Economics Questions

Re: Free to Choose: Ford Pinto

JackCuyler — Wed, 06 Mar 2013 19:34:38 GMT

Kakugo:
In the second half of the '80s Ford came so close to going under due to their tarnished image they actually started fitting Yamaha engines and gearboxes to some of their Taurus models and advertising the fact.

I think you have your years a bit off. The Yamaha engine and gear box of which you write was in the V6 Taurus SHO, introduced in 1999. Ford's turn around had already happened years before, in a small way with the new look of the 1983 Thunderbird, and fully with the introduction of the Taurus for the 1986 model year. By 1989, Ford had two of the top three selling cars in the US (Taurus and Escort), and two of the top three selling trucks in the US (F-Series and Ranger, the former the world's best selling vehicle at the time), and was rapidly gaining on GM as the largest auto manufacturer in the world.

The Yamaha-powered SHO was a novelty. In the eleven years the SHO was produced, Yamaha-powered for the first seven of them, just over 106,000 were sold. By 1999, on the other hand, total Taurus sales were over two million.

Re: Free to Choose: Ford Pinto

Willy Truth — Mon, 04 Mar 2013 17:41:27 GMT

Is there such a thing as involuntary acceptance? To me it seems like an oxymoron per se. Yet it is mentioned in mainstream economics and law to describe "disparity in bargaining power". I suppose this ties back into the idea that there can exist no true monopoly in a free market. But what about a man who needs a medical procedure that is can only be performed by one surgeon? Do you think there exists a so-called disparity in bargaining power?

Re: Free to Choose: Ford Pinto

gotlucky — Sat, 23 Feb 2013 20:23:42 GMT

How did you get that from Kakugo's posts?

Re: Free to Choose: Ford Pinto

Christopher — Sat, 23 Feb 2013 18:32:59 GMT

@fakename: touché!

Re: Free to Choose: Ford Pinto

Christopher — Sat, 23 Feb 2013 18:30:26 GMT

You're clearly too timid to say it. Ok, I'll say it for you: the federal government would do a much better job making cars for us (or at least, fascistly regulating them) because:

the car industry is totally different from all other consumer products because it involves human safety
the free-market fails because companies are just motivated by profit, and we all know that profit is evil
consumers are too stupid or ignorant to be able to weigh the benefit versus cost of cars

What do you think?

Re: Free to Choose: Ford Pinto

fakename — Fri, 22 Feb 2013 08:17:03 GMT

(1) the ford pinto was statistically no more dangerous than other cars.

(2) if the co. knew about the deaths that would ensue but deemed them justifiable because it would not be above the norm, then perhaps one might question the safety standards themselves, which make people complacent when they could get more money on the market for improving safety and not just meeting a certain minimum.

SEE: Wikipedia

Schwartz paper

In a 1991 paper, The Myth of the Ford Pinto Case, for the Rutgers Law Review, Gary T. Schwartz^[7] said the case against the Pinto was not clear-cut.^[23]^[24]

According to his study, the number who died in Pinto rear-impact fires was well below the hundreds cited in contemporary news reports and closer to the 27 recorded by a limited National Highway Traffic Safety Administration database. Given the Pinto's production figures (over 2 million built), this was not substantially worse than typical for the time. Schwartz said that the car was no more fire-prone than other cars of the time, that its fatality rates were lower than comparably sized imported automobiles...

Schwartz's study said:

The Pinto's fuel tank location behind the axle, ostensibly its design defect, was "commonplace at the time in American cars" (p. 1027).
The precedent of the California Supreme Court at the time not only tolerated manufacturers trading off safety for cost, but apparently encouraged manufacturers to consider such trade-offs (p. 1037).

Re: Free to Choose: Ford Pinto

Kakugo — Thu, 21 Feb 2013 08:18:03 GMT

It means that government is not the only issue. Bad management and people's personal choices (consciously buying a much inferior product for emotional reasons) carry an extremely significant weight.

Re: Free to Choose: Ford Pinto

Christopher — Thu, 21 Feb 2013 05:21:36 GMT

Kakugo, again, you wrote a bunch of text that made no point. What is it!!? More government? Less government? What? Oh, and write it one sentence.

Re: Free to Choose: Ford Pinto

HabbaBabba — Wed, 20 Feb 2013 19:47:18 GMT

Just wanted to throw in a point about 'The Big Three' were monopoly men long before they railroaded Tucker, working to eliminate the electric rail car in the 20s.

