Ford Pinto Case Study: To Recall or Not to Recall

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Introduction

By the end of the 1960s, the Ford Motor Company experienced stiff competition from companies abroad especially from European and Japanese automakers. As of 1968, the order of battle was to fight the competition in the small car market. In their attempt to manufacture the U.S.-made “small car” they came up with a concept of what an American small car should be and named it the Ford Pinto. The then-president Lee Iacocca wanted to rush design and production so that the Pinto can be seen in showrooms by 1971. There was not enough time especially if one will consider that the Ford Company is in unfamiliar territory; for many decades they were profitable in the medium and large car models and not with miniaturized versions of typical American-made cars.

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As a result, there was not enough time for chassis design, styling, product planning, advanced engineering, component testing, etc. and the result was the creation of a Ford Pinto with a faulty fuel tank design. Crash-test reports revealed that if a Pinto will experience a rear-end collision with another vehicle moving at an average speed of 31 miles per hour the fuel tank will rupture. But the same crash-test reports also showed that if a plastic baffle is placed between the axle housing and the gas tank, a steel plate placed between the tank and the rear bumper, and finally a rubber lining in the gas tank, rupture, and fuel leakages can be prevented. But these special measures will cost the company an additional $11.

It is the job of the recall director to make the difficult decision to recall or not recall Ford Pinto built from 1970 to 1973. There is no need to elaborate on the fact that if the company decides to recall the cars then Ford will lose a substantial amount of money. But on the other hand, if they continue production without adding the special measures mentioned earlier, there is a high probability that the cars will leak fuel upon experiencing rear-end collisions and possibly catch fire, burning passengers and killing those unable to get out on time. Even if no one will die from these accidents the reputation of the Ford Company can be negatively affected.

All of the ethical issues involved as well as the need to make the correct business decisions to ensure the profitability of the company is just some of the problems faced by the recall coordinator. In order to make the correct judgment regarding the case, a decision-making process will be used. For this paper, the decision-making process is based on an Eight-Step Model that includes the analysis of data from 1970 to 1973, the definition of ethical issues, the identification of the affected parties, the consequences, the obligations of all parties involved, and to consider everything not only for the benefit of the Ford Company but also in relation to the character and integrity of the recall director.

Case Analysis

Gather the Facts

It may seem simple at first but a careful analysis of data gathered between the time Ford decided to enter the small car market in 1968, to the manufacturing stage in 1970, and then to the showroom display in 1971, there are many reasons why the company decided not to recall the Pintos. First of all, it is already implied that the company was in an uphill battle with foreign automakers from Europe and Japan. But based on the case Ford is not without options and it is not facing bankruptcy. In fact, the predecessor of Iacocca wanted to focus on their strength which is the manufacture of medium and large-sized cars. When Ford decided to capture the small car market then it is not because it is desperate to make money but due to its need to dominate in the U.S. car market.

It is easy to understand why Americans are shifting to small-sized cars – it is relatively inexpensive. This is the reason why Lee Iacocca wanted to create a car that will not cost more than 2,000 dollars. But the challenge is not only to make a small car but also to make one that has all the benefits of a medium-sized car. According to the Pinto case study, trunk size had to be considered, and that there is a need for it to be big enough to fit more than one set of golf clubs, or else a segment of the market will go and purchase another brand.

This is one part of the financial aspect. The company had to sell cars and just like any other business organization, there is a need to obliterate the competition and take a huge chunk of the market. Aside from selling the highest number of units, there is also a need to be cost-efficient. This means that for every car sold there must be a margin of profit that will ensure the survival of the company as well as allow it to expand even more. This will necessitate the creation of cost-cutting measures. And in the 1970s the emergence of a new car manufacturing giant in Japan forced Ford to think and act fast.

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While the firm faced engineering and design challenges from competitors with well-established brands, the goal of cutting into the small car market requires timing and speed. In the estimation of Iacocca, there is no better time to manufacture and sell than at the beginning of the 70s. It was a race against time and in speeding up design and production one part of the car design was overlooked, the fuel tank, the component that is hidden from view and seems to be insignificant became a thorn in their side. Late into the design process, they discovered that rear-end collisions with standard speed causes the fuel tank to rupture.

