Did GM Pull A Pinto?

800px-Chevrolet_Cobalt_LT_sedan250px-Ford_PintoBelow is a slightly expanded version of my column that ran today in the Los Angeles Times on the growing scandal over the defective ignition switches on the Cobalt and other cars produced by General Motors. Just this weekend, it was reported that CEO Mary Barra received a memorandum on a steering problem with the Saturn Ion on a different problem as early as 2011, but did not order an immediate recall. What is now clear is that the company spent years discussing the defect. Two engineers were recently put on paid leave by the company — a move viewed as too little too late by many, including some who want to see criminal charges. Ironically, I have been teaching the Pinto case in my torts class this week and today I will be teaching my new material on the GM Cobalt as an extension of that material.

Some have charged that GM was aware of this defective design before it lobbied the government for a massive bailout in 2009. The government handed over $49.5 billion to the automaker and the public ultimately ate a $10.5 billion loss when our shares in “Government Motors” were finally sold off in 2013. In addition to billions in losses, the public got cars that could put their lives in danger the moment they turned the ignition key.

In the late 1960s, a charismatic vice president at Ford Motor Co. decided to bring out a low-priced car that could be produced for little money while bringing in huge profits. The executive’s name was Lee Iacocca, and the Ford Pinto he championed became one of the most infamous models in U.S. automotive history. Why? Because to save money, Ford released a car that could explode in even low-speed rear-end collisions.

The Pinto continues to hold an almost parabolical meaning in law schools in showing how profits can overwhelm principle in cost-benefit calculations. Even a savings of a couple of bucks per vehicle can be viewed as a prohibitive cost when multiplied over the course of a production. Ford Pinto showed how such calculations can detach executives from true meaning of the “benefits” on a ledger as measured in humans victims. Deaths and burn injuries are translated into numbers that become a cost of doing business like rejecting plush seating or a better sound system.

Screen Shot (YouTube)
screen shot (YouTube)
220px-Lee_Iacocca_at_the_White_House_in_1993The Parable of the Pinto may need to be updated. Almost 50 years after the Ford scandal, another Detroit CEO, Mary Barra, recently sat before a congressional committee answering withering questions about the Cobalt, a low-cost car produced by General Motors with a design flaw that the company acknowledges was responsible for more than a dozen deaths. For those of us who teach the Pinto case, the similarities are unsettling.

As with the Pinto, the problem with GM’s Cobalt involved a design flaw — in this case, a faulty ignition switch that could shift, under certain circumstances, from the “run” position to the “accessory” position while the car was being driven. This led to a loss of power and a shutdown of both the power-steering and air-bag systems. Documents indicate that GM knew of the defect as far back as 2004, but the company did not recall vehicles until February of this year. By that time, the flaw had been implicated in at least 13 deaths and 31 crashes. Some reports put the value of the part needed to fix this problem at as low as 57 cents. That means that the true cost was simply in a retooling or a recall for the company to install the fix.

When GM finally got around to recalling the cars, it told customers not to use heavy key chains with other keys on the ring. However, Barra was recently informed by an attorney that his client Laura Valle was driving her recalled 2007 Chevrolet Cobalt without such a chain. Nevertheless, the ignition suddenly cut off, her steering locked, and she was unable to steer her car.

Pulling a Pinto

The impetus for Ford’s making the Pinto came from Iacocca himself, who wanted to achieve a 2,000/2,000 car: a vehicle that would weigh less than 2,000 pounds and could be sold for less than $2,000. That was the holy grail of the industry, considered a sure bet to make a fortune.

To meet those goals, however, the Pinto was stripped of some basic safety elements. The car was fitted with a chrome strip as a bumper that was virtually decorative instead of a bumper worth $2.60. The design permitted the gas tank to burst at low speed collisions, spray the interior of the car, and explode. This risk could have been largely abated by a standard gas tank liner that would have cost $5.08 per car as well a dozen other possible fixes, including a $1 fix. (While some argued that an acceptable safety fix would have been possible for a few dollars a car, Ford put the design changes at $11 a car).

