Ethics in the Workplace Case Study Action Plan

by Dennis A. Gioia (used with permission)

On August 10, 1978, three teenage girls died horribly in an automobile accident.

Driving a 1973 Ford Pinto to their church volleyball practice in Goshen, Indiana,

they were struck from behind by a Chevrolet van. The Pinto’s 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 Marie’s sister, 18-year-old Judy Ann, was dragged out alive from the

driver’s 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 $30,000 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

within 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 car 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

Knudsen’s 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 two years. Under normal conditions, chassis design, styling, product planning,

advance engineering, component testing, and so on 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 Pinto’s 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 with a barrier 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 (NHTSA), 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 3,000 lives annually; the adoption of the standard was

projected to reduce the death rate by 40 percent. Upon approval of Standard 301 in

1977, all Pintos were provided with a rupture-proof fuel tank design.

But for the Pinto’s 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

2,000’’: the Pinto could not cost more than $2,000 and could not weigh more than

2,000 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 doesn’t 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. One Ford engineer, when asked

about the dangerous gas tank said, ‘‘Safety isn’t 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 Ford’s 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. A prior

study had concluded that every time someone died in an auto accident there was an estimated

‘‘cost to society’’ of $200,725 (detailed in Table 1:What’s Your LifeWorth?).1

Having this value in hand, Ford calculated the cost of adding an $11 gas tank

improvement versus the benefits of the projected 180 lives that would be saved (via

an internal memo entitled ‘‘Fatalities Associated with Crash-Induced Fuel Leakage

and Fires’’). This is presented in Table 2: The Cost of Dying in a Pinto.2 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.

Ford decided to go ahead with normal production plans, but the Pinto’s problems

soon surfaced. By early 1973, Ford’s 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 Pinto’s 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 Pinto’s gas tank ruptured, causing the car to burst into flames. The neighbor was

burned to death in a crash that would have been survivable if there had been no fire.

Richard suffered third-degree burns over 90 percent of his body and subsequently

underwent more than 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

was based on convincing evidence that Ford chose not to spend the $11 per car to

correct the faults in the Pinto gas tanks that its own crash testing had revealed.

The Pinto sold well until the media called special attention to the Pinto fuel tank

story. As a consequence, in June 1978, in the face of pressure from the media, the government,

pending court cases, and the potential loss of future sales, Ford ordered a complete

recall of all 1.5 million Pintos built between 1970 and 1976. During the 1980

Indiana trial that resulted from the fatal accident of 1978, differing views continued to

be expressed about the Pinto fires case. Ford representatives argued that companiesmust

make cost/benefit decisions all the time. They claimed that it is an essential part of business,

and even though everyone knows that some people will die in auto accidents, buyers

want costs held down; therefore, people implicitly accept risks when buying cars.

In a scathing article accusing Ford of criminally mismanaging the Pinto problem,

investigative reporter Mark Dowie framed the case in a different and rather more

sensational way, with this often-quoted speculation: ‘‘One wonders how long the

Ford Motor Company would continue to market lethal cars were Henry Ford II and

Lee Iacocca serving twenty-year terms in Leavenworth for consumer homicide.’’3

Table 1 What’s Your Life Worth?

The chart below, from a 1971 study by the National Highway Traffic Safety

Administration, is a breakdown of the estimated cost to society every time someone is

killed in a car accident. The Ford Motor Company used the $200,725 total figure in its

own cost-benefit analysis.

Component 1971 Costs

Future productivity losses

Direct $132,300

Indirect 41,000

Medical costs

Hospital 700

Other 425

Property damage 1,500

Insurance administration 4,700

Legal and court 3,000

Employer losses 1,000

Victim’s pain and suffering 10,000

Funeral 900

Assets (lost consumption) 5,000

Miscellaneous accident cost 200

Total per fatality $200,725

Table 2 The Cost of Dying in a Pinto

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.

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 _ $200,000) + (180 _ $67,000) + (2,100 _ $700) = $49.5 million

Costs

Sales: 11 million cars, 1.5 million light trucks

Unit Cost: $11 per car, $11 per truck

Total Cost: (11,000,000 _ $11) + (1,500,000 _ $11) = $137.5 million

Case Questions

1. Put yourself in the role of the recall coordinator for Ford Motor Co. It’s 1973,

and field reports have been coming in about rear-end collisions, fires, and fatalities.

You must decide whether to recall the automobile.

a. Identify the relevant facts.

b. Identify the pertinent ethical issues and points of ethical conflict.

c. Identify the relevant affected parties.

d. Identify the possible consequences of alternative courses of action.

e. Identify relevant obligations.

f. Identify your relevant community standards that should guide you as a person

of integrity.

g. Check your gut.

References