ROAD TROUBLE
August 29, 2000

Despite a 6.5 million-tire recall, Bridgestone/Firestone and Ford continue to be criticized for defective tires on many vehicles. After a report and discussion with a Firestone official, three experts assess the fallout from the tire recall.

March 15, 2000: Experts debate higher gas prices. Feb. 4, 2000: Ford provides employees with Internet access Browse Online NewsHour coverage of transportation     Ford Motor Company Firestone Tires Center for Auto Safety	TERENCE SMITH: With me for analysis of the recall is Joan Claybrook, president of Public Citizen, a consumer advocacy organization; she was administrator of the National Highway Safety - Traffic Safety Administration from 1977 to 1981; also John Casesa, senior automobile analyst for Merrill Lynch; and John McElroy, an automotive journalist and anchor of Auto Line Detroit, a television program focusing on issues facing the automotive industry. Welcome to all of you.
	What happened?
	TERENCE SMITH: Joan Claybrook, I wonder, particularly after what we've just heard from a company representative, whether, in your view, these companies are being forthcoming in the way they're responding to this and disclosing what they do and when they do it. JOAN CLAYBROOK: Well, first of all, they didn't just find this out several months ago, as the representative indicated. They've known about this since the early 1990's, when they were sued and clearly they assembled all their resources to take a look at this. TERENCE SMITH: So you're saying this a problem of years not months? JOAN CLAYBROOK: Many years, and even before that, Ford designed the specifications for the tires they want; they test them; Firestone tested them. They knew back in 1989-1990, when they designed this vehicle, what was going to happen. They were very worried, in fact, about rollover with the different tire pressures, so they've known for a long time. Now about the problem of the tread separation, they've known about that since they were sued. TERENCE SMITH: Okay. John McElroy, can you tell me whether, in fact, they have got to the root cause of this problem. JOHN McELROY: Well, obviously they've not. I mean, they've been talking about studying the problem certainly publicly, but they're saying they have not reached the root cause of the problem. They'd very much like to be able to come out and say this is exactly what's causing it; we're going to solve it and put this problem behind us. The fact that they haven't been able to do that suggests that they probably have not come to exactly what - why these things are coming apart like they are. TERENCE SMITH: Is that a genuine search for the answer, or are they covering up - JOHN McELROY: Oh, you can bet that they've got their top engineers really trying to determine statistically through very thorough analysis why these tires are coming apart. And why these - I mean, Ford's been out pointing out that. Geez, when you put Goodyear's on, there's no problem whatsoever. TERENCE SMITH: John Casesa, as you watch this unfold on an almost daily basis, what's the impact on the financial health of these companies? JOHN CASESA: Well, I actually don't think this is going to have a big impact on Ford because it looks like the Ford Explorer is fine, that it's a problem with the tire. I do think it could have a very severe impact on Bridgestone-Firestone, the parent company. You may know that the company took a very big charge to earnings in its most recent results, and longer-term, even after the cost of recall is covered, one has to wonder what impact it'll have on the company's market share and brand position and all that kind of stuff. TERENCE SMITH: Well, particularly the brand position, I would think, given this kind of publicity. JOHN CASESA: Absolutely. And, you know, it's quite possible that Firestone recoups some market share in replacing market - people really believe it or not forget this stuff and will buy a bargain. But I think in the OE market - that is sales to customers like Ford - original equipment auto makers - this will hurt the brand. I mean, I think auto makers will be more wary of equipping their vehicles with Firestone tires.
	A corporate cover-up?