The company internally understood the defect but refused to spend the $11 per vehicle needed to protect the drivers and passengers. Ford executives sat around and counted casualties like mere entries on a corporate ledger: the value of a human life was put at around $200,000 and burned individuals at about $67,000. Ford estimated the costs and benefits of 180 deaths and 180 serious burns worth $49 million in potential damages. However, the company saw the costs of a design for all of the different models using this defective design as $137 million. The conclusion was clear – sell the car and treat the deaths as a cost of doing business.

By the time the Pintos were coming off the line, its chief champion, Iacocca, had been named president of Ford. Later, he headed Chrysler, where he was credited with bringing the company back from the financial brink and was embraced by presidents and the public as an icon of the industry.

Iacocca fared a lot better than some Pinto owners. Consider Grimshaw vs. Ford Motor Co. The case was brought on behalf of Richard Grimshaw, who was 13 and riding in his neighbor’s Pinto when it was hit from behind after stalling on a road. The driver suffered severe burns to her entire body, which led to her dying shortly thereafter from heart failure. Grimshaw survived but with permanently disfiguring burns to his entire body. The jury appeared as horrified by Ford’s disregard of customer safety as it was by the crash itself. It hit Ford with a $122 million punitive award, which the court later reduced to $3.5 million.

220px-2006_Quarter_Proof220px-2006_Quarter_ProofAccording to documents, it appears that GM identified the problem with the Cobalt in the early 2000s but rejected a fix due to a “tooling cost” deemed too high. It is an all-too-easy and all-too-familiar calculation, take a reported 57 cent fix and multiple it per unit over the course of a huge production run. When multiplied millions of times, a fix costing two quarters and labor can become a prohibitive expense. It is that easy . . . except, of course, for the shattered families left behind.

Jonathan Turley is a law professor at George Washington University where he teaches torts and product liability.

38 thoughts on “Did GM Pull A Pinto?

  1. This is part and parcel of the institutionalization of “the customer is always wrong, even when they are dead at our hands –because it is easier to fight it out in court” mantra.

    The seas of deceit are rising, the seas of salt water are rising, and the awareness of the dangers that lie ahead are being Titaniced in the bud with icy denial.

    Every branch of government is in on this failure, along with the media.

  2. Some people never learn from history. :-(

    We should have let GM fail. What will happen next? If GM faces huge financial losses over the lawsuits to follow, will Obama let GM fail this time so we can get company leaders who actually care about human life?

  3. I am sure a big wig at GM said about the ignition problem: Look the litigation landscapeis even better now than it was we the Pinto was exploding. Why fix anything. Unless and u til executives at this corporations start losing THEIR pensions and platinum parachutes and going to prison nothing will change.

    When they filed for bankruptcy and go all of the air liabilities released they knew about this but keep silent. Another group who should go to jail. Instead we reward these people and we are then surprised when this happens again and again.

  4. When will we send corporate executives to jail rather than fine the company? Clearly fines are part of a criminal enterprises business model.

  5. davidm2575

    Some people never learn from history. :-(

    We should have let GM fail. What will happen next? If GM faces huge financial losses over the lawsuits to follow, will Obama let GM fail this time so we can get company leaders who actually care about human life?
    ===============
    “In the chilly hours and minutes Of uncertainty” the definition of fail has changed.

  6. Not until deaths and burn injuries are translated into numbers that mean years in prison, will consumers ever have relief from paying the fines and jury awards, which translate into higher prices. In Germany, I believe there are still four executives serving harsh prison sentences after having intentionally tainted wine with antifreeze to make it more marketable. Germany’s strong consumer protection laws translate into a reputation for the finest products and workmanship in the world. Jail not just the GM executives responsible for this debacle but also the government bureaucrats who looked the other way.

  7. David, Bingo!! Of course, bailing out these companies was all about paying back the unions that helped Obama get elected.

  8. The same “It’s the cost of doing business” criminal thinking and lack of action is prevalent in the air carriers and FAA. Having watched numerous Air Crash Documentaries convinced me to not “take my chances” by air travel ever again.

  9. “…the public ultimately ate a $10.5-billion loss when our shares in “Government Motors” were finally sold off in 2013.”

    It should be noted that the Obama administration patted their own back in presenting this sale as a “profit on the GM bailout” because the stocks had a lower market value initially (at the time of the bailout) than they did when we sold them. They did not mention what the taxpayers paid for the stocks, which was an amount significantly higher than the amount for which they were sold.