Company engineers were able to document the fact that even at low speed – 31 miles per hour – the fuel tank ruptured and began to leak fuel. Aside from having knowledge about a serious flaw in the design, the Ford Company began to receive reports from the field that the fuel tank can be ruptured even with rear-end collisions involving speeds at very low levels – under 25 miles per hour. Field reports also indicated that during this type of collision there is a tendency for the car to “explode”, presumably due to the spark generated by the impact, igniting the spilled fuel coming from the ruptured tank.

Then the most alarming report came in 1972 when the company learned about Richard Grimshaw, a 13-year-old kid who was burned alive when the Pinto he was riding with a neighbor burst into flames. Richard suffered third-degree burns and 90 percent of his body was badly damaged, requiring over 60 surgical operations with minimal success in bringing him back to normal. And by the way, his neighbor did not survive the accident he was roasted alive inside the small car.

Define the Ethical Issues

Consequentialist Perspective. This perspective deals with harms and benefits. In this case, it is very clear that the Ford company will be harmed by the recall. It will cost a lot of money to do so and not to mention the manpower wasted for such an effort. The reputation of the company will also suffer because in a nationwide recall the general public will be informed that there is a problem with the Pinto. Naturally, while the recall is in effect, there will be no buyers eager to get a new Pinto as long as the issue is not yet sorted out.

In a recall, the customer will benefit because their lives will be protected. The likelihood that they get burned or trapped alive in an inferno will be reduced significantly if the company will retrofit the Pinto with the added measures, ensuring that the fuel tank will not rupture and ignite upon impact. But on the other hand, a recall can potentially harm the job security of thousands of people working under the Ford Pinto brand. If the company will not be able to contain the negative impact of the recall then a negative growth can mean that there are some people who may lose their jobs.

Deontological Perspective. This perspective decides what is right and wrong using a set of principles or rules. For instance, there is such a thing as corporate social responsibility, and that it is a generally accepted rule that corporations are not only in existence to make money but at some point, they are supposed to give back to the community. And what better way to give back than to create safe cars? Aside from the need to create safe cars the deontological perspective also dictates that the Ford Company should be the first to disclose that there is a problem with their Pinto cars and that after informing the consumers the company should do everything in its power to remedy the flaw and one way of doing it is to issue a recall.

Virtue Perspective. Each person has a sense of right and wrong. There is no need to go to college or to a university for a person to understand that stealing is bad, or that killing someone is evil. When this perspective is used to study this particular case then there is only one question that keeps coming back: What is the value of human life? Without a doubt, no one will argue that money can pay for a person’s life. There is no amount of dollars that can justify murder. But in this case, one can consider the company executives’ actions as tantamount to murder and frustrated murder as seen in the case of Richard Grimshaw and his dead neighbor.

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Identify the Affected Parties

The first group that will be affected is composed of company executives. Henry Ford II and Lee Iacocca are just some of the corporate leaders that will face the firing squad so to speak if the company will acknowledge defeat and issue a recall. The second group is composed of investors. The value of their shares can plummet in the wake of a recall. The people working in the company will also be affected as their job security is tied to the profitability of Ford. And finally, the local community that benefited from the presence of a Ford manufacturing plant can also be negatively affected if there are a great number of their community members who are employed in the said company.

On the other hand, if a recall will not be issued, the owners of Ford Pintos will be negatively affected. If the person involved in an accident is a parent then his or her children will be severely affected in the event that Mom and Dad will pass away due to a terrible accident such as an exploding Pinto. The victims are not only limited to owners of Pinto there is no telling what will happen if the explosion or the ensuing fire will also affect the vehicle that rammed into the Pinto. So instead of dealing with only one burning Pinto, there is also the probability that the driver and passenger of the second vehicle will be harmed by the fire.

