The tension between business and ethics—such as that robustly illustrated by the Ford Pinto debacle—fits extraordinarily well with the consideration of vehicular technology, the use of which may pose safety hazards for drivers and others in the vicinity of preoccupied drivers. The question then begs: where does the responsibility for safety belong—with the consumer who is in the driver's seat, the manufacturer who will quite obviously have mixed motivations, or with the government that will need to balance cost with benefit. Or perhaps the responsibility ultimately goes to watchdog groups and consumers demand—through legislative process—that human lives are not well matched to economic cost-benefit analysis made from a particularly economic frame.
Individual Automobile Safety Technology
Engineering Ethics
The overarching contribution of the automobile industry to the United States economy is considerable. Approximately 1.067 million intermediate job are engaged in the direct support of the industry. The spin-off jobs that are associated with the industry -- those people who are employed in direct and intermediate positions -- adds an additional 1.765 million to the total job count associated with U.S. motor vehicle manufacturing activities. This brings the total number of jobs to nearly 3.145 million jobs. The ratio of direct employment to total jobs created has a multiplier of 10.0 (3,145,000 / 313,000) -- an excellent ratio in any investment. To put it in simpler, more comprehensible terms, for every single job in the automobile manufacturing industry, there are an additional nine jobs in the entire sector.
Private sector compensation that is associated with the total number of jobs is about $206 billion, with personal income taxes on that employment estimated to be about $29 billion. It is useful to think in terms of the percentages of jobs and of compensation for automobile manufacturing in terms of the overall employment and earnings figures for the United States. When the direct, intermediate, and spin-off jobs for the production of original equipment and manufacturing operations in the United States are totaled, this figure accounts for roughly 2% of the economy of the United States and about 1.5% of the total earnings in the United States.
Unpacking the intermediate category -- which can be broadly considered to be the automotive / supplier network -- shows 1.067 jobs in the manufacturing and non-manufacturing industries that are necessary to meet manufacturers' demands for services and materials that spans design, production, and sales of automobiles. The supply portion of this network largely consists of those suppliers who provide parts and services directly to the vehicle assembly plants. The supplier portion of the network also includes those who provide the basic materials and services -- such as basic commodities -- to the suppliers who are a tier above them. As such, these second tier suppliers may be considerably removed from the manufacturing processes and the vehicle design processes. Considering the operations at the automobile manufacturing plants, the intermediate needs of primary assemblers -- for plastic and metallic parts, for electronic components, and the various other materials needed to manufacture vehicles -- is met by an enormous array of specialized manufacturers that make up the U.S. intermediate employment band, which is about 192,000 jobs, with 80,000 jobs in parts manufacturing, 16,000 positions engaged in the manufacture of primary metals, 39,000 engaged in the fabrication of the metal products themselves, and 15,000 producing the plastics and rubber products required for automotive manufacturing. While these numbers reflect positions for the manufacturing of parts and components, which are necessary to produce the assembly material inputs and services, the figures do not include the people employed directly by the original equipment manufacturers or OEMs, which totals approximately 313,000 individuals.
Automobile manufacturing and GDP. To take the long view, economists estimate that car sales added 0.7% to 0.8% to the national gross domestic product in 2011 (White, 2011). In the United States, automotive manufacturing is classified by the North American Industrial Classification System (NAICS) as a segment of the larger transportation equipment manufacturing sector (NAICS.336) (Thompson & Merchant, 2012). This discussion focuses on GDP and employment associated with automobile manufacturing in the following three categories of the NAICS system:
3361: Motor Vehicle Manufacturing: "Establishments (often called original equipment manufacturers or "OEMs") that primarily assemble entire motor vehicles including cars, mini-vans, light trucks, sport utility vehicles (SUVs), electric automobiles for highway use, fire-trucks, tractors, and buses" (Thompson & Merchant, 2012).
3362: Motor Vehicle Body and Trailer Manufacturing: "Firms that manufacture motor vehicles bodies as well as cabs and trailers. Often these include assembling cars in kit form, special purpose vehicle bodies, stretch limo assemblies, dump truck lifting mechanisms, flatbed trailers, and self-contained Recreational Vehicles (RVs)" (Thompson & Merchant, 2012).
3363: Motor Vehicle Parts Manufacturing: "Firms that do not assemble complete motor vehicles or bodies but focus on manufacturing motor vehicle parts, engines or rebuild motor parts. Such components include hoses and belts, springs, diesel engine parts, brake and electric system components, steering and suspension, and seats and trimming for automobiles" (Thompson & Merchant, 2012).
