Analysis on Lawsuits - Research Paper Example

?Research Paper – Lawsuits John Jones Introduction In reference to the automobile industry, there have been two infamous sets of lawsuits that were eventually proven to be avoidable by the manufacturers. The first involved General Motors and Ralph Nader. Nader had written a scathing report on the automobile industry’s attitude toward passenger safety in his 1965 book Unsafe at Any Speed. He was especially critical of General Motors’ Chevrolet Corvair, which he claimed was inherently defective. Nader determined over forty lawsuits had been settled out of court for $340,000 ($2.46 million in 2012 dollars) due to injuries suffered in Corvair wrecks. GM bugged his phones among other harassment techniques, and Nader filed suit. The fallout was tremendous. Not only did he win a $425,000 settlement against the giant automaker in 1967, but by 1969 the Corvair was history, the 1966 National Traffic and Motor Vehicle Safety Act was a direct result of the book (Nader & Page, 1967). Yet with all embarrassment and money General Motors cost itself, it pales in comparison with what happened to its biggest competitor, Ford Motor Company. It was yet another small “economy” car that caused all the troubles and ironically was approved for manufacture by Chairman Lee Iacocca almost exactly a year after the Nader suit. Discussion I. Events leading to the lawsuit: In the late 1960’s there was a push for American economical cars to stifle competition from foreign carmakers, in particular Volkswagen’s Beetle. The Big Four (AMC was still around) raced to be the first to the market. The AMC Gremlin wound up being first, but Ford made their tiny Pinto available to the public in September 1970 as a 1971 model. It was a modest $2,511 and averaged thirty miles per gallon on the highway, somewhat astonishing in an era where 8-10 MPG was common. In a long term comparison test between it and Chevy’s Vega published in the fall of 1971, Car and Driver gushed that “The Pinto is exceptionally satisfying, even amusing … and it has the sharp-edged, go-stop-turn feel of a sports car“(“Chevrolet Vega vs. Ford Pinto” 1971). Amusingly, the magazine also stated that both cars were still running after 15,000 miles, evidently quite the feat in 1971. Yet it would not be long before the Pinto was everything but amusing to Ford Motor Company. There had only been twenty-nine months between Iacocca’s decision to manufacture the car and its introduction for sale. That is a very short time in the design and manufacture of an automobile, as the average timeframe is usually between four and five years. Yet the race was on, and as a result, design flaws were no doubt inevitable. And there was a flaw on the Pinto: the gas tank was placed behind the rear axle, making it extremely vulnerable to rear collisions. Some would later call the car a rolling bomb. Thirteen year old Richard Grimshaw found this to be an all too painful fact. On May 28, 1972 in San Bernardino, California, the boy was a passenger in a 1972 Pinto that was hit in the rear by another car. The Ford burst into flames, the driver was killed, and Grimshaw suffered burns over ninety per cent of his body. His family and the driver’s heirs filed suit against Ford (Craig, “Grimshaw and Grays..”). In 1978, the jury awarded Grimshaw $2.8 million in compensatory damages, which is not shocking considering the by then the young man had suffered through over seventy surgeries. Yet the surprise of the verdict was the fact he was awarded $125 million in punitive damages, a record breaking award that based on 2012 dollars of $440 million would be astronomical even in today’s tort happy environment. The case was eventually settled for something over six million dollars (Dunn, 2000). II. Risk Management for Lawsuit Prevention It was not the fact that the Pinto was inherently dangerous in its design that inflamed the Grimshaw jury; it was Ford’s own greed. The Company knew about the flaw as early as the pre-production stage, yet had issued what was referred as “risk benefit analysis” whereby a company determines the cost to fix a fault versus the amount that might be paid in lawsuits. In the Pinto’s case, Ford engineers estimated the costs to settle burn injuries and fatalities would be $49.5 million while the price to fix several million autos would be $237 million. Basically, it was cheaper to keep making the cars as they were than