Identify the Consequences

Long-Term Versus Short-Term Consequences. There can be two types of long-term consequences depending on whether the recall director will authorize a recall or if he will decide to sit on the report and ignore that there are problems with the Pinto. If a recall will be issued then one possible long-term consequence is that Ford may never be able to break into the small car market. If the recall order will not be issued and a great number of people will die, burn, and roast alive in the claustrophobic confines of the Pinto, then there can be a great public outcry that can harm the reputation of the company for many years to come. There will also be an issue of trust. Will the people feel safe in buying cars coming from Ford?

A positive long-term consequence would be the strengthening of their position as the number one automaker in the United States. Their honesty with their shortcomings will make the company more endearing to the community and the American society as a whole. The Ford brand name will become trustworthy and future buyers will continue to patronize this brand knowing that they are in safe hands. This will ensure profitability in the long run.

A short-term consequence of a recall will be the negative impact it will have on cash flow. For sure no sales will be generated from the Pinto while the company is retrofitting the car with eleven dollars worth of equipment and accessories. A number of workers can be laid off if production of the Pinto will be suspended or canceled permanently. The company will lag behind in the small car market and overall might experience slow growth as resources are diverted in accordance to completing the recall procedures.

Symbolic Consequences. For a company that endured the test of time and is considered an American institution, there is a need to consider symbolic consequences. If a recall will not be issued and hundreds of deaths will result from rear-end collisions then the company will be seen as having no regard for human life. This will also symbolize greed and from that point forward the mere mention of the company’s name will conjure images relating to greed.

A consequence of Secrecy. As they say, if there is smoke there is fire and if there is smoke then someone will be drawn to it and start to investigate. In the decade of the 70s, the U.S. news media has become very sophisticated. It will only take a short time before news reporters will discover that the company knew of the design problem and yet did not do anything of significance to solve the problem. If the news media will make it public then it has the tendency of sensationalizing the issue. In the case of the recall director non-disclosure may help him keep his job and the job of others but his dishonesty can eat him up and he will never have peace of mind for the rest of his life.

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Identify the Obligations

The recall director’s main obligation is to help Ford become competitive and to ensure that its reputation will remain intact. There is already tension here because the recall director is well aware of the cost required and the kind of money lost in this kind of action. On the other hand, the recall director is also obligated to protect the name of the company, and therefore issuing a recall will ensure that the public will continue to trust the Ford brand.

Consider Your Character and Integrity

It can be argued that regardless of the recall director’s decision – whether to issue a recall or not to issue a recall – his character and integrity will not come into question because everyone knows that he is merely doing what the company tells him to do. But when the recall director goes home at the end of each working day he will be haunted by the fact that he had a significant level of influence in the Ford Company. He is well aware of the fact that even if he is not at the same level as Iacocca and Henry Ford II, his words and recommendation will have weight in the deliberation regarding the recall. Thus, if the recall is not issued and someone will die from an accident then the recall director will carry an unnecessary burden in his heart for the rest of his life.

Think Creatively About Potential Actions

The predecessor, of Iacocca, Semon Knudsen already provided a partial answer to this ethical dilemma. One of the main arguments against recall is that it will significantly reduce the earnings of the company. But a closer examination of the facts will reveal that the Ford Company’s future did not solely depend on the success of the Pinto. In other words, if Pinto will succeed then there will be financial rewards for investors, corporate leaders, and employees. But if Pinto will not succeed then there are other products that the company can use as a fallback.

Knudsen suggested that it would be better to focus on their strengths such as the manufacture of medium and large-sized cars. So a recall can be issued and production of Pinto cars can be reduced in anticipation of a slower demand but while this is going on Ford strengthens an aspect of its production process and begins to improve design and engineering when it comes to their medium and large-sized cars. In this way, Ford will be able to recoup losses made in the event of a recall.

Check Your Gut

The first report regarding the rupturing of fuel tanks and the instances of “explosion” is enough to make a recall director uneasy. When the reports about the occurrence of fuel tanks rupturing even in rear-end collisions – under 25 miles per hour – are already alarming. One only has to understand that at this kind of speed it takes very little effort to rupture a Pinto fuel tank. There is also the added problem of an increasing number of reports coming in from the field regarding the occurrence of accidents. These things are no longer random but the result of a major flaw in the design.

