Appendix 2: Ford Pinto Case and Cost Benefit Analysis
Edited by Richard Brooks

In 1968 in response to strong foreign competition, Ford decided to build a subcompact car — the Pinto — on a 2×2×2 plan (2,000 pounds, $2,000, in 2 years). In pre-launch tests, Ford discovered that rear end collisions propelled the gas tank onto the real axle, which had protrusions that ruptured the tank and caused the car to catch fire. Yet Ford did Figure 1: Ford Pinto not modify the Pinto’s rear axle. Nor did it follow through on an idea to place a rubber bladder in the fuel tank. Why? The reason seems to have been that these changes would have increased the price, lowered sales and reduced profit. That reason is given credence in a cost/benefit study done on modifying the Pinto. So the Ford Pinto went on sale with dangerous design faults in the position of the fuel tank and nearby bolts, and the tendency for the fuel valve to leak in rollover accidents. Design and production was rushed and cost of the vehicle kept down to sell it at $2000. It sold well, until 1972 when four people died and one young boy was horrendously burned and disfigured; these are only a few of the incidents that resulted from the Pinto’s flaws, many more followed, costing Ford millions in compensation. The engineers were fully aware of the flaws, yet the company continued to sell the car as it was, without safety modifications. Ford applied a generic cost/benefit analysis to accidents based on National Highway Traffic Safety Administration estimates of the worth of a human life — around $200,00 based on productivity estimates at that time — and its own figures on deaths from car accidents. Ford decided to predict or estimate 180 deaths, 180 serious burn injuries, 2100 vehicles lost, and calculated $49.5 million overall, a figure that would be a benefit to the company, if they put things right with the car. The estimated cost of doing so came to $137 million, for 11 million vehicles at $11 dollars per tank and $11 per unit for other modifications. So costs outweighed benefits and the value of human life was quantified as an economic commodity. Ford’s cost-benefit analysis is demonstrated below. Ford’s Cost/Benefit Analysis The analysis is as follows: Future productivity losses  Direct: $132,000  Indirect: $41,000  Medical Costs - Hospital: $700; Other: $425  Property Damages: $1,500  Insurance administration: $4,700  Legal and court expenses: $3,000  Employer losses: $1,000  Victim's pain and suffering: $10,000  Funeral: $900  Assets (lost consumption): $5,000  Miscellaneous accident costs:$200 Total cost per fatality $200,725

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Benefits  180 burn death, 180 serious burn injuries, 2,100 burned vehicles  Unit cost: $200,000 per death, $67,000 per injury, $700 per vehicle Total Benefit: (180 x $200,000) + (180 x $67,000) + (2,100 x $700) = $49.5 million Costs  Sales: 11 million cars, 1.5 million light trucks  Unit cost: $11 per car, $11 per truck Total cost: 12.5 million x $11 = $137.5 million As the analysis shows Ford weighed the risk of harm and the overall cost of avoiding it, and on this analysis, Ford decided not to modify the Pinto. In 1978 in Indiana, a Ford Pinto with three young women aboard was struck in the rear and all three burned to death. As mentioned above, there had been a number of such incidents, but this time Ford was indicted for wrongful death. The judge instructed the jury that Ford would be guilty if it could be shown to have been indifferent to the dangers of the Pinto. Ford hired the Watergate prosecutors to defend it and was acquitted. Nevertheless, in Grimshaw v. Ford Motor Co (1981) Ford was sued civilly and had massive damages awarded against it, which were later reduced on appeal. So this case represents a loss for Ford in terms of reputation, legal costs, project management, and other failures. Yet other auto manufacturers used cost/benefit analysis. Other cars were unsafe in some respects. Fewer than 30 people died in Pinto accidents during the car’s 2-million production run.

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