    At the time of the bailout we were told that the government would hold on to the stocks until they appreciated to a value higher than the price paid, and that the GM bailout would not cost anything to the taxpayer. I predicted they would not be held that long because they would probably never reach that price level, and I was right. They still have not done so.

    There was also one point at which GM and the Obama proudly and loudly announced that GM had paid back the loan involved in the bailout. What they did not announce was that it was paid off by using the proceeds from another government loan, one made with terms even less favorable to the taxpayer.

    The amount of overt dishonesty from both the Obama administration and GM on that bailout is simply mind boggling, and of course GM knew about this issue.They probably hid it from the government, but they didn’t really need to because, even if he knew about the issue, Obama would have approbed the bailout.

  10. They tried to send Ford executives to jail but the jury did not buy it. Following is a link to an engineering site which discusses the Pinto problem. It does have one flaw though. It says it was possible to put a rubber bladder in the gas tank for roughly $5 per unit. No one had tried this and they do not say if it would have taken the car over 2000 lbs. or the $2000 limit on the car. The other flaw is that even at $5 per car it was more expensive than Ford estimated their losses to be. Rear-ending another vehicle at 25-35 mph is not a low-speed collusion. This is the speed required to set the gas tank aflame. In my 58 Buick stationwagon, I wouldn’t have gotten a dent in my car, but in today’s cars, I could anticipate serious body damage, if not some minor personal injury.

    http://www.engineering.com/Library/ArticlesPage/tabid/85/ArticleID/166/Ford-Pinto.aspx

  11. Nick Spinelli, the GM bailout was begun under Bush II and completed under Obama. O. cares nothing for unions and hasn’t done a thing for them. Look at the details of the buyout specifically regarding unions.

  12. cat lady, In Dec. 2008, as Bush was leaving, GM was given some TARP funds along w/ many other companies in many different industries. It was Obama who bailed GM out giving them exponentially more taxpayer dollars. I do agree, Obama does not give a rat’s ass about unions. But, he is from Chicago, the biggest union city in the US. You take care of unions and they take care of you. That’s rule #4 of the “Chicago Way” of politics. Like has NOTHING to do w/ it.

  13. Seems like an issue that the bankruptcy court would be most interested in…. Filing a petition with fraudulent information has consequences….. The US has been paid back…by GM…. This one has potential….

  14. Imagine driving one of these affected GM cars (a Pinto), and making it there
    Alive…To at a Target store. And go shopping. Don’t count your blessings yet.

    Target CIO Beth Jacob has resigned following a data breach at the retailer that may have affected as many as 110 million U.S. residents.

    She has been CIO at Target since 2008, and is former director of guest contact centers and vice president of guest operations at Target. She earned a bachelor’s degree in retail merchandising from the University of Minnesota in 1984 and a masters of business administration in 1989.

    In mid-December, Target reported a data breach that compromised 40 million credit and debit card accounts from late November to mid-December. ID thieves compromised the retailer’s point-of-sale system.

    You’re still not out of woods. Don’t get rear ended on the way home.

  15. “The US has been paid back.” We taxpayers took a $10 BILLION HIT on buying their shit stock. Facts matter.

  16. Offer to compromise and settle….. Ever heard of that….. I guess that’s the point maybe the US knew there was this ignition problem so they dumped the stock before it got out….. Which would seem to be a fraud on the court…. The bankruptcy court….. Or maybe insider trading…

  17. “David, Bingo!! Of course, bailing out these companies was all about paying back the unions that helped Obama get elected.”

    Did the bailout preserve union contracts? I thought labor contracts with failing companies don’t get carried over to new owners or operators.

  18. To the cat person,
    GM & Chrysler Motors was bailed out December, 2008 to the tune of 30.1 Billion $’s of taxpayer money. Part of money also went to GM in Canada and to pay for retired union folks pensions. Even though Bush loaned GM money, the bulk came during Obama’s administration–something he didn’t have to comply with.
    With all that aside, GM has run our car industry into the ground with no care for American safety. Another corporation drooling at the mouth with greed.

  19. BFM, Part of the bailout done by Obama preserved the lucrative contracts of the UAW. If Obama had allowed the normal bankruptcy rules to proceed, those fat cat contracts would have been void. Ford and the UAW have had a commonsensical relationship for decades. THAT’S WHY THEY DIDN’T NEED A BAILOUT. All taxpayers pay for Dem politicians kickbacks to unions.

