The Ford-Firestone Fallout - Demand for Explorers continues - Brief Article

Automotive Industries, Oct, 2000 by Maryann Keller

Round One is over. Explorer demand has not suffered. But the auto industry is still the loser.

Surrendering confidential warranty and product defect information to the government under more intense vehicle safety regulation may be a relatively minor consequence of the Firestone tire recall. It has already had a profound impact on Ford Motor Co., Firestone, consumers and the entire automotive industry.

But as the attention shifts from the magnitude and mechanics of the tire recall itself, the long-term consequences of the war of words between the two key players not only undermines both of them, but also the credibility of the auto industry as a whole.

A public battle to point blame at one cause or one party will result in many losers and no winners. Even if tread separation caused by the lack of a nylon layer was to blame for accidents and rollovers of Ford Explorers, Firestone will now defend itself in both the court of public opinion and the class-action and liability suits that are bound to be filed. Accident statistics, memos and technical directives regarding tire inflation pressure, among others, have already surfaced. They could compromise the vehicle as much as the tire.

No one can predict where this will lead, but it won't be pretty.

Unfortunately, Firestone blundered miserably at the outset of this event by not immediately appreciating the public relations fiasco, and by not taking the advice of seasoned American advisors who could easily have anticipated events. This scenario has been played out before in both the auto industry and other businesses. All that was required was a strong statement that customer safety was paramount and heroic efforts would be made to correct the problems.

The Johnson & Johnson recall of Tylenol is the case study of how it should be done. Forget about the short-term cost get the offending product off the shelves as fast as possible; reformulate the product; introduce tighter packaging standards to prevent tampering; win the respect and confidence of your customers. The lire situation desperately needed a coordinated effort between Ford and Firestone that reassured customers and set their expectations for changing their tires.

But that didn't happen. It's because Firestone is really a manufacturing arm of Bridgestone and policy and strategic issues are dealt with in Japan, not in the U.S. By the time the seriousness of the situation was communicated to senior Bridgestone executives it was too late. This huge, multinational company did not understand the differences between the U.S. and Japan when a major corporation is involved in a crisis.

The tradition of Japanese senior management publicly accepting blame for a debacle, with a few already pegged for retirement leaving the company and others accepting a pay cut, is often the only penalty. There are no lawsuits, intensified government scrutiny or hearings. In Japan, the issue fades out of the news as soon as the public apology is given.

So far, Ford's public defense of the Explorer that places blame squarely on Firestone tires appears to be working in the marketplace. Explorer transaction prices had been dropping since spring as the price of gasoline crept up and competition intensified in the SUV sector. Recent sales trends suggest further erosion in transaction prices of all SUVs, but there hasn't been a collapse in Explorer demand relative to expectations.

Round One is over. Firestone lost the public relations battle and has probably accepted that it will lose all of Ford's OE tire business as well. In Round Two, Firestone must defend itself among its peers and probably in the law courts. I expect that we will learn much about the causes of accidents in Explorers and how many of them involve tire tread separation. I also expect that we will be treated to information about relationships between auto companies and suppliers in an atmosphere of intense pressure to reduce costs.

In the end, the auto industry is the loser as its credibility with customers and regulators takes another hit.

MARYANN KELLER is president of auto services at Priceline.com.