A product defect that leads to customer injuries and deaths through manufacturer carelessness constitutes the most serious crisis that any firm can face. In addition to destroying brand reputation, ethical and social responsibility abuses are involved, and then legal and regulatory consequences. Managing such a crisis becomes far worse, however, when the manufacturer knew about the problems and concealed or denied them.
The case in this chapter is unique in that two manufacturers were culpable, but each blamed the other. As a result, Firestone and Ford were savaged by the press, public opinion, the government, and a host of salivating lawyers. Massive tire recalls destroyed the bottom line and even endangered the viability of Bridge stone/ Firestone; sales of the Ford Explorer, the world's best-selling sport-utility vehicle (SUV), plummeted 22 percent in April 2001 from the year before, even as domestic sales of SUVs overall climbed 9 percent.
Firestone tires mounted on Ford Explorers were linked to more than 200 deaths from rollovers in the United States, as well as more than 60 in Venezuela and a reported 14 in Saudi Arabia and neighboring countries. A widely publicized lawsuit took place in Texas in the summer of 2001. It was expected that the jury would determine who was most to blame for the deaths and injuries from Explorers outfitted with Firestone tires.
Ford settled its portion of the suit for $6 million one month before the trial began. While Firestone now became the sole defendant, the jurors were also asked to assess Ford's responsibility for the accident.
The lawsuit was brought by the family of Marisa Rodriguez, a mother of three who was left brain-damaged and paralyzed after the steel belts and treads of a Firestone tire tore apart during a trip to Mexico in March 2000. As a result, the Explorer rolled over three times, crushing the roof above Mrs. Rodriguez in the rear seat; her husband, Joel, who was asleep in the front passenger seat, was also injured. The live pictures of Mrs. Rodriguez in a wheelchair received wide TV coverage.
After the federal court jury in the Texas border town of McAllen had been deadlocked for four days, a settlement was reached with Bridgestone/Firestone for $7.85 million. (The plantiffs originally had asked for $1 billion.)
The out-of-court settlements with Ford and Firestone did not resolve the issue of who was most to blame for this and the hundreds of other injuries and deaths. But a lawyer for the Rodriguez family predicted that sooner or later a verdict would emerge: "There's going to be trials and there's going to be verdicts. We've got Marisa Rodriguezes all over the country."[324]
Ford and Firestone had a long, intimate history. In 1895, Harvey Firestone sold tires to Henry Ford for his first automobile. In 1906, the Firestone Tire & Rubber Company won its first contract for Ford Motor Company's mass-produced vehicles, a commitment that continued through the decades.
Henry Ford and Harvey Firestone became business confederates and best friends who went on annual summer camping trips, riding around in Model T's along with Thomas Edison and naturalist John Burroughs. Further cementing the relationship, in 1947 Firestone's granddaughter, Martha, married Ford's grandson, William Clay Ford, in a dazzling ceremony in Akron, Ohio, that attracted a Who's Who of dignitaries and celebrities. Their son, William Clay Ford Jr., was to become Ford's chairman.
In 1988, Tokyo-based Bridgestone Corporation bought Firestone, 20 years after the Japanese company sold its first tires in the United States under the Bridgestone name. In 1990, Ford introduced the Explorer SUV to replace the Bronco II in the 1991 model year. It became the nation's top-selling SUV, and the Explorer generated huge profits for more than a decade. Bridgestone/Firestone was the sole supplier of the Explorer's tires.
The first intimation of trouble came in 1999, when, after 14 fatalities occurred, Ford began replacing the tires of Explorers in Saudi Arabia and nearby countries. The tire failures were blamed on hot weather and under-inflation. At the time, overseas fatalities did not have to be reported to U.S. regulators, so the accidents received scant attention in the media.
The media caught the scent in early 2000 when television reports in Houston revealed instances of tread separation on Firestone's ATX tires, and the National Highway Traffic Safety Administration (NHTSA) started an investigation. By May, four fatalities had been reported, and NHTSA expanded the investigation to 47 million ATX, ATXII, and Wilderness tires.
