From 1971 to 1980, Ford Motor Company marketed the Pinto, a subcompact car. There were major problems with the early models leaking fuel and catching on fire after relatively low-speed, rear-end collisions easily ruptured the gas tanks. The leaking fuel sometimes started fires and explosions that tragically led to fatalities or serious burns. Many victims or families of victims of these Pinto fires sued Ford Motor Company in attempt to recover damages for the effects of wrongful or negligent actions. Ford tried to settle cases out of court, but some of them led to trials that produced negative publicity for the company.
Internal documents proved that Ford was aware of the safety issues with the Pinto gas tanks. What's more, Ford had access to a new design that would significantly decrease the possibility of the Pinto exploding. The company made a conscience decision not to implement the new design, even though an analysis had been done to determine that it would have cost $11 per car.
Portrait of Henry Ford (ca. 1919)
English: Ford Motor Company Headquarters, Dearborn...
1961 Ford H-Series trucksFurther analysis determined that the new design would result in 180 fewer deaths.
The company defended itself and felt justified for not implementing the design change on the grounds that it used the accepted risk/benefit analysis to determine if the monetary costs of making the change were greater than the societal benefit. This risk/benefit analysis is a legal practice created out of the development of product liability. The analysis is used to determine if the expected harm exceeds the cost to take the precaution. If the expected harm exceeds the cost, then the company must take the precaution. If the precaution costs more than the expected harm, the company does not have to implement the precaution.
The estimated cost for the production change was $11 per vehicle. This $11 per unit cost applied to...