A brief review of the automobile industry from the perspective of these categories helps to flesh out the enormity of the economic impact, with regard to both GDP and employment. Moreover, as the next section will discuss, the influence that the automotive industry has on GDP and employment is not even across America. This fact is explicative with regard to political pressure employed by regions and states to ensure that they benefit from the automotive industry, and this is particularly true for those regions and states that have had consist and heavy involvement in the industry. In fact, the profits to made in the automotive industry can have a very strong influence on how well the country responds to demands to increase safety and fuel economy and technological improvements. There is a thriving special interest element that has not been factored into the economic and GDP measures associated with the automotive industry. Even if the actual numbers of people engaged in lobbying is small, the transfer of wealth is not insignificant.
Current and future trends in automotive industry. Substantive differences in the relative performance of leading automobile manufactures are evident over the past decade, particularly. These differences are reflected in the employment levels and in the figures showing GDP growth. Economic growth and GDP are not completely independent measures and GDP growth has shown to be a strong indicator of employment growth. GDP growth does, in fact, have a substantive effect in the growth of the employment in the automobile industry. At a more micro level, it is illustrative to examine the overall trend in top-line revenues between 2005 and 2008 for automobile manufacturers; as illustrated, there is a marked downward trend for the Detroit Three compared to Japanese automobile manufacturers.
Figure 1: Revenue of the Top Six Automakers Compared to U.S. New Auto Sales
Source: IBRC, using data from the U.S. Securities and Exchange Commission (SEC) EDGAR database and SEC filings data obtained from LexisNexis Academic, Hoovers, Forbes, and automaker corporate websites. New auto sales data are from the U.S. Department of Transportation, Bureau of Transportation Statistics.
Cost-benefit Analysis for Automakers
When considering the marketability of new car technologies, it is important to recognize that environmental issues, growing urbanization and changing customer behavior are the key issues influencing the global automotive industry. The KPMG International 2012 global survey indicates that the automotive industry continues to face environmental challenges, increasing urbanization, and evolving consumer behavior, all of which point to radical new approaches to future automotive design that will meld technology and mobility ("KPMG," 2012). As the world's economies globalize, there is general agreement among experts that these concerns and product demands are being universalized. Indeed, 75% of respondents in the KPMG International 2012 survey believe that emerging and mature markets will converge by 2025 ("KPMG," 2012).
As the pressure for ever-greater fuel efficiency continues, the industry asserts that the electromobility is the most influential trend in the automobile industry ("KPMG," 2012). Both fuel cells, which appears to have secondary appeal, and batteries are considered to be viable technologies that will become standard options ("KPMG," 2012). Moreover, as city dwellers generate changes in the growth patterns of urban centers and the commute distances shrink in tandem, cars will need to be adapted to particular environments ("KPMG," 2012). Additionally, the universal efforts of municipalities to reduce congestion and pollution will likely result in restrictions on car ownership or, minimally, restrictions on automobile usage. With improvements in public transit in urban areas, the demand for car ownership is expected to decrease -- at least in mature developed countries ("KPMG," 2012). Even though the electromobility trend seems to be robust, there appears to be a move toward more intelligent mobility services, such as car sharing that will become even more evident over the next 10 to 15 years ("KPMG," 2012). Urban-oriented design is considered to be the third most important trend in the automotive industry by the respondents in the KPMG International 2012 survey ("KPMG," 2012).
Affordability is also a central concern of automakers and of consumers who will continue to purchase cars ("KPMG," 2012). These concerns place financing and leasing options at the forefront, particularly in emerging markets where the opportunities for automobile financing and leasing for a burgeoning middle class has not yet been fully developed. The entire field of connected car concepts remains significant for automakers ("KPMG," 2012). Solutions that address the way in which the virtual world and the real world interact with automobiles are expected to emerge as increasingly important ("KPMG," 2012). Moreover, this connected car design concept is expected to reach mass-market levels because of inherent safety and fuel economy issues ("KPMG," 2012).
Profitability is seen by the automobile industry to be inextricably tied to two high-ranking value-added services: Servicing options and warranty options ("KPMG," 2012). Both of these provisions point to the important of after sales activity with regard to attracting and retaining customers ("KPMG," 2012). Retailer profitability is substantively impacted by after sales service of automobiles, but the possibility of differentiation in this arena is difficult and remote ("KPMG," 2012). However, the evolving technology trends in the industry may provide a boon to retailers ("KPMG," 2012). For instance, as data is collected from connected vehicles, the opportunity is made available to identify the servicing needs of vehicles and to schedule servicing appointments in advance ("KPMG," 2012). This enable a degree of personalized service that consumer respond to very positively since it makes them feel as though they are receiving personalized service and, overall, it does make their lives a bit simpler and easier ("KPMG," 2012). These conveniences also apply to businesses in which fleet management is a dominant concern ("KPMG," 2012). A retailer's ability to differentiate through the provision of business class service is also tied to the volume and resultant profitability the retailer will experience ("KPMG," 2012).
