In: Finance
Read Case (Pinto) Then, answer following questions and turn these in by the deadline.
Pinto54 In the late 1960s, Ford designed a subcompact, the
Pinto, which weighed less than 2,000 pounds and sold for less than
$2,000. Anxious to compete with foreign-made subcompacts, Ford
brought the car into production in slightly more than 2 years
(compared with the usual 3½ years). Given this shorter time frame,
styling preceded much of the engineering, thus restricting
engineering design more than usual. As a result, it was decided
that the best place for the gas tank was between the rear axle and
the bumper. The differential housing had exposed bolt heads that
could puncture the gas tank if the tank were driven forward against
them upon rear impact.
In court, the crash tests were described as follows:55 These
prototypes as well as two production Pintos were crash tested by
Ford to determine, among other things, the integrity of the fuel
system in rear-end accidents. Prototypes struck from the rear with
a moving barrier at 21miles-per-hour caused the fuel tank to be
driven forward and to be punctured, causing fuel leakage. A
production Pinto crash tested at 21miles-per-hour into a fixed
barrier caused the fuel tank to be torn from the gas tank and the
tank to be punctured by a bolt head on the differential housing. In
at least one test, spilled fuel entered the driver s compartment
Ford also tested rear impact when rubber bladders were installed in
the tank, as well as when the tank was located above rather than
behind the rear axle. Both passed the 20-mile-per-hour rear impact
tests. Although the federal government was pressing to stiffen
regulations on gas tank designs, Ford contented that the Pinto met
all applicable federal safety standards at the time. J. C. Echold,
director of automotive safety for Ford, issued a study titled
Fatalities Associated with Crash Induced Fuel Leakage and Fires. 56
This study claimed that the costs of improving the design ($11 per
vehicle) outweighed its social benefits. A memorandum attached to
the report described the costs and benefits as follows:
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 benefits 180 $200,000 plus 180 $67,000 plus
2100 $700 $49.15 million Costs Sales 11 million cars, 1.5 million
light trucks Unit cost $11 per car, $11 per truck Total costs
11,000,000 $11 plus 1,500,000 $11 $137 million
The estimate of the number of deaths, injuries, and damage to
vehicles was based on statistical studies. The $200,000 for the
loss of a human life was based on an NHTSA study, which estimated
social costs of a death as follows:57
Component 1971 Costs Future productivity losses Direct $132,000
Indirect 41,300 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
Discuss the appropriateness of using data such as these in Ford s
decision regarding whether or not to make a safety improvement in
its engineering design. If you believe this is not appropriate,
what would you suggest as an alternative? What responsibilities do
you think engineers have in situations like this?
1) Are there any factual or conceptual issues in this case? If so, explain what they are.
2) What moral issue (issues) do you see in this case? Be specific.
3) Do you see any impediments to responsible action in this case? If so, identify them and explain how they contributed to the case.
Ford Pinto Case
Answer 1: In ford's cost benefit analysis, ford gave a figure of $11 to fix the gas tank. However, there could have been cheaper ways of fixing the gas tank. A lower cost could have changed the outcome of this analysis. Also, ford used the value of human life at $ 200,000 but it didnt put a price to the cost for the society, environment and the reputational damage it suffered as a result of betraying its own loyal customer base.
Answer 2:Ethical / moral issued include justifying a mistake using utilitarianism, calculating the value of human life, projecting the Company's loss as the cost for society, betraying loyal customers, ignoring field reports, neglecting safety issues, being legal doesnt imply being ethical (clash between moral and legal rights)
Answer 3: Impediments to Responsible Action - One main impediment that led to all this was the compromise on the engineering aspects of the car and focussing on the design elements due to high competition in the subcompact segment. More expenditure to repair the cars already sold by recalling them also seemed a big impediment in taking responsible action in this case.