IDH 3034 Dynamic Tensions Fall 2019

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Case Analysis #2 DUE November 7, 2019 by 5:00 pm (Canvas upload) 5-page maximum (double-spaced) 100 points (10%) Instructions: Please read and analyze the following case, Ford Pinto: Is Cost-Benefit Analysis Allowed in Ethical Decision Making? using the case analysis outline we have been working with. Be sure to link/discuss relevant concepts from our discussions/readings and consider/address the following questions within your case analysis:

1. Why did Ford not install the protective rubber bladder? Was it wrong not to? Should it have been obvious to Ford that it was wrong not to install it?

2. Is the use of cost-benefit analysis allowed at all? Under what circumstances?

3. Is it ethical under all circumstances to try to be more cost conscious than competitors? Are there limits?

4. What types of “cost” should companies consider?

5. Discuss the general question of the compatibility of ethics and profits.

CASE

Ford Pinto: Is Cost-Benefit Analysis Allowed in Ethical Decision Making?

Ford Pinto – The Problem and Background In May 1968, Lee Iacocca, vice-president of Ford at the time, had the company develop a new subcompact car. The major reason for this decision was the increased popularity of smaller Japanese cars (and others, like the Volkswagen Beetle) in the US market. The new Ford model Pinto was developed within two years and introduced into the market in 1970. It was produced until 1980 and eventually sold fairly well (approximately 3.1 million cars sold over the entire life span of the model). During product development, several conditions had to be met. The car was meant to cost no more than $2000, which led to a tight calculation (approximately $12,000 in 2017; to compare prices in the 1970s to today, multiple by six). In order to save money, the design was to be kept as simple as possible. One consequence was the design of the gas tank, which was located behind the rear wheel and neither isolated nor protected against leakages caused by accidents. This problem in the structural design meant that in rear-end collisions at relatively low speed (around 30 mph), gas could leak, catch fire, and cause explosions. This type of accident with a resulting fire happened

IDH 3034 Dynamic Tensions Fall 2019

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numerous times and was also covered widely in the media at the time (there are several videos on YouTube showing exploding Ford Pintos, e.g., https://www.youtube.com/watch?v=1mqu- gRqt3g). For further information see Birsch and Fielder (1994). The Ford Cost-Benefit Analysis The decision-making heuristic of a cost-benefit analysis can roughly be summed up as follows: first, you gather possible solutions to a particular situation. Second, you list potential consequences of each alternative solution and subsequently compare and evaluate them on a scale. Those evaluated negatively will be costs, and those evaluated positively will be benefits. Third, you sum up costs and benefits on a balance sheet and choose the solution with the highest balance. The problem of the gas tank was known to the company before production of the car began. Ford engineers had identified this weakness and come up with a solution: The tank could have had a rubber bladder installed, which would have cost $11 per car. However, Ford managers and statisticians calculated that 12.5 million Ford Pintos were planned to be produced, and at an additional cost of $11 per car would have meant a total additional expense of $137.5 million. On the other hand, if the rubber bladder was not installed, Ford statisticians calculated the following “cost”: they estimated that 2100 burnt vehicles would yield 180 dead and 180 seriously injured people. Their “value” was also calculated, in the following way: a dead person was given a value of $200,000 (an official value used by the US government, not exclusive to Ford). Ford was believed to have referred to a study released by the National Highway Traffic Safety Administration (NHTSA), where a “social cost” of fatalities by components was calculated at $200,725 per fatality. For seriously injured people, a value of $67,000 used by insurance companies was calculated, and a burnt car was given an average value of $700. Thus, this calculation yielded a total cost of $49.5 million dollars. So Ford drew the conclusion that not installing the protective rubber bladder would be $88 million cheaper – and indeed made this decision. The Aftermath Estimates of deaths caused by Pinto vary across investigations. In a 1977 article that greatly increased the negative publicity of Ford Pinto, the journalist Mark Dowie gave an estimate of between 500 and 900 fire-related deaths in total. Reports from Ford itself and NHTSA calculated about three to seven unnecessary deaths per year, which amounted to a total of between 30 and 70 deaths, as well as around 120 serious injuries over the entire planned production time of the car. Ford went through a series of lawsuits and declining sales due to bad publicity, which was to some extent also caused by the pictures of burnt-out Pintos in the media. Still, the company did not recall the defective Pintos to improve the tank safety until after implementation of a new safety regulation as well as a public investigation by the NHTSA in 1977 and 1978. Thus, the company faced legal as well as ethical problems: Ford was the first US company to be charged with manslaughter, in 1978. No verdict was issued; however, half a million Pintos were recalled in 1978 and upgraded, with an estimated cost of between $20 million to $40 million. In

IDH 3034 Dynamic Tensions Fall 2019Instructions: Please read and analyze the following case, Ford Pinto: Is Cost-Benefit Analysis Allowed in Ethical Decision Making? using the case analysis outline we have been working with. Be sure to link/discuss relevant concepts from our discussions/readings and consider/address the following questions within your case analysis:

1. Why did Ford not install the protective rubber bladder? Was it wrong not to? Should it have been obvious to Ford that it was wrong not to install it?

2. Is the use of cost-benefit analysis allowed at all? Under what circumstances?

3. Is it ethical under all circumstances to try to be more cost conscious than competitors? Are there limits?

4. What types of “cost” should companies consider?

5. Discuss the general question of the compatibility of ethics and profits.