In August 2000, as mounting deaths led to increasing pressure from consumers and multiple lawsuits, Firestone voluntarily recalled 14.4 million 15-inch radial tires because of tread separation. The plant in Decatur, Illinois, was implicated in most of these accidents. Ford and Firestone agreed to replace the tires, but estimated that 6.5 million were still on the road. Consumer groups sought a still wider recall, charging that Explorers with other Firestone tire models were also prone to separation leading to rollovers.
In December 2000, Firestone issued a report blaming Ford for the problems, claiming that the Explorer's design caused rollovers with any tread separations. On April 20, 2001, Ford gave NHTSA a report blaming Firestone for flawed manufacturing.
In May 2001, Ford announced that it was replacing all 13 million Firestone Wilderness AT tires remaining on its vehicles, saying that the move was necessary because it had no confidence in the tires' safety. "We feel it's our responsibility to act immediately," said Ford CEO Jacques Nasser. Ford claimed that the move would cost the automaker $2.1 billion, although it hoped to get this money back from Firestone.
Firestone Chairman and CEO John Lampe defended his tires, saying "no one cares more about the safety of the people who travel on our tires than we do. When we have a problem, we admit it and we fix it."[325]
It is lamentable when a long-lasting close relationship is severed. But on May 21, 2001, Lampe abruptly ended the 95-year association, accusing Ford of refusing to acknowledge safety problems with its vehicles, thus putting all the blame on Firestone.
The crisis had been brewing for months. Many Firestone executives did not trust Ford. Even simple exchanges of documents were rancorous, and there were major disagreements in interpreting the data. Firestone argued that tread-separation claims occurred 10 times more frequently on Ford Explorers than on Ranger pickups with the same tires, thus supporting its contention that the Explorer was mostly at fault. Ford rejected Firestone's charges about the Explorer, saying that for ten years the model "has ranked at or near the top in terms of safety among the 12 SUVs in its class." It stated that 2.9 million Goodyear tires mounted on more than 500,000 Explorers had "performed with industry-leading safety."[326]
The climax came at a May 21 meeting attended by Lampe and a contingent of Ford officials. Each side maintained that the other was to blame. Discussions broke down regarding the possibility of working together to examine Explorer's role in the accidents. At that point, Lampe ended their relationship. Each party was left to defend itself before Congress and the court of public opinion, and ultimately a siege of lawsuits. See the Information Box: How Emotion Influences Company Reputation for a discussion of how emotion drives consumers' perceptions, good and bad, of companies.
Major competitors Goodyear and Michelin, as well as smaller competitors and private-label tire makers, predictably raised tire prices 3 to 5 percent. Goodyear then tried to increase production robustly to replace the millions of Firestone tires recalled or soon to be, but it was trying to avoid overtime pay to bolster profits. In a written statement, Goodyear said, "We are working very closely with Ford to jointly develop an aggressive plan to address consumers' needs as quickly as possible."[327]
The decrease in auto sales in the slowing economy that began in 2000 had led Goodyear to production cutbacks, including cutting 7,200 workers worldwide as it posted an 83 percent decline in profits in 2000. Now it was challenged to gear up to handle the windfall of the ending of the Ford/Firestone relationship.
In years to come, courts and lawyers will sort out the culpability controversy. The outcome is in doubt, and the finger of blame points to a number of sources, though the weighting is uncertain. While Ford and Firestone should share major responsibility, NHTSA and the motoring public were hardly blameless.
The question of whether the design of Ford's Explorer made it more prone to rollover than other SUVs would be decided in the courtroom. One thing seemed clear: Ford recommended a low inflation level for its Firestone-equipped tires, and this subjected them to more flex in the sidewall and greater heat buildup. With high-speed driving in hot weather, a vehicle like the Explorer, with its high profile, would be more prone to roll over with any tire trouble, especially with inexperienced drivers. For example, Ford's recommended tire pressure was 26 pounds, and this would bring the car's center of gravity lower to the ground. This seems good, but only at first look. Required by the government, the Uniform Tire Quality Grade (UTQG) provides comparative manufacturer information. Tires are subjected to a series of government-mandated tests that measure performance in tread wear, traction, and temperature resistance. All testing is done by the tire manufacturer. Ford was alone among SUV makers in equipping the Explorer with grade C tires rather than the more heat-resistant B tires that were the near-universal standard on most sport utility vehicles. To make the C grade, tires had to withstand only two hours at 50 mph when properly inflated and loaded, plus another 90 minutes at speeds up to 85 mph. This standard dated back to 1968, when sustained highway speeds were much lower than today. Now, people drive hour after hour at speeds well above 70 mph.