	TERENCE SMITH: Okay. Joan Claybrook, why didn't the Department of Transportation know about this earlier if, as you say, there were suits on record going back years? JOAN CLAYBROOK: Well, there's really been a cover-up by Bridgestone-Firestone and Ford, when they settled these lawsuits, they insisted on gag orders, and that meant that neither the family nor the lawyer could ever talk about it. They did a recall in Venezuela, and they - other countries in the Middle East. They never told the Department of Transportation. I believe the statute requires it. Even if you could argue that it doesn't, they certainly had a moral obligation to tell the Department of Transportation this because the statute says when a company has reason to know or knows that there's a problem with one of their products, they're supposed to inform the Department of Transportation, and they're - TERENCE SMITH: And you're saying they did not do that. JOAN CLAYBROOK: And they did not do that, and they're supposed to send the notices when they send them to their tire dealers. TERENCE SMITH: I mean, that's a pretty serious charge. JOAN CLAYBROOK: I think that it is a serious charge, and I would think that if there were criminal penalties in the Department of Transportation statute, this never would have happened, but there are not such penalties, and the only penalties -dollar penalties -- $950,000 maximum penalty - which for these companies is chump change. TERENCE SMITH: And yet the insurance companies knew about this as well. Why wouldn't they share that information beyond the limits of that gag order? JOAN CLAYBROOK: Well, the State Farm Insurance Company did send 21 cases to the Department of Transportation in 1998, and no one even looked at it. So I think that there's been a lack of an enforcement attitude at the Department of Transportation. And in addition I think that the issue of Ford Motor Company versus Bridgestone has been quite interesting because Ford's vehicle, compared to the 500 Firestone recall in 1978, they are the - the tire separations occurred on cars, and they didn't roll over, and so the number of deaths are much smaller. Here, because they want a vehicle, which has the - has the capacity easily to roll over when it has a tire failure, they're rolling over, there are many more deaths. I believe 62 is a gross understatement, and so they should have provided a much larger margin of error but, in fact, Ford knew when it was testing these vehicles in the early 1990's/late 1980's, that there was a possibility that they would rollover with the tire - the right tire pressure - that is higher than 26. TERENCE SMITH: John McElroy, why is this replacement taking so long? JOHN McELROY: Well, It involves 6 ½ million tires - this in a market where every auto maker is selling just about any vehicle that they can build right now. We've never seen it stronger than that. There's not a capacity to turn around tomorrow and say, hey, instead of these Firestones I'll take 6 ½ million of your tires. That's why we heard earlier in the program Ford's come out and said, we've got Michelin and Goodyear and Continental working on this whole thing. The real issue for the Ford Motor Company right now is how is it -once it gets this issue behind it - it will at least in terms of replacing the 6 ½ million vehicles or 6 ½ million tires involved, how's Ford going to go out and get a bunch of other tires to keep on building new vehicles? It's going to be a very difficult thing for them to be able to do, even with every other auto maker working flat out overtime trying to fill up the system. TERENCE SMITH: So there's an industry wide shortage? JOHN McELROY: Well, I wouldn't say there's a shortage per se; I'm just saying that it's not like you can run out tomorrow and buy 6 ½ million tires from somebody else. Ford has committed itself to buying these tires from Firestone. It sourced these tires years ago to be on this program. It's not something that you can very easily just switch over to something else tomorrow, and I should add that doesn't just involve tires. The same thing would be effective it were steering wheels or seats or anything like that. TERENCE SMITH: All right. JOAN CLAYBROOK: That's why it's such a high risk for Ford and Firestone to get involved in this dispute, I mean they're backstabbing each other all over the place the last three or four days in the media, and yet Ford is going to have to have some Firestone tires on their Ford Explorers. TERENCE SMITH: Right. JOAN CLAYBROOK: Which is going to be a marketplace problem for them. TERENCE SMITH: Let me ask John McElroy to respond to the point that you made. I mean, you said there's a cover up by - JOAN CLAYBROOK: By both companies. TERENCE SMITH: By both companies. John McElroy? JOHN McELROY: I think that's a very strong charge. I think that the facts will have to bear that out. You have to remember that the automobile is an extremely complicated piece of machinery. Just because somebody gets killed; just because there's a rollover does not necessarily implicate the vehicle itself. JOAN CLAYBROOK: No, but I'm talking about Ford - JOHN McELROY: There's a lot of drivers out there who are not very good; there's a lot of drivers out there who drive like jerks. There's plenty of people who don't properly maintain their tires or their vehicles themselves. I think that you've got to look at these things on an individual case basis. Now I'm not saying that there's not a problem in this case. There very obviously is. But to come out and say that there's been a cover up. JOAN CLAYBROOK: Oh, yes, but you should - JOHN McELROY: -- on the part of them - I think is overstating the case by the facts that we know them today.