fix them. This was what Ford argued in the Grimshaw case, quoting previous cases in which the courts had deemed the accident ‘unavoidable’. Yet before the trial commenced, Mother Jones published an internal memo in which Ford’s own people stated that the flaw could be repaired for eleven dollars a vehicle. Millions discussed during risk analysis might convince a jury, but the fact a woman was dead and a young boy horribly injured for eleven bucks was more than the jury and the American public could bear. Ford’s reputation was soiled for years because they refused to fix the cars, something the Federal Government forced them to do anyway later that year (1978) (Leggett, 1999). III. Ethical Considerations Ford’s dangerous game of crunching numbers and the theory it was cheaper to pay the lawsuits than fix the cars, not seeming to care about deaths and horrific injuries, was highly unethical and is still looked at today as a textbook case of what a Company should not do. Much like a child, Ford argued everybody was doing it. Maybe so, but their ‘ethical fading’ cost them dearly, monetarily and reputation-wise. Yet an article in Harvard Business Review suggests that Iacocca and his executives were not necessarily unethical, but probably did not even think about the human factor, focusing instead on the business aspect of getting the Pinto to the market (Bazerman & Tenbrunsel, 2011). IV. Relevant Laws About the time Grimshaw was being decided in 1978, three young women were killed in Indiana in yet another Pinto. Indiana had strict regulations against punitive damages and compensation for minors’ deaths. In the 1975 case United States v. Park 421 U.S. 658, the US Supreme Court set a precedent when it declared a business could be held criminally liable either for the actions of its employees or sheer negligence. So the prosecutor in Elkhart County Indiana filed three counts of negligent homicide against the Company, and the trial commenced in 1980. The Company was subsequently acquitted (Maakestad, 1987), but that brought up an interesting question. Who would have gone to jail? Maybe Iacocca or the engineer? It was stated in the memo that Iacocca liked to say “Safety Doesn’t Sell”. Also the Government used the Traffic and Motor Vehicle Safety Act to force the recall. Conclusion Ford could have saved all of the headaches it wound up if it had only instituted the tiny eleven dollar modification to the car during the design process. Iacocca was never told about the flaw and probably did not want to hear about it, insisting the car be 2,000 pounds and sell for $2,000. Yet later he said in his autobiography that “Honesty is the best technique I use”. He also said something that was chilling, that one should be willing to sacrifice to accomplish his goals. In the Grimshaw case, Ford would have been well-advised to try to settle the suit way before the trial. Perhaps they did, for a ludicrous sum. As far as the car itself, Ford kept it around for nine years, but shortly after the criminal case concluded, the Pinto slid into the history books with over two million units sold. Ford probably eventually made a profit with the car, but it is continually on everybody’s “worst cars ever” list. Yet it should also be noted that its chief competitor, the Chevy Vega, also appears on those lists, mainly for reliability issues. References Nader, R. & Page, J. (1967). Automobile design and the judicial process. California Law Review, 55.3. Retrieved from http://scholarship.law.berkeley.edu/californialawreview/vol55/iss3/1/ Chevrolet Vega vs. Ford Pinto. (1971). Car and Driver, November. Retrieved from http://www.caranddriver.com/comparisons/chevrolet-vega-vs-ford-pinto-archived-comparison. Dunn, C. (2000, October 16). Grimshaw and Grays v Ford, 119 Cal.App.3d 757. Retrieved from http://www-rohan.sdsu.edu/faculty/dunnweb/FordLegalCase.htm. Leggett, Ch. (1999). The Ford Pinto case: the valuation of life as it applies to the negligence-efficiency argument. Law and Valuation, Spring. Retrieved from http://www.wfu.edu/~palmitar/Law&Valuation/Papers/1999/Leggett-pinto.html. Bazerman, M. H. & Tenbrunsel, A. E. (2011). Ethical breakdowns. Harvard Business Review, April. Retrieved from http://hbr.org/2011/04/ethical-breakdowns/ar/1. Maakestad, W. (1987). Redefining corporate crime. The Multinational Monitor, 8.5. Retrieved from: http://www.multinationalmonitor.org/hyper/issues/1987/05/maakestad.html. Read More