The C-rated Firestones were used on millions of Ford pickup trucks without problems. However, in contrast with SUVs, most pickup trucks are not taken on long-haul, high-speed road trips filled with family and luggage.
Ford CEO Jacques Nasser justified replacing 13 million tires by claiming that the Firestones were failing at a rate higher than the Goodyears mounted on 2 million Explorers in the mid-1990s. But the Goodyears carried the B rating. The dangerous effect of heat buildup was shown by the fact that most Explorer accidents took place in hot Southern states and in hot-climate countries with high speed limits.
Ford engineers should have been aware of these dangers, if not immediately, then certainly after a few years—and should have adapted the Explorer to customers who drive fast, pay little attention to tire maintenance, and are prone to panic with a blowout and flip the car. Unfortunately, the American legal environment and the tort system make the manufacturer vulnerable to lawsuits and massive damage claims should it acknowledge in retrospect that it had made a bad mistake in its tire selection and pressure recommendation. So the temptation was to blame the tiremaker, and spend millions turning it into a media monster.
Firestone tires were far from blameless. Early on, investigations of deadly vehicle accidents linked the causes to tire failure, notably due to shoddy manufacturing practices at Firestone's Decatur plant; the 6.5 million tire recall by Firestone was of the 15-inch radial ATX and ATX11 tires and Wilderness AT tires made in this plant. In June 27, 2001, the company announced that the plant would be closed. But Firestone's poorly controlled manufacturing process proved not to be limited to this single operation. See the Information Box: A Whistleblower "Hero" about the whistleblower who exposed another plant's careless disregard of safe tire production.
Still, there were contrary indications that the fault was not all Bridgestone/Fire-stone's, and that Ford shared the blame. General Motors had detected no problems with the Firestones it used as standard equipment in 14 of its models. In fact, in July 2001 GM named Firestone as its supplier of the year for the sixth consecutive time. Honda of America was also loyal to Firestones, which it used on best-selling Civics and Odysseys.[330]
On September 14, 2001, months after all Firestones had been recalled from Ford Explorers, an apparently skilled driver, a deputy bailiff driving home from court, was killed when he lost control of his Explorer and it flipped over a guardrail, slid down an embankment, and rolled over several times.[331]
Public Citizen and other consumer groups were critical of the government, maintaining that it was too slow in completing its initial Firestone investigation and had dragged its feet about investigating the Explorer. A Public Citizen study saw the use of the specific Firestone tires as coming from cost- and weight-saving miscalculations and gambles by Ford, "making what was already a bad problem into a lethal one." It was not just the companies that were at fault; federal regulators were lax in not toughening standards on SUVs to prevent roofs from collapsing in rollover crashes. "The human damage caused is barbaric and unnecessary," the study concluded.[332]
There is no doubt that the Explorer drivers contributed to the accidents. They did so by neglecting tire pressure so that it was often below even Ford's low recommendations, by heavily loading their vehicles, and by driving too fast over long periods so that heat could build up to danger levels. Added to this, the lack of driving expertise to handle emergency blowouts was often the fatal blow. Yet, could a carmaker, tire-maker, or government agency really expect the average consumer to act with strict prudence? Precautions, be they car standards or tire standards, needed to be imposed with the worst consumer-behavior scenarios in mind.
Each company maneuvered to cast blame primarily on the other. Ford announced in May 2001 that it would triple the size of the Firestone recall—a $2.8 billion prospect, a cost Ford wanted to shift to the tire maker. Firestone, at that point, severed its long relationship with Ford by refusing to supply the company with more tires. CEO Lampe maintained that Ford was trying to divert scrutiny of the rollover-prone Explorer by casting doubt on the safety of Firestone tires.