Not sure if the fact that dozens of automakers and engine suppliers went under during the depression and WWII is relevant. Competition never came back until the Japanese waded through Nader's redtape. Not that they're any better. All the major auto companies seem to think they can just lobby their way to prosperity.

Re: Free to Choose: Ford Pinto

Kakugo — Wed, 20 Feb 2013 09:16:47 GMT

Technically speaking the US car industry was on a downward slope before the first heavy round of legislation was implemented under Nixon.

In the '50s Honda (still producing just motorcycles) and VolksWagen invested very heavily in technologies which allowed their vehicles to be assembled even by unskilled labor and still maintain a steady high quality. Honda also invested very, very heavily in light alloy injection molding while everybody else was still using sand casting on large scale. Starting with the late '50s-early '60s the Japanese started applying statistics to improve quality control. The idea was nothing new (it had originally been developed by Motorola) but it was the first time it was implemented on such a large scale. By 1968, the year Japan really heated up the so called motorcycle wars and Japanese cars started arriving in Europe, Japan had a definitive qualitative edge over all competitors, even the Germans. Sure, there was no way a Toyota Corona could outaccelerate a Ford Mustang 402 or outturn a Lotus Seven, but it started every morning and didn't require continous (and expensive) maintenance just to stay on the road.

In the meantime what had the US car industry done? Nothing. Pretty much like the British magnates who owned Triumph, Norton and BSA, their US homologues had laughed at the "rice burners from Japan" and continued to produce more of the same and in the same fashion. The US public associated small cars with lightweight sports cars from Britain, and these were not seen as a meanignful threat by the US car industry: these were aimed at a market segment they had no interest in and, if possible, were even more unreliable than their US counterparts.

In 1960 Buick tried to differentiate itself from the rest by introducing a revolutionary light alloy small block 3500cc V8, the 215. However quality control issues and political pressure condemned it to the scrap heap after just one year. By political pressure I mean the steel workers' unions feared the engine may prove so successful that other manufacturers may soon follow Buick's example and hence cut into their business (engines at the time were mostly cast iron), hence they applied pressure through the UAW. The British picked the 215 from the scrap heap for pennies and turned it into one of the most successful engines of all times: the Rover V8.

1969 is usually seen as the high water mark of the US car industry. It was on downward trend in 1971 already when the first piece of safety legislature (bumper crash test) was introduced. The First Oil Crisis (1973) simply hit a nail that's had already been laid.

There are many paralles between the US car industry and the British motorcycle industry. Then why didn't the former followed the faith of the latter? A few reasons. First, the US government effectively helped domestic manufacturers by slapping high tariffs on imports (and later by bailing them out directly). That's why a Honda Civic cost so much more than a Ford Pinto. Second, the US car manufacturers always had a strong credit line, something the British lost in the late '60s. US banks were always ready and willing to lend money to domestic manufacturers for political reasons, not because they believed them to be a good investments. Part of the inflation which defined the '70s went into bailing out GM, Ford and Chrysler indirectly. Last but not least, US car manufacturers have always had an extremely faithful domestic following. British and Italian motorcycle owners jumped on Honda and Kawasaki en masse as soon as they realized their products were so superior. By contrast many, many US car owners kept on "buying American" even when the product offered was so inferior to the competition.

Re: Free to Choose: Ford Pinto

Christopher — Tue, 19 Feb 2013 04:13:28 GMT

Kakugo, you are definitely knowledgeable about the car industry and show it by write large wordy posts about how sucky the US car industry is, all the while never proposing a theory for why or saying how to fix it. I'm sure everyone here agrees - they all suck! What's your point? Are you proposing more regs, more bailouts, more unionisation, more protectionism, more mercantilism - the thing that got us here in the first place?

Re: Free to Choose: Ford Pinto

Willy Truth — Tue, 19 Feb 2013 02:22:10 GMT

Thank you for your response, very insightful.

Honda Civic cost $2200 (thank you, US Federal Reserve)

I like to conceptualize it like a game of Jenga...

Truth to be told this whole fiasco is just part of the general debacle of the US car industry in the '70s.

When did regulations and unions begin destroying the competitiveness of the US auto industry?

Re: Free to Choose: Ford Pinto

Kakugo — Mon, 18 Feb 2013 10:06:41 GMT

It's very hard to play the "you are the judge..." game seriously without having some background on the legal system and environment the case is taking place in.

The first thing to do would be to order a technical analysis by an independent expert (with no links to both parts). The expert analyzes both the wreck and a factory fresh Pinto and finds out the differential and the fuel tank design are both poorly designed and, in case of a rear end collision, can cause a massive fuel spill which in turn will result in a fire.

