Big Tire Blowout

Big Tire BLOWOUT

Timeline

1978

1988

- On October 20, 1978, Firestone recalled over 7 million

Firestone 500 tires, the largest tire recall to date.
-Congressional hearings into the 500 also took place in
1978. The defective tire was found to be the cause of 250
deaths.
-In 1979, Firestone goes major restructuring with new
management closed nine of the company's seventeen
manufacturing plants, including six in one day.
Bridgestone (Japan) takeover Firestone & save them from
financial collapse due to the 1978 recall

Big Tire BLOWOUT

Timeline
Ford and Firestone had a century long partnership dating from
1906,when Harvey Firestone supplied tires to Henry Ford for his new
model T.

1991

Bridgestone/Firestone fit AT, ATII, & Wilderness AT tyres on Ford

Explorer SUV.

1992

Ford start to receive complaints about Firestone tyres

1999

Ford replaced Firestone tyres on models in 16 countries (not

USA) without telling NHTSA federal regulators
Confidential memo from Firestone to Ford in which Firestone
expressed "major reservations" about a Ford plan to replace
Firestone tires overseas.

2000

TV station did a story on tread separation on Ford Explorer

SUV. 46 deaths & > 300 incidents reported
6.5 million Firestone Tyres recalled in USA.
- Disagreement about tire inflation pressure

Big Tire BLOWOUT

Timeline

2000

2001

Bridgestone/Firestone inc. issued a recall of 6.5 million tires.

The recall was 90% completed in December.
Ford CEO Nasser testified before a joint congressional
hearing that "this is clearly a tire issue and not a vehicle
issue.
Ford said it was under no obligation to report overseas
recalls.
Yoichiro Kaizaki, the president and chief executive of the
Bridgestone Corporation, resigned in January.
In mid 2001, US House Energy and Commerce committee
initiated enquiry of tread separation of Firestone tires.
Ford announced plans to replace about 13 mn Firestone tires
used on its vehicles.
Firestone insisted that those tires were safe and that Ford
was replacing them to divert attention from safety problems
with its Explorer.
Nasser defended Ford is safer and Ford had no choice but to
replace the tires based on its data.
Firstone blamed the Explorer for the safety problems.
Firestone alleged that Ford Explorer without Firestone tires
were still experiencing rollover problems.
4

Big Tire BLOWOUT

Timeline

May 22, 2001Bridgestone/Firestone ended its 100-year

relationship as a supplier to Ford, accusing the automaker
of refusing to acknowledge safety problems with the
Explorer.

Big Tire BLOWOUT

Analysis

Analyst claimed more than 250 deaths and more than 3000 injuries associated with
the Firestone
defective tires.
AT Tyre:Tread separation due to cost cutting & poor build
quality

100+
lawsuits
filed
Most of the deaths occurred in accidents involving the Ford Explorer
Clearly everything was not right in
Explorer as well?
Ford Explorer:high centre of gravity due to cost control & defective vehicle
design
Ford selected a