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Pinto

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THE PINTO CASE

A SHORT SUMMARY

In the early 1960s Ford’s market position was being heavily eroded by competition from domestic and foreign manufactures of subcompacts. Lee Iacocca, then President of Ford, was determined to regain Ford’s share of the market by having a new subcompact, the Pinto, in production by 1970. Then Ford engineers crash tested an early model of the Pinto. They found that when the automobile was struck from the rear at 20 miles per hour, the gas tank regularly ruptured. Stray sparks could then ignite the spraying gasoline, engulf the car in flames and possibly burn the trapped occupants.

Nonetheless, Ford management decided for several reasons to go ahead with production of the Pinto as designed. First, the design met all applicable federal laws and standards then in effect. Secondly, the Pinto was comparable in safety to other cars being produced by the auto industry. Third, an internal Ford study indicated that the social costs of improving the design outweighed the social benefits. According to the study it was estimated that a maximum of 180 deaths might result if the Pinto design were not changed. For purposes of cost/benefit analysis the Federal government at that time put a value of $200,000 on a human life. Consequently, the study reasoned, saving 180 lives was worth about a total of $36 million to society. On the other hand, improving the 11 million Pintos then being planned would cost about $11 per car for a total investment of $121 million. Since the social cost of $121 million outweighed the social benefit of $36 million, the study concluded that improving the Pinto design would not be cost-effective from a societal point of view.

Questions: 1. Identify the relevant issues for decision making. 2. Is Pinto Management’s decision correct under the conditions? Explain.

1. Identify the relevant issues for decision making.

The Pinto case is interesting from a number of perspectives. First, it occurred during a period when large corporations did not generally take environmental and societal considerations into account when constructing decision matrices. By basing the decision solely upon an uncited Federal government source for the value of a single life, Ford failed to consider the impact of brand degradation that could occur through negative press; something that ultimately could prove more costly than the simplistic cost-benefit analysis shown above.

It is also interesting to note that the number of lives cost from this issue was perhaps less than the hundreds reported from anecdotal media. In 1991, Gary T. Schwartz wrote a paper for the Rutgers Law Review noting that according to the National Highway Traffic Safety Administration the number of deaths directly attributable to this issue was closer to 27[1]. He also notes that the cost-benefit memo from which the numbers were derived were not used internally by Ford at the time, but were attached to a note to the NHTSA about proposed changes to regulations. Furthermore, the defect itself was fairly commonplace in cars at the time and was not unique to the Pinto.

2. Is Pinto Management’s decision correct under the conditions? Explain.

The decision as presented in the case study was incorrect as it showed that Ford failed to consider what financial impact such negative publicity could have on the company as a whole. However, given that class-action suits against automakers at the time was not commonplace and given that the deaths attributable to this issue were 27 out of about 3 million cars built, the decision was correct. Statistically, there were probably as many deaths in Pintos from other issues and more deaths in other car models from other issues that were never identified or publicized to this degree.

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[1] Schwartz, Gary T, “The Myth of the Ford Pinto Case”, Rutgers Law Review, Vol 43, p1013-1068, 1990-1991

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Source: Adopted from the works of Reidenback and Rebia, 1991, p. 2742 Figure 1

AMORAL • Maximum profitability at all costs • Owners and managers are key stakeholders

LEGALISTIC • Follows the letter of the law. • What is legal is ethical

EMERGING ETHICAL • Seeks a balance between ethics and profit • Firm has ethical artifacts such as codes an ethics committees

DEVELOPED
ETHICAL
• Driven by carefully Thought out principles

RESPONSIVE • Seeks out ways to help the local community. • Recognizes socially responsible behavior in the best economic interest of the film

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