Both parties suffered in this name-calling and buck-passing. By the fall of 2001, sales of Explorers were off sharply, as consumers wondered whether the hundreds of Explorer crashes were due to the SUV's design, or Firestone tires, or both. Ford lost market share to Toyota and other foreign rivals in the SUV market. In July 2001, it reported its first loss from operations since 1992. It also faced 200 product-liability lawsuits involving Explorer rollovers. Still, Ford was big enough to absorb problems with one of its models.
Smaller Bridgestone/Firestone faced a more dangerous situation. In 2000, its earnings dropped 80 percent, reflecting the cost of recalling millions of tires as well as a special charge to cover legal expenses. The Firestone unit, which accounted for 40 percent of the parent company's revenue, posted a net loss of $510 million after it took a $750 million charge for legal expenses. Sales were forecast to plunge 20 percent in 2001, and the cost of lawsuits could eventually reach billions of dollars, to the point where some analysts doubted that Firestone could survive as a brand.[333]
The esteemed Firestone brand, launched more than a century before, had been the exclusive tire supplier to the Indy 500. Now its future was in doubt, despite decades of brand loyalty. The brand faced three options:
- Option 1.
Some thought the company should try to deemphasize Firestone and push business to the Bridgestone label. This would likely result in some loss of market segmentation and the flexibility of having distinct low-end, mid-level, and premium tires. Others thought that such a halfhearted approach would simply prolong the agony of hanging on to a besmirched brand.
- Option 2.
Obliterate the Firestone name, because it was irretrievable. "Firestone should just give up," said one public relations analyst. "They've damaged themselves so severely." A University of Michigan Business School professor called the brand dead: "Can you imagine any jury claiming that somebody who's suspected of building bad tires is innocent?"[334]
- Option 3.
Try to salvage the brand. Some questioned the wisdom of abandoning the century-old Firestone name, with its rich tradition and millions of cumulative advertising dollars. They thought that with money, time, and creative advertising, Bridgestone/Firestone should be able to restore its image. But to do so, Roger Blackwell of Ohio State University argued, the company needed to make an admission of regret: "The lawyers will tell them not to admit blame . . . But they need to do what Johnson & Johnson did when someone was killed by their product [cyanide-tainted Tylenol]. A credible spokesman got on TV and had tears in his eyes when he spoke." An independent tire dealer who lost $100,000 in sales in 2000, but was confident of a rebound, supported this option: "The American public is quick to forget," he said.[335]
Buyers of Ford Explorers with Firestone tires had for years faced a far higher risk of death and injury, both in the United States and abroad, than they would have from other models. The New York Times reported that the tire defects, and their contribution to accidents, were known in 1996.[336] Not until August 1999 did Ford begin replacing tires on Explorers in Saudi Arabia, calling the step a "customer notification enhancement program." Fourteen fatalities had already been reported. Not until March 2000, after television reports of problems, did federal regulators and the two manufacturers take all this seriously.
Ford, in its concern with the bottom line, stubbornly refused to admit that anything was wrong with its SUV; meanwhile, Firestone couldn't seem to clean up its act in the Decatur plant and in some other plants where carelessness and lack of customer concern prevailed. Minor ethical abuses became major when lives were lost, but the foot-dragging continued until lawyers came on the scene. Then the two companies tried to cover their mistakes with finger-pointing, while a vulnerable public continued to be in jeopardy. Throughout this whole time, saving lives did not apparently have a very high priority. Eventually the consequences came back to haunt the companies, with hundreds of lawsuits, millions of tire recalls, and denigration of their public images.
How could this have been permitted to happen? After all, those in top management were not deliberately vicious men. They were well intentioned, albeit badly misguided. Perhaps their worst sin was first to ignore the increasingly apparent serious risk factors and then refuse to admit anything was wrong and try to cover it up.
Part of the problem was the stubborn mindset of top executives that nothing was wrong: a few accidents, in their view, reflected driver carelessness, not a defective product. Neither company would assume the worst scenario: that this was a dangerous product used on a dangerous product that was killing people, and neither Ford nor Firestone could escape blame.
