Cost/benefit analysis, qualitative factors, uncertainties In 1977, public outcries
arose when a memo written by Ford Motor Company executives was published.
According to the memo, Ford continued to produce and market the Pinto automobile,
even after company crash tests showed that its gas tank would burst into flames when
rear–ended at low speeds. The memo indicated that Ford’s managers used a
cost/benefit analysis to make their decision. The analysis compared the expected
benefit of avoiding future lawsuits filed on behalf of burn victims with the expected
cost to recall and fix the defective gas tanks.
Beginning in 1977, automobiles sold in the United States were required to meet new federal standards requiring automobiles to withstand a rear–end collision at 30 miles per hour without causing fire. The Pinto met this standard. However, following publication of the Ford memo, the U.S. media became extremely critical of Ford’s actions. This criticism led to an investigation by the National Highway Transportation Safety Administration (NHTSA), which concluded that the Pinto gas tank represented a safety defect. Ford then recalled 1.4 million Pintos, including 1971–1976 models that were built before existence of the federal standard.
A few months before the recall, a civil jury in California awarded a burn victim a record $126 million. However, a judge later reduced the award to $6.6 million. Ford was indicted
for reckless homicide and criminal recklessness by an Indiana grand jury after the burning death of three teenage girls. In this case, Ford was found not guilty (Lee, 1998, p. 391). Overall, Pintos were linked to more than 60 deaths (Winter, 2000).
Although Ford redesigned the fuel tank for the 1978 Pinto, sales of the model declined
callous and unconcerned about safety, reliability, and fuel efficiency.
In a 1998 analysis, University of Delaware Sociology and Criminal Justice professor
Matthew T. Lee pointed out that the Pinto case occurred during a time of change in federal
safety regulation and public expectation. He revealed that cost/benefit analyses had
commonly been used by managers of automobile companies as well as NHTSA. His
research indicated that NHTSA’s conclusions in the Pinto case represented two important
deviations from prior regulatory practice. First, during its investigation it held the Ford
Pinto to a level of performance that was more stringent than existing federal safety
guidelines. Second, NHTSA staff used the societal value of human life, rather than the
commonly used average corporate payout, in their cost/benefit analysis. In addition,
NHTSA staff had focused their investigation on Ford because of the public outcry over the
Pinto. Other automobile companies were not held to the same safety standards.
SOURCES: M. Lee, “The Ford Pinto Case and the Development of Auto Safety Regulations,
1893–1978,” Business and Economic History, Winter 1998, pp. 390–402; and D. Winter,
“Together Again in the Headlines,” Ward’s Auto World, October 2000, pp. 57–58.
REQUIRED: • A. Had you previously heard about the gas tank problems of the Ford Pinto? If
so:
• 1. Describe your previous impressions of the Pinto problem.
• 2. In what ways do these impressions create potential biases as you
address this case?
• B. Identify several ethical issues in this case—in other words, areas of
conflicts of interest between stakeholders.
• C. What were the opportunity costs (qualitative and quantitative) that Ford’s
managers were apparently overlooked in valuing the cost of fixing the gas tanks
during their cost/benefit analysis?
• D. Ford’s managers measured the potential benefit of eliminating the gas
