transparent for anything that may cause harm to the greater number who patronizes their product. In the end, they see the issue as merely a cost-benefit situation and reduced everything to what can be gained or saved from the situation at hand. Such blatant disregard to the preservation of the human life in favor of profit poses as big question mark on the ethical values of both companies.
References:
Velasquez "Business Ethics" (pg. 296-299) http://en.wikipedia.org/wiki/Firestone_vs_Ford_Motor_Company_controversy http://www.citizen.org/articles.cfm?ID=5413 http://www.autosafety.org/article.php?scid=95&did=300 http://e-businessethics.com/firestone.htm http://www.forbes.com/2001/06/19/0619tires.html%20%20 http://www.citizen.org/pressroom/release.cfm?ID=696 http://cee.citadel.edu/asee-se/proceedings/ASEE2002/P2002078INDUSBUR.doc