Forty years before, a somewhat similar situation occurred with the GM Corvair, a rear-engine car that exhibited instability under extreme cornering conditions causing it to flip over. Ralph Nader's reputation as a consumer advocate came from his condemnation of this "unsafe" car with a best-selling book, Unsafe at Any Speed. But GM executives refused to admit there was any problem—until eventually the evidence was overwhelming, lawsuits flourished, and the federal government stepped in with the National Traffic and Motor Vehicle Safety Act of 1966. Among other things, the act required manufacturers to notify customers of any defects or flaws later discovered in their vehicles.
The GM executives, like those of Ford and Firestone 40 years later, were honorable men. Yet, something seems to happen to the conscience and the moral sensitivity of top executives. They commission actions in their corporate personas that they would hardly dream of doing in their private lives. John DeLorean, former GM executive, was one of the first to note this dichotomy:
These were not immoral men who were bringing out this car the Corvair. These were warm, breathing men with families and children who as private individuals would never have approved [this project] for a minute if they were told, "You are going to kill and injure people with this car." But these same men, in a business atmosphere, where everything is reduced to terms of costs, corporate goals, and production deadlines, were able to approve a product most of them wouldn't have considered approving as individuals.[337]
We have to ask: Why this lockstep obsession with sales and profits at all costs? See the Information Box: The "Groupthink" Influence on Unethical Behavior for a discussion of this issue.
On October 30, 2001, Ford Motor Company announced that Jacques Nasser would be replaced as CEO by William Clay Ford Jr.—the first Ford family member to be in charge since 1979. Ford is the son of William Clay Ford Sr., who is the grandson of founder Henry Ford and brother of Henry Ford II. Nasser had been under pressure for months because of Ford's loss of market share and tumbling profitability and the adverse publicity of the Explorer.
In December 2001, the newly designed 2002 Ford Explorer received a top score in a crash test by the Insurance Institute for Highway Safety. Changes in the 2002 Explorer to improve passenger protection were part of the automaker's "commitment to continuous improvements," a Ford spokesperson said.[339]
Firestone also bounced back, despite dire predictions of the brand's demise as its U.S. operations suffered a $1.7 billion loss in 2001 on top of a $510 million loss in 2000. Some called this "the most unlikely brand resurrection in business history." Much of the credit for the company's survival was credited to Firestone CEO John Lampe, who crisscrossed the country giving pep talks to hundreds of Firestone's 10,000 dealers. These dealers became fiercely loyal at a time when 75 percent of tire buyers were influenced by dealer recommendations, according to industry estimates. Several splashy new tires were brought out, including the Firehawk Indy 500, which became a hit with racing fans. "We are selling as many Firestone tires as we've ever sold," one large dealer noted.
With communication improving between the two companies, Lampe could see signs that the rift with Ford was ending, and William Clay Ford even mentioned his great-grandfather Harvey Firestone in a Ford commercial. "It was a very honest thing to do. He didn't have to do that," Lampe observed.[340]
Invitation to Make Your Own Analysis and Conclusions
Design a program for pursuing a better relationship between Ford and Firestone executives during the crisis. How would you sell your program to the executives? What do you think would be the likely result? Are there any worthwhile learning experiences that could come from this?
Can a firm guarantee complete product safety? Discuss.
Based on the information presented, which company do you think was most to blame for the deaths and injuries? What led you to your conclusion?
"If an Explorer driver never checks the tire pressure and drives well above the speed limit, he has no one to blame but himself in an accident—not the vehicle and not the tires." Discuss.
Do you think the government should be blamed in the Explorer deaths and injuries? Why or why not?
Would you give credence to the "community champion" awards bestowed by a consumer advocacy group founded by the Association of Trial Lawyers, and given to Alan Hogan in June 2001 for exposing careless tire production? Why or why not?
"Admittedly the groupthink mindset may be responsible for a few unethical and bad decisions, but isn't this mindset more likely to consider the consequences to the company of delivering unsafe products, and thus to support aggressive corrective action?" Evaluate this statement.
. Have you had any experience with a Ford Explorer? If so, what is your perception of its performance and safety?
Have you had any experience with Firestone tires? What is your perception of their performance and safety?