	What the driver should do
	TERENCE SMITH: All right. Let me get John Casesa in here and ask him what impact you think this is going to have on Ford's attempt to project itself very vigorously as a very consumer conscience - consumer responsive company. JOHN CASESA: Well, I think this whole case will undermine the credibility for some time, not for a decade, but probably for years. And I think there's a sincere effort on Ford's part, particularly because the family's involvement, to make it a more consumer-friendly company, not so much for public relations reasons but because it's good business. Consumers and, indeed, the investors who are my clients are much, much more focused on ethically responsible companies that behave well. And I think investors right now are particularly anxious for Ford to resolve it as quickly as possible, as responsibly as possible, and they don't care if it costs a lot of money. It cost the company $100 million in the third quarter; it will cost more money in the fourth quarter to satisfy these customers, and that's good business, because a satisfied customer is a repeat customer. So I think that the economic interest and the moral interests of consumers and investors are very much aligned in this case. TERENCE SMITH: Joan Claybrook, what would you advise a consumer to do, a consumer who owns these tires? What should he or she do? JOAN CLAYBROOK: Well, first of all, I wouldn't drive over about 40 miles an hour because when there's a heat build up over continuous driving at high speeds, that's when you're more likely to have this problem. It's also - as the data shows - more likely to happen after the tires are about two and a half to three years old, so I'd certainly be more careful if my tires are a little bit older, and I would certainly try and get them replaced as rapidly as possible. TERENCE SMITH: And would you take the reimbursement offer? JOAN CLAYBROOK: Oh, absolutely. TERENCE SMITH: And go out and get another set of tires? JOAN CLAYBROOK: Absolutely, I would definitely do that, and I would advise people whose tires are of the same category but haven't been recalled, that is, the non-Decatur, Wilderness tires and so on, I would definitely urge them to do this too. TERENCE SMITH: Because you think those may be suspect - JOAN CLAYBROOK: I think that - the reason I think that they may be suspect is that there are other tires manufactured in Decatur that no one says are a problem so what is it in particular the Decatur plant did to these tires? I think it's a tire design issue, and if it's a tire design issue, then 16 inch as well as the 15 inch and all the 15 inch ones are suspect, and - TERENCE SMITH: All right. Let's ask John McElroy, what your response is to that. JOHN McELROY: Well, no, I would agree entirely with that. I would say first off try and get the tires replaced. If they're not in stock right now, get that tire pressure up to 30 PSI; try not to overload the vehicle either. I'd keep one passenger in it and not put a bunch of people in with a bunch of luggage, which also may be a contributing factor in these things coming apart, but the main thing is get some other tires on there as fast as possible.
	Assessing the impact
	TERENCE SMITH: Now, John McElroy, the - Ford has had to suspend or cut back its production of some of these vehicles, the Explorer. What's the ripple effect of that? JOHN McELROY: Well, Ford has announced that it's closing three plants. It's going to take 25,000 vehicles out of production, so instead of putting those tires on those new vehicles for sale later, they're going to throw that into the recall to address consumer needs more quickly. It's a big ripple effect; 25,000 vehicles times an average $22,000; you're looking at a 5 to 5 ½ billion dollar decision. We've already seen and probably John Casesa can address this even better than I can - that other companies - supplier companies have come out - notably Laird [ph] - Arvin Meratory [ph] has already said that it's going to be impacted - a company like - those suppliers which supply components to those vehicles that are now going to be taken out of production are definitely go to see an economic impact. TERENCE SMITH: John Casesa, are you seeing some of that ripple effect? JOHN CASESA: Absolutely true. The largest suppliers are all seeing their earnings reduced because of this and I think there will be a long-term economic impact for Ford because it will have to pay premium costs to get suppliers, as John alluded to, to get tire suppliers to supply enough product for the next few months. There isn't a long-term shortage of tires but for the next few months it will be very difficult to find enough high quality tires for Ford vehicles, and it's going to mean overtime and premium freight and air shipping, and Ford's going to have to bear the burden of that for as long as it takes. TERENCE SMITH: But you argue it's good business. Joan Claybrook, a final word, what you think the lesson is here. What should we learn from this? JOAN CLAYBROOK: Well, I think the lesson for these companies is that they shouldn't try and cut corners when they design vehicles, which is what happened with Ford, and the inside documents show that. I think that when they have a vehicle that has the tendency to roll over, they need a margin of safety, but consumers I think are furious about this. Remember, these are buyers of expensive vehicles; these are people who vote; who know their member of Congress; who know how to raise a fuss and write to the newspapers, so I think that Ford has been hurt badly, as well as Firestone, and my view is that the company should - as I think Ford by the way has tried to do - should try and be really pro-safety in their design decisions up front. TERENCE SMITH: Okay. Thank you all three very much.