Toyota’s Profit Over Safety Decision – Deja Vu All Over Again

The revelations in the Toyota calamity have been coming fast and furious, with so much news coverage that there frankly hasn’t been too much for ThePopTort to add (since here).  However, when AP first broke the story of new documents showing “Toyota saved $100 million dollars by delaying recall information [and] bragged about the savings”, we thought, that kind of profit over safety decision sounded familiar!  Let’s take a little trip down memory lane:

1. GM’s Ivey Memo:  After years of fighting for this document, trial lawyers were finally able to force GM to disclose a 1973 GM memorandum captioned "Value Analysis of Auto Fuel Fed Fire Related Fatalities.”  This memorandum, authored by GM engineer Edward Ivey of the company's Advance Design unit, callously evaluated the cost to GM of "burned deaths" due to fuel tank design defects in these GM cars.  Ivey determined that burned deaths cost the company $2.40 per vehicle. As for the amount that the company should spend on new cars to prevent these deaths, Ivey determined this figure to be $2.20 per vehicle.  In other words, if GM had to pay more than that to fix the cars and make them safe, it was cheaper to not fix the cars and to pay for the deaths.

2. Ford Pinto Memo. In this internal 1968 Ford memorandum captioned "Fatalities Associated with Crash Induced Fuel Leakage and Fires," Ford valued a human life at $200,000, a burn injury at $67,000 and an incinerated car at $700. It then calculated that proposed government regulations aimed at preventing fuel-fed fires in roll-over crashes would benefit society by $49.5 million. This figure was then compared with the cost of Ford's complying with the proposed regulations -- $11 per car or a total cost of $137 million.   In other words, they figured it was cheaper for them to pay out liability for burn deaths and injuries than to fix the cars.

Oh, and as to how so-called “tort reform” enters into all of this, as these creepy examples show, some manufacturers engage in cost/benefit analyses when deciding whether to take corrective action with respect to a defective product by either redesigning it, removing it from the market or recalling it.  They balance the manufacturer's potential financial liability for deaths and injuries against the costs of fixing the unsafe product. “Caps”, for example, have a direct impact on these kinds of calculations by decreasing the potential costs of liability that are factored into the equation.  Consequently, the analysis is more likely to yield a conclusion that tells the manufacturer that it may be more cost-effective to simply pay off victims and their families than to design a safe product in the first place.