The auto industry experiences significant loss due to product recall. In 2010, for instance, Toyota Motor company reported that the massive recalls of their vehicles that were the result of gas pedal problems could cost the company a total of $2 billion (Reuters, 2012). Moreover, also in 2010, General Motors (GM) announced that it would recall at least 38,000 of its vehicles due to a crash risk, which would result in a substantial blow to profits (Reuters, 2012). Consumers are growing increasingly impatient with automakers' recalls of vehicles and litigation is rising -- particularly against a background of the rather terrifying failures of vehicle electronic systems that put peoples' lives in peril (Reuters, 2012). The news is regularly flooded with automobile recall information. Consider the summarization below and the fiscal implications on the industry, plus any associated losses as a result of the lost work time and other inefficiencies. Toyota Motor Corp recalled more than 7.4 million vehicles worldwide when it learned that a faulty power window switch could be a fire hazard (Reuters, 2012). This was one of several setbacks for Japan's biggest automaker, including a series of recalls of more than 10 million vehicles in 2009 to 2011, and fairly crippled the automaker's attempts to restore its reputation for quality (Reuters, 2012). Moreover, Toyota's supply chains were crippled by Japanese tsunami and by the floods in Thailand (Reuters, 2012). As recently as March 2012, BMW announced that it was recalling about 1.3 million cars globally problems with a battery cable cover located in the trunks of 5-Series and 6-Series BMWs built between 2003 and 2010 (Reuters, 2012). In September 2011, Honda announced plans to recall 960,000 Fit subcompacts and other models across the globe in order to repair defects that were found in malfunctioning power window switches and other components (Reuters, 2012). In May 2011, Honda was forced to expand its earlier recalls of both Honda and Acura vehicles when it learned that airbags that could deploy with too much pressure (Reuters, 2012). This risk of airbag caused injuries or fatalities resulted in the recall of more than 833,000 additional vehicles built between 2001-2003(Reuters, 2012). As Honda widened its airbag recall four different times since the first such recall in 2008, the number of vehicles affected has reached 1.65 million (Reuters, 2012). In January 2011, Toyota announced a recall of more than 1.7 million vehicles globally, which advanced its recall numbers to nearly 16 million since late 2009(Reuters, 2012). In October 2010, Toyota recalled a total of about 1.66 million vehicles that had primarily been sold in Japan, the United States, and China (Reuters, 2012). The recall was in response to problems with brakes and fuel pumps (Reuters, 2012). In October 2010, BMW voluntarily recalled 350,000 cars worldwide when it discovered that there were possibly problems with brakes in the 5-Series, 6-Series, and 7-Series models that were built since 2002 (Reuters, 2012). In August 2010, Toyota recalled 1.3 million Corolla and Matrix cars that were built from 2005 to 2008 in the United States and Canada (Reuters, 2012). In June 2010, General Motors announced that they would recall 1.5 million trucks, crossovers, and cars that were built from 2006-2009 due to the fact that a heating unit for the windshield washer fluid could catch fire (Reuters, 2012). In March 2010, General Motors reported the need to recall 1.3 million compact cars that were manufactured between 2005-2010, including the Chevrolet Cobalt, the Pontiac G5, the Pontiac Pursuit, and Pontiac G4, with each model located in a different country (Reuters, 2012). In January 2010, Toyota had to call back 5.6 million vehicles over a series of recalls in the United States because of sudden acceleration in some vehicles.
Business vs. ethical considerations. Making the right decision in business often comes down to determining if a decision will be guided by ethical considerations or profit margin and corporate reputation. Occasionally, a business dilemma will be solved in a manner that bears the earmarks of deliberate, conscious top-down corruption. An illustrative example is the case of the Ford Pinto. Ford designed and manufactured the compact Pinto during the 1970s. However, the car was plagued by as serious problem -- if it was involved in a rear-end collisions, the Pinto would leak fuel and explode into flames. Before Ford had issues a formal recall to correct the dangerous problem, more than two dozen people had been injured or killed in fires that followed the occurrence of a rear-end collision. Follow-up investigation revealed that Ford had responded to intense competition from Volkswagen and other small-car manufacturers by rushing the Pinto launch into production. In fact, in crash tests before the Pinto was actually in production, Ford engineers discovered the potential hazard presented by the ruptured fuel tanks. Nevertheless, with the assembly line ready for the production, Ford's executives decided to proceed with the launch. The decision was a deception driven by greed and it was deeply unethical. Consumers who later learned of the debacle considered it to be representative of the automakers' callousness and dishonesty. However, if one separates ethical considerations from business decisions, the choice made by Ford leaders could well be considered prudent.
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