I’ve watched the Milton Friedman video several times in which he debates a young socialist on the issue of the ethics of Ford producing the Pinto. But, to my knowledge, the forums have not directly discussed this specific issue–one which is constantly brought up as “proof” of why the market will murder its unwitting consumers any chance it gets and cannot be trusted to self-regulate.
How can Ford producing the Pinto be easily justified to those not acquainted with the ideas of the free market?
What’s wrong with how Friedman addresses it? [Pinto discussion is in the second video, as well as here.]
The Pinto safety issues like the safety issues at GM earlier are good examples of how late government gets into the fray on consumer safety. And in both of these cases, had there been more competition in the auto industry instead of GM-Ford-Chrysler and all others, then GM and Ford would have been a whole lot more responsive to their customer complaints and safety issues prior to producing these crappy products.
Look at the difference between then and now, It seems to me that GM and Ford are much more responsive to reports about product safety and about the concerns of their customers.
The reality of the auto and light truck market places is that consumers are extremely brand loyal. If they switch then they switch for good. If GM and Ford want to survive the next 20 years without being run as a bureau of the Federal Government and therefore always on the brink of bankruptcy, then they better be even more responsive to their customers.
@JJ, nothing whatsoever is wrong with Friedman’s point, I just wanted to see it reworded and expounded upon. Really, I just wish there was a statist that wanted to argue the counter point some more so I could watch. But I just emailed my Yale-pedigreed torts professor asking her opinion, so I’ll post that later to discuss.
But I suppose the one objection to Friedman’s argument is simply–“well, yeah, I’m not arguing a question of whether the subjective principle of applying an amount of value to a human life exists, but I believe we can put an objective value on it based on a judicial analysis”
Response:
“…That makes absolutely no sense.”
I watched this months back. As I remember, the audience member was questioning Ford’s monetary calculation as to whether to improve the vehicle or pay the legal costs for injuries, saying that putting a value on the safety of the people inside was wrong. Then Friedman turned it around and asked if he’d be asking the same question if the improvement wasn’t tens of dollars per vehicle, but a million dollars (to which the audience member presumably wouldn’t have brought the issue up). The point I got was that it was merely an issue of how much value the questioner put on safety, with the cost falling below the benefit, rather than an issue of principle.
In the industry there are things called “zero days”. These are issues known to the manufacturers before a good is marketed but which aren’t addressed for lack of time and/or funds.
Ford knew about the Pinto’s propensity for catching fire (and, much more damning, about the well known gearbox issues which caused even more fatalities) but, cynically, did the math and found it was just cheaper to keep on producing the car without alterations and settling the lawsuits as they came than recalling the hundreds of thousands of cars sold to 1977, when the issue came into open knowledge and NHTSA intervened. Following the First Oil Crisis Ford (like other US manufacturers) Ford saw sales of their big gass guzzling V6 and V8 plummet and, with the Japanese becoming more and more threatening, desperately needed the Pinto to stay in production, unchanged, to keep the factory doors open.
While superficially this may sound reasonable, Ford cannot be excused from a business point of view for its behavior.
First, selling a known defective products to customers is a sure way of ensuring they will never buy from you in the future. Just look at the sales of Honda’s and Toyota’s after the Pinto issues became public knowledge. In the second half of the '80s Ford came so close to going under due to their tarnished image they actually started fitting Yamaha engines and gearboxes to some of their Taurus models and advertising the fact. And as much as I hate saying this (because most people deserve only to be tied to a missile loaded with high explosive and shot at the Moon), the customer is one firm’s most valuable asset. Customers need to be kept happy: unless you have a government-sanctioned monopoly they can always go and buy from somebody else. They did so after the Pinto: they bought Honda’s and Toyota’s in huge numbers. Had Ford depended only on their US operations they would have required a government bailout (like Chrysler) or would have deservedly gone under because customers were dumping their products for the competition’s.
Second, Ford had a ready solution for replacing the Pinto: the Europe-only Cortina and Taunus, which were absolutely trouble-free and could be manufactured in the US no problem. Why Ford didn’t do this? Easy: old fashioned greed. Manufacturing a Taunus was more expensive than manufacturing a Pinto. US-only models tend to be considerably cheaper to manufacture than Europe-only models and much cheaper than Japan-only models. Why is that? The US market has many peculiarities but one stands up above all others: cars need to be cheap. Offering the Taunus at the same price as the Pinto would have cut into Ford’s profits (though they would have still made money on every car sold) and maintaining the same profit margin as in Europe would have meant raising the price too much.
Third, every company needs to have an image. Honda and Toyota, for example, are synonmous with unbelievable reliability and good value for money. Both companies will go to incredible lengths to preserve this image and, if possible, improve it. What image was Ford trying to build with the Pinto? “Yes, we know there’s a statistically unpleasant high chance the car will kill you but look how cheap it is!”.