Next thing is to look up the existing legislation and see if there are any norms concerning this. Now there are, but back in the late '60s-early '70s there weren't any. Technically speaking Ford was thus acting according to present laws (or lack of).

And now comes the tricky bit. In most legal systems, the defendant is innocent until proven guilty. Up to this point Ford is guilty of neglect but not of a pre-meditated crime: it means a considerably lower reparation sum. But what if the judge decides to look deeper into it and see if Ford knew about the issue and did nothing to address it? However to do this, the judge needs tangible evidence: an internal memo or a key witness ready to provide detailed information that can be cross-questioned by both parts and be proven reliable. To the best of my knowledge no judge ever ordered the police to search the Ford company HQ for evidence and no key witness ever stepped forward to volunteer information. There are strong hints Ford knew about the issue (see the much discussed memo attached to their communication with NHTSA) but nothing more.

In short the legal system found Ford guilty of neglect: they didn't break any rules on purpose but due to their carelessness people died and got injured. This doesn't need to be the truth but, apparently, both the victims' families and the legal system were satisfied by this explanation and the punishment applied to Ford.

If you shift to the market, it found Ford guilty. As said before it rewarded the Japanese and punished Ford. There's no doubt many other factors were at play (for example the Japanese cars' much superior reliability and better fuel consumption) but the Pinto fiasco surely had a hand in it: in 1975 the Honda Civic cost $2200 (thank you, US Federal Reserve) or 10% more than the cheapest Pinto, was equipped with a considerably smaller engine (1200cc vs 1600cc) but it outsold the Pinto. The same applies to the much more expensive ($2850 basic price) Datsun B210. In short consumers were shunning the larger engined, cheaper Pinto and buying more expensive Japanese cars.

Truth to be told this whole fiasco is just part of the general debacle of the US car industry in the '70s. The Chevrolet Vega (designed to compete with the Pinto) never acquired the same sinister fame as the Pinto but is emblematic of this period. Sloppily made, fitted with a relatively large and inefficient engine, it was designed to be brutally cheap and provided none of the amenities the Japanese cars (and the VW Rabbit/Golf) had. But that's a story for another day, maybe.

Re: Free to Choose: Ford Pinto

Willy Truth — Mon, 18 Feb 2013 06:29:47 GMT

So if you were a judge, free from stare decisis, how should you determine whether a products liability case should be ruled in favor of the manufacturer or consumer?

Say you're presiding over a Pinto fatality case where a man was rear ended and killed by the exploding Pinto tank. The decedent's estate is suing under a theory of defective design in products liability. What result?

Does it make a difference if the man negligently runs off the road and the tank explodes?

Re: Free to Choose: Ford Pinto

Kakugo — Sun, 17 Feb 2013 23:45:37 GMT

The problem with the Pinto is it was badly engineered. Really badly engineered. It took 22 months to go from concept to production. Under such pressure, things can and will go wrong. I didn't start my reply by quoting the "zero day" weakness at random. If you buy software regularly, "zero day" is a common occurence. Some developers will even develop a patch while the software is being distributed to retailers that will be immediately available upon release date. But software is relatively cheap to fix. Cars aren't.

If you have an eye on the automative industry, you may have heard the big issues the BMW E90 3-series fuel pump (especially the models fitted with the N54 engine) had. It led to a colossal p***ing match which saw lawsuits fly in all directions. In the end the courts found the fault laid with the fuel pump manufacturer, Siemens VDO (bought by Continental in the meantime), and BMW was awarded a seven figure compensation. However the courts also found BMW guilty of not having carried out extensive tests and having rushed the car into production but further lawsuits were stalled by an extra-judicial agreement: BMW instituted a ten year warranty on the fuel pump itself and, outside this time frame, will provide the spare fuel pump "at cost". Expect more lawsuits to follow when BMW will not honor this commitment.

On the issue of "not knowing", yes, it's possible, but that usually hints at the fact the vehicle had not been tested extensively enough before being released. For example Honda was really taken aback when their brand new VF750F started to suffer a series of catastrophic top end failures. I could detail exactly what was wrong with the bike but since it would bore the leggings out of anybody without some mechanical knowledge let's just say it took Honda many months to address the issue and the bike is known to this day as chococam. They really had no idea what was going on and their attempts at fixing it (for example by increasing the frequency of oil changes) show they were basically grasping at straws. In the meantime Honda worked hard to keep customers happy, for example by authorizing field reps to buy bikes back from customers, no questions asked.

Ford simply shrugged it off.