  20. GM declared chapter 11 bankruptcy in 2009. the GM in operation today in essentially a different corporation. They are not liable for what the old GM did.

    welcome to corporate america

    i’m not joking btw, they really are not liable.

    and nick, i am of norwegian ancestry, third generation. i’d tell you what my last name was but this keyboard doesn’t have those vowels.

    lutefisk anyone?

  21. Pete,

    On the bankruptcy petition they have to list contingent liabilities even though they have not materialized yet….. If my reading of the facts in the ignition lock…. They had about a 14 year heads up….. They changed the way it works…. But kept the same part number…… I think the fix was like .57 cents per vehicle…..

  22. I know the Ulrich family. Two of their daughters and a niece were killed in a Pinto accident in Elkhart, Indiana. Big corporations don’t care.

  23. Boards of Directors make these sorts of cost/benefit analysis many many times. It was very plain in the Pinto case and in the Covair case that the discussion was how much to fix the problem vs. how much to settle the estimated number of cases brought against us successfully.

    If you really want to end events like the Covair, the Pinto and this latest travesty you really need to make the cost for getting caught much higher than it is currently. This is, of course, a very unpopular opinion amongst the 1% and the fools who believe them. If it cost $10 billion dollars to settle the Pinto deaths you can damn well bet this problem would have been fixed long ago.

    One happy irony from the Covair case BTW – one of the people involved in the cost/benefit discussions at GM at the time lost his son when the Covair he was driving was broadsided and he was ejected & killed. Just like the father knew it would but didn’t see it worth fixing. I always wanted to ask him if that would have changed his decision on the cost to repair.

  24. Jim

    Imagine driving one of these affected GM cars (a Pinto) …
    ==================
    A Pinto is a Ford.

    Or an adjective applied to some horses.

    But not a GM product.

  25. A Y

    it’s not unusual for a redesign on a part and keep the same part #. I went to a local dealer for a friend to get a surge tank for his eldo. the parts man told me he could get me a second design tank next day from jacksonville or a third design tank from s. carolina in two days, same price, same part #.

    nick

    you should hear an argument between two norwegians. politest disagreement you’ve ever heard. before the last family reunion i had to watch Fargo twice so i could get used to the accents. uffda

    try the lefse though. it’s sort of a thin potato tortilla you put butter on (i have a cousin who puts sugar on his). they eat it with a meal instead of bread.

  26. I love Billy Bob. There is a memoir of him co-written w/ Kinky Friedman. Billy is a man who battles OCD courageously. Plus, he’s a big baseball fan. I liked him even more after reading the book. He only wants to be a great character actor. He can die happy because he is just that.

  27. pete, Lefse is the one redeeming Norwegian food. My daughter married a Norwegian/Puerto Rican!! His dad is the Norwegian and the only Norwegian food his mom makes is lefse. They have a lefse making party the Saturday after Thanksgiving, making enough for the Holidays. Oh, and they vacation in Brainerd[“I’m investigating some malfeasance up Brainerd”]. We also have friends w/ a cabin in Brainerd so we’ve been there several times. Frances McDormand is one of the best female actors EVER. And Margy was the best female character I have ever seen, “Yer darn tootin.” I have watched Fargo @ least 30 times.

  28. pete and nick – I have been to Brainerd. I have seen the Paul Bunyan museum and have ridden in the Bunyan boats. Been there, done all of that. My people are from Grand Forks, which is a piece down/up the road. :) I spent many hours driving on wind-swept snow covered roads in that area. I know people in the MN area do not like to admit it, but Fargo was spot on. :)

  29. Paul, Just finished watching the FX Fargo, lived up to my expectations and Grand Forks was mentioned!! Just a brief reference but hey, it’s Grand Forks. It will make the local news, yer darn tootin.

  30. Wont be 10pm here (we are on California time) for another hour. I do have the DVR set to record. Looking forward to it.

  31. Mercedes Benz is a fire hazard like the Pinto! But no one will listen to me! Jonathan, let me email you the details? Our own MB experience is quite astonishing in this regard! CS

Comments are closed.