Fourth, integrity. Soichiro Honda was well known for telling his employees they had to design vehicles they would want to drive/ride themselves. And being a crazy old man he is well known for having abused engineers and designers both verbally and physically when he discovered some defect which threatened his firm’s image and his customers’ satisfaction. Obviously the Ford management had a much more laidback attitude or, much more bluntly, they lacked integrity.
The fact that there’s no profit to be had from dead customers (unless you run a funeral home) isn’t proof enough?
The crux of the complaint seems to be that Ford KNEW that the car would result in 200 deaths a year? Because people always bring up the Pinto argument, but they don’t bring up the fact that ALL cars have safety defects. In fact all products in general are sold with known defects. If you argue that products shouldn’t be sold with defects, you’re living in magical rainbow unicorn land.
But, what if Ford hadn’t know? Would that make this argument go away? People have an irrational indignancy for pre-mediated death as opposed to “accidental” death. Rationally however, the resultant loss is the same - dead people. This distinction is trying to punish people for assessing the risk of their product. The end resut is that you will force companies NOT to assess risk - so everything will be an accident. Is that what you want?
I have to stop at the arbitrary line between defect and mere safety hazard. Cars are dangerous. There are countless things in cars that could be made more safe at an increased cost. Every single one is a tradeoff between cost and safety, at the point that the seller thinks is the best balance for a buyer’s need for safety and need to spend money on other things as well.
The problem with the Pinto is it was badly engineered. Really badly engineered. It took 22 months to go from concept to production. Under such pressure, things can and will go wrong. I didn’t start my reply by quoting the “zero day” weakness at random. If you buy software regularly, “zero day” is a common occurence. Some developers will even develop a patch while the software is being distributed to retailers that will be immediately available upon release date. But software is relatively cheap to fix. Cars aren’t.
If you have an eye on the automative industry, you may have heard the big issues the BMW E90 3-series fuel pump (especially the models fitted with the N54 engine) had. It led to a colossal p***ing match which saw lawsuits fly in all directions. In the end the courts found the fault laid with the fuel pump manufacturer, Siemens VDO (bought by Continental in the meantime), and BMW was awarded a seven figure compensation. However the courts also found BMW guilty of not having carried out extensive tests and having rushed the car into production but further lawsuits were stalled by an extra-judicial agreement: BMW instituted a ten year warranty on the fuel pump itself and, outside this time frame, will provide the spare fuel pump “at cost”. Expect more lawsuits to follow when BMW will not honor this commitment.
On the issue of “not knowing”, yes, it’s possible, but that usually hints at the fact the vehicle had not been tested extensively enough before being released. For example Honda was really taken aback when their brand new VF750F started to suffer a series of catastrophic top end failures. I could detail exactly what was wrong with the bike but since it would bore the leggings out of anybody without some mechanical knowledge let’s just say it took Honda many months to address the issue and the bike is known to this day as chococam. They really had no idea what was going on and their attempts at fixing it (for example by increasing the frequency of oil changes) show they were basically grasping at straws. In the meantime Honda worked hard to keep customers happy, for example by authorizing field reps to buy bikes back from customers, no questions asked.
Ford simply shrugged it off.
So if you were a judge, free from stare decisis, how should you determine whether a products liability case should be ruled in favor of the manufacturer or consumer?
Say you’re presiding over a Pinto fatality case where a man was rear ended and killed by the exploding Pinto tank. The decedent’s estate is suing under a theory of defective design in products liability. What result?
Does it make a difference if the man negligently runs off the road and the tank explodes?
It’s very hard to play the “you are the judge…” game seriously without having some background on the legal system and environment the case is taking place in.
The first thing to do would be to order a technical analysis by an independent expert (with no links to both parts). The expert analyzes both the wreck and a factory fresh Pinto and finds out the differential and the fuel tank design are both poorly designed and, in case of a rear end collision, can cause a massive fuel spill which in turn will result in a fire.
Next thing is to look up the existing legislation and see if there are any norms concerning this. Now there are, but back in the late '60s-early '70s there weren’t any. Technically speaking Ford was thus acting according to present laws (or lack of).
And now comes the tricky bit. In most legal systems, the defendant is innocent until proven guilty. Up to this point Ford is guilty of neglect but not of a pre-meditated crime: it means a considerably lower reparation sum. But what if the judge decides to look deeper into it and see if Ford knew about the issue and did nothing to address it? However to do this, the judge needs tangible evidence: an internal memo or a key witness ready to provide detailed information that can be cross-questioned by both parts and be proven reliable. To the best of my knowledge no judge ever ordered the police to search the Ford company HQ for evidence and no key witness ever stepped forward to volunteer information. There are strong hints Ford knew about the issue (see the much discussed memo attached to their communication with NHTSA) but nothing more.
In short the legal system found Ford guilty of neglect: they didn’t break any rules on purpose but due to their carelessness people died and got injured. This doesn’t need to be the truth but, apparently, both the victims’ families and the legal system were satisfied by this explanation and the punishment applied to Ford.