Conclusion

Using the Eight-Step Model there are so many reasons for the director to authorize a recall. First of all his conscience and his values will not allow him to ignore the high probability of deaths as a result of a faulty design. The recall director’s fears are backed up by data especially when considering the crash-test reports, the field reports that fuel tanks rupture even at speeds below the 25 miles per hour range. The most convincing proof is the tragedy that involved Richard Grimshaw, one badly burned victim, and one dead driver, driving a Pinto.

There is no monetary value that can be used to measure the value of human life. Aside from the morality standpoint, there are other reasons why a recall order must be supported. First of all the reputation of the company hangs in the balance. In a time of increased competition from foreign automakers, it is high time for the Ford Company to continue standing strong and not be tainted by a scandal emanating mismanagement. But even if there are many reasons to issue a recall it is impossible to ignore the financial aspect of the business. The company is obligated to be profitable for the sake of the numerous investors as well as the Ford employees depending on the continued success of the firm.

Moreover, the decision not to recall the Ford Pintos was based on a cost-benefit analysis that justified the cover-up regarding the faulty design. In the said cost-benefit analysis it will cost the company $137.5 million to authorize a recall as opposed to a mere $49.5 million if the company will shoulder the expenses in the event that a Pinto driver or passenger is burned to death, severely injured from burn injuries as well as the cost of replacing burned vehicles. While it is true that human life is priceless the realities of doing business make it extremely difficult to solve this ethical dilemma.

But there is a way out of the moral quandary, reducing the risks and creating a solution that will benefit the greatest number of stakeholders. The recall director must authorize a recall order in 1973 and not wait for another five years to make the recall. This decision is based on a careful review of the cost-benefit analysis as well as the data gathered in the actual recall authorized in 1978. First of all the cost-benefit analysis projected that if a recall order will be made, then the company will be forced to retrofit 11 million cars and 1.5 million light trucks.

The cost of retrofitting these vehicles will amount to $137.5 million as compared to the $49.5 million that will be the financial cost of 180 burned victims, 180 deaths, and 2100 cars charred from the explosion. But here is the problem with this computation. In the event of a recall, there is no need to recall 11 million cars and 1.5 million light trucks manufactured by Ford. There is only a need to recall Ford Pintos. Now based on the case study the total number of Ford Pintos that was recalled in 1978 was 1.5 million cars. If all of these cars will be retrofitted then the total cost is only $16.5 million, much lower than the $49.5 million projected costs from possible accidents.

But there is more, the 1.5 million Ford Pintos that were recalled covered all Ford Pintos that were manufactured between 1970 and 1976. This means that if the recall director decided to order a recall in 1973 and not wait until 1978 then the total number of Ford Pintos that require retrofitting will be much less. If there are 1.5 million cars in a seven-year period then in 1973, four years after Ford Pintos started rolling out of factories it can be argued that there are only 750,000 – more or less – Ford Pintos in circulation. If this number is retrofitted with $11 dollars worth of equipment and accessories then the cost will be $8.25 million only. This is a small price to pay to save human lives as well as to protect the integrity of the Ford Company.

References

Treviño, L.K. & Nelson, K.A. (2007). Managing business ethics: Straight talk about how to do it right (4th ed.). New Jersey: John Wiley & Sons, Inc.

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BusinessEssay. (2022, January 5). Ford Pinto Case Study: To Recall or Not to Recall. Retrieved from https://business-essay.com/ford-pinto-case-study-to-recall-or-not-to-recall/

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BusinessEssay. (2022, January 5). Ford Pinto Case Study: To Recall or Not to Recall. https://business-essay.com/ford-pinto-case-study-to-recall-or-not-to-recall/

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"Ford Pinto Case Study: To Recall or Not to Recall." BusinessEssay, 5 Jan. 2022, business-essay.com/ford-pinto-case-study-to-recall-or-not-to-recall/.

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BusinessEssay. (2022) 'Ford Pinto Case Study: To Recall or Not to Recall'. 5 January.

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BusinessEssay. 2022. "Ford Pinto Case Study: To Recall or Not to Recall." January 5, 2022. https://business-essay.com/ford-pinto-case-study-to-recall-or-not-to-recall/.

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