Ford Pinto Ethics in Capital Budgeting the Value of Life

Ford Pinto

During the 1970s, Ford designed and manufactured an inexpensive passenger vehicle known as the Pinto which exploded when the vehicle was rear-ended and the gas tank was ruptured. Senior management became aware of this design failure after a number of serious injuries and fatalities occurred involving the car. Management then requested a cost-benefit analysis to determine the least expensive way to deal with the problem. It found that the cost of fixing the design problem with a global recall of all Pintos would be an estimated $137 million. On the other hand, the cost of dealing with litigation and paying out settlements for deaths and injuries resulting from exploding gas tanks was estimated to be $49.5 million. Therefore, the estimated net benefit savings in not fixing the design problem was $87.50 million. Thus, Ford chose not to implement the design, which would have cost $11 per car, even though it had done an analysis showing that the new design would result in 180 less deaths.

Questions

1. Do you think Ford approached this question properly? The question is should Ford go ahead with the standard design, thereby meeting production timetable but possibly jeopardizing consumer safety? Or should they delay production of the pinto by redesigning the gas tank to make it safer and thus concede another year of subcompact dominance to foreign countries?

Ford should have delayed the production of the Pinto for many reasons. Even if one accepts the validity of a cost-benefit analysis that places value on human life, Ford erred when it used a value for human life that was too low (Birsch and Fielder, 1994). Ford had an internal memorandum where the value of a human life was approximately $200,000. This was influenced, perhaps by a 1972 National Highway Traffic Safety Administration report which used a human life value of $200,725. Most of this value was based upon future productivity (or earnings potential) losses. Although cost-benefit analysis may be technically legal, jurors have demonstrated a deep- seated prejudice against the use of them in situations involving a potential loss of human lives (Crocker). And, jurors are making awards well above the $200,000 per life estimate used by Ford.

For example, jurors awarded $4.9 billion to six people burned in an accident involving a 1979 Chevrolet Malibu.

Effective crisis management is the art of protecting a company's perceptual assets (The changing environment for crisis management). A company has perceptual assets in much the same way that it has tangible assets, human assets and financial assets and that these perceptual assets have value to a business enterprise. In time of a crisis, the primary objective of any company's management should be to protect the value of those assets. The bad publicity and damage to reputation suffered by Ford is hard to quantify, but the harm was considerable.

2. What responsibilities to its customers do you think Ford had? Were their actions ethically appropriate?

There are several ethical reasons why a cost-benefit analysis should not have been used in Ford's decision (Palmiter, 1999). First, it seems unethical to determine that people should be allowed to die or be seriously injured because it would cost too much to prevent it. Second, some things just can't be measured in terms of dollars, and that includes human life. In making a decision based on numbers, Ford allowed people to die or be injured even though they could have prevented it. From a human rights perspective, Ford should have regarded individual safety and made the decision to make adjustments to the fuel system.

3. Would it have made a moral or ethical difference if the $11 savings had been passed on to Ford's customers? Could a rational customer have chosen to save $11 and risk the more dangerous gas tank? Would that have been similar to making air bags optional? What if Ford had told potential customers about its decision?

It would not have made a difference if the $11 savings had been passed on to the customers because it would still not change the fact that Ford is offering an unsafe car. No sane customer would choose to save $11 to drive a care that would place their life at risk. This scenario would not have been similar to making air bags optional because Ford has a design failure that was causing serious injuries and fatalities and, therefore, isn't comparable to a preventive safety device such as air bags. Even if customers were aware of Ford's decision, Ford's reputation would still have been marred and it would still be responsible for offering a product that it knows isn't working properly.

4. Should Ford have been found guilty of criminal homicide in the Ulrich case?