If you shift to the market, it found Ford guilty. As said before it rewarded the Japanese and punished Ford. There’s no doubt many other factors were at play (for example the Japanese cars’ much superior reliability and better fuel consumption) but the Pinto fiasco surely had a hand in it: in 1975 the Honda Civic cost $2200 (thank you, US Federal Reserve) or 10% more than the cheapest Pinto, was equipped with a considerably smaller engine (1200cc vs 1600cc) but it outsold the Pinto. The same applies to the much more expensive ($2850 basic price) Datsun B210. In short consumers were shunning the larger engined, cheaper Pinto and buying more expensive Japanese cars.
Truth to be told this whole fiasco is just part of the general debacle of the US car industry in the '70s. The Chevrolet Vega (designed to compete with the Pinto) never acquired the same sinister fame as the Pinto but is emblematic of this period. Sloppily made, fitted with a relatively large and inefficient engine, it was designed to be brutally cheap and provided none of the amenities the Japanese cars (and the VW Rabbit/Golf) had. But that’s a story for another day, maybe.
Thank you for your response, very insightful.
I like to conceptualize it like a game of Jenga…
When did regulations and unions begin destroying the competitiveness of the US auto industry?
Kakugo, you are definitely knowledgeable about the car industry and show it by write large wordy posts about how sucky the US car industry is, all the while never proposing a theory for why or saying how to fix it. I’m sure everyone here agrees - they all suck! What’s your point? Are you proposing more regs, more bailouts, more unionisation, more protectionism, more mercantilism - the thing that got us here in the first place?
Technically speaking the US car industry was on a downward slope before the first heavy round of legislation was implemented under Nixon.
In the '50s Honda (still producing just motorcycles) and VolksWagen invested very heavily in technologies which allowed their vehicles to be assembled even by unskilled labor and still maintain a steady high quality. Honda also invested very, very heavily in light alloy injection molding while everybody else was still using sand casting on large scale. Starting with the late '50s-early '60s the Japanese started applying statistics to improve quality control. The idea was nothing new (it had originally been developed by Motorola) but it was the first time it was implemented on such a large scale. By 1968, the year Japan really heated up the so called motorcycle wars and Japanese cars started arriving in Europe, Japan had a definitive qualitative edge over all competitors, even the Germans. Sure, there was no way a Toyota Corona could outaccelerate a Ford Mustang 402 or outturn a Lotus Seven, but it started every morning and didn’t require continous (and expensive) maintenance just to stay on the road.
In the meantime what had the US car industry done? Nothing. Pretty much like the British magnates who owned Triumph, Norton and BSA, their US homologues had laughed at the “rice burners from Japan” and continued to produce more of the same and in the same fashion. The US public associated small cars with lightweight sports cars from Britain, and these were not seen as a meanignful threat by the US car industry: these were aimed at a market segment they had no interest in and, if possible, were even more unreliable than their US counterparts.
In 1960 Buick tried to differentiate itself from the rest by introducing a revolutionary light alloy small block 3500cc V8, the 215. However quality control issues and political pressure condemned it to the scrap heap after just one year. By political pressure I mean the steel workers’ unions feared the engine may prove so successful that other manufacturers may soon follow Buick’s example and hence cut into their business (engines at the time were mostly cast iron), hence they applied pressure through the UAW. The British picked the 215 from the scrap heap for pennies and turned it into one of the most successful engines of all times: the Rover V8.
1969 is usually seen as the high water mark of the US car industry. It was on downward trend in 1971 already when the first piece of safety legislature (bumper crash test) was introduced. The First Oil Crisis (1973) simply hit a nail that’s had already been laid.
There are many paralles between the US car industry and the British motorcycle industry. Then why didn’t the former followed the faith of the latter? A few reasons. First, the US government effectively helped domestic manufacturers by slapping high tariffs on imports (and later by bailing them out directly). That’s why a Honda Civic cost so much more than a Ford Pinto. Second, the US car manufacturers always had a strong credit line, something the British lost in the late '60s. US banks were always ready and willing to lend money to domestic manufacturers for political reasons, not because they believed them to be a good investments. Part of the inflation which defined the '70s went into bailing out GM, Ford and Chrysler indirectly. Last but not least, US car manufacturers have always had an extremely faithful domestic following. British and Italian motorcycle owners jumped on Honda and Kawasaki en masse as soon as they realized their products were so superior. By contrast many, many US car owners kept on “buying American” even when the product offered was so inferior to the competition.
Just wanted to throw in a point about ‘The Big Three’ were monopoly men long before they railroaded Tucker, working to eliminate the electric rail car in the 20s.
Not sure if the fact that dozens of automakers and engine suppliers went under during the depression and WWII is relevant. Competition never came back until the Japanese waded through Nader’s redtape. Not that they’re any better. All the major auto companies seem to think they can just lobby their way to prosperity.
Kakugo, again, you wrote a bunch of text that made no point. What is it!!? More government? Less government? What? Oh, and write it one sentence.
It means that government is not the only issue. Bad management and people’s personal choices (consciously buying a much inferior product for emotional reasons) carry an extremely significant weight.