Top Firestone Company executives and their advisers are trying to decide how to handle the regulatory and market problems involving some 13 million “Firestone 500” steel belted radial tires now on the highway.
These are the tires, as many motorists know, that stand accused as being a danger on the roads by the National Highway Traffic Safety Administration (NHTSA) which wants Firestone to “immediately” recall.
The background for Firestone’s predicament is formidable. For several years motorists’ complaints over these tires have made many Firestone dealers fluctuate between anger and despair toward the Akron tire giant.
More recently, some dealers are near revolt over Firestone’s intransigence, bad publicity and their resultant declining sales. In 1976, Firestone, informed by the government that a batch of its radials had failed the federal tire standard, recalled 400,000 of them. The company also has adjusted 1.5 million of the 500 series–a very high adjustment rate for the industry.
But the complaints keep pouring in and the Firestone brand name is hurting. NHTSA says its investigations have “clearly established that these tires have failed in significant numbers and that the failures are characterized by blowouts, tread separations, and other failures which have resulted in deaths, injuries, and property damage accidents.”
The traffic safety agency has made an initial finding of defect and, as the law requires, has announced a public hearing on the tires for August 7 in Washington. On Capitol Hill, that great defender of consumer safety, Congressman John Moss, D-Calif., has been holding hearings which are supporting further the concerns that NHTSA and the Center for Auto Safety have been articulating.
Now comes the time for decision by Firestone. Will it continue its chosen strategy of denying everything and fighting everybody? Or will more sage counsel prevail to stop a fast deteriorating situation for the company and advance for the cause of motorist safety at the same time?
Let me offer Firestone the benefit of my observations. Pathway one that the company now is following is shaped by its Cleveland law firm, Jones and Day. This is the law firm that advised and led Firestone into a disastrous legal battle against NHTSA and the Center for Auto Safety over an alleged leak of a damaging government survey regarding Firestone’s radials.
Piling up huge legal fees, Jones and Day proceeded to take depositions of numerous government employees, consumer advocates and reporters. Result: more massive publicity against Firestone tires, an outraged group of newspaper reporters and a corporate image of vindictiveness. For after all, the survey was already public.
But for Jones and Day’s bad advice to Firestone, millions of Americans would not have learned of the Firestone 500 problem.
Having put its client in such a hole, Jones and Day may be tempted to urge the tire company to challenge the government’s forthcoming tire recall order in the courts. Such a strategy would delay the recall two years or more, by which time most of the 13 million tires would have worn out or blown out in various ways.
During such litigation, Firestone would continue to blame motorists and hot pavements for its radial tire defects, would continue to be exposed to large compensatory and punitive damage awards in suits brought by injured motorists, and would continue to advance its dealers toward ruin. Also, the company’s new radials would be under the cloud of the controversy over the 500 series radials.
The company’s national dealer advisory council phrased their concern in a memo to Firestone a few weeks ago: “We know that Firestone is aware of the enormous problems we are having and feel that you must come up with a program so that both Firestone and the dealers can have some credibility with the public. “
If Firestone executives are rational, they would choose pathway two–recall all Firestone 500s, replace them with their new radials or refund the proper amount to the owners. The company knows that the 500s have experienced abnormally high defect rates.
It should realize that it is cheaper to recall than to litigate against thousands of offended customers in an ever increasing climate of uncertainty and market backlash.
Consider the rough arithmetic. To recall all 13 million tires would cost Firestone $130 million before writeoffs. But only about 60 per cent of the tires are likely to be returned, given the difficulty of locating some tire owners and the usual apathy some motorists reflect toward any recall notices. By the time the company writes off the subtracted total as business expenses, the net cost to the company comes to about $40 million.
To help offset this further is the known fact that when motorists go back to dealers for recalls, they are often sold other products for their cars.
So, my advice to Firestone officials: tell Jones & Day to look for other legal business, because you’re recovering your responsibilities of management. And more innocent people will survive on the highways.