Put yourself in the position of John Lampe, CEO of Firestone, as the crisis worsens and accusations mount. Discuss how you would try to change the climate with Jacques Nasser of Ford from confrontational to cooperative. Be as specific as you can. Do you think you would be successful?
Firestone is on its knees after massive tire recalls and monstrous damage suits. You are a consultant brought in to help the firm recover. Be as specific as you can in recommending a course of action and in prioritizing things to do. Make any assumptions you need to, but keep them reasonable. Defend your recommendations. (Do not be swayed by what actually happened. Maybe things could have been done better.)
You are a trusted aide of Nasser. Support his confrontational stance with Firestone before the Ford board of directors.
Be a Devil's Advocate. In a staff meeting the topic comes up that your SUVs have been involved in a number of deaths. The group passes this off as due to reckless drivers. Argue persuasively a contrary position.
Debate the issue of dropping or keeping the Firestone name. Defend your position and attack the other side.
Debate the issue of whether to stand by Nasser at the height of the confrontation or to remove him. Be as persuasive as you can.
Can you find statistics about how competing tire companies, particularly Goodyear and Michelin, fared during and after the Firestone recall? Are Ford and Firestone friends again? Is the Ford Explorer still the top SUV?
[324] "Firestone Agrees to Pay $7.5 Million in Tire Suit," Cleveland Plain Dealer, August 25, 2001, pp. A1 and A13; Milo Geyelin and Timothy Aeppel, "For Firestone, Tire Trial Is Mixed Victory," Wall Street Journal, August 27, 2001, pp. A3 and A4.
[325] Ed Garsten, Associated Press, as reported in "Ford Tire Tab $2.1 Billion," Cleveland Plain Dealer, May 23, 2001, pp. 1-C and 4-C.
[326] Timothy Aeppel, Joseph B. White, and Stephen Power, "Firestone Quits as Tire Supplier to Ford," Wall Street Journal, May 22, 2001, pp. A3 and A12.
[327] Thomas W. Gerdel, "Goodyear, Michelin Raising Consumer Tire Prices," Cleveland Plain Dealer, May 23, 2001, pp. 1-C and 4-C.
[328] Ronald Alsop, "Survey: Emotion Drives Public Perception of Companies," Wall Street Journal, February 11, 2001, p. 5-H.
[329] Dan Chapman, Cox News, as reported in "Firestone Ex-Worker Called Hero in Recall," Cleveland Plain Dealer, May 29, 2001, p. 1-C.
[330] Garsten, "Ford Tire Tab," pp, C1 and C4; Alison Grant, "Bridgestone/Firestone Faces Struggle to Survive," Cleveland Plain Dealer, August 5, 2001, pp. H1 and H5.
[331] "SUV Flips, Killing Deputy Bailiff, 24," Cleveland Plain Dealer, September 15, 2001, p. B5.
[332] Alison Grant, "Government, Goodyear Still Navigating a Bumpy Road," Cleveland Plain Dealer, August 5, 2001, p. H5.
[333] Akiko Kashiwagi, "Recalls Cost Bridgestone Dearly; Firestone's Parent's Profit Drops 80%," Washington Post, Feb. 23, 2001, p. E03.
[334] Grant, "Struggle to Survive," p. H5.
[335] Ibid.
[336] Keith Bradsher, "SUV Tire Defects Were Known in '96 But Not Reported; 190 Died in Next 4 years," New York Times, June 24, 2001, p. 1 N.
[337] J. Patrick Wright, On a Clear Day You Can See General Motors, Grosse Point, Mich.: Wright Enterprises, 1979, pp. 5–6.
[338] Chester I. Barnard, The Functions of the Executive, Cambridge, Mass.: Harvard University Press, 1938, p. 263.
[339] Christopher Jensen, Cleveland Plain Dealer, December 12, 2001, pp. C1 and C4.
[340] Todd Zaun, "Defying Expectations, Bridgestone Embarks on a Turnaround," Wall Street Journal, March 12, 2002, p. A21; Jonathan Fahey, "Flats Fixed," Forbes, May 27, 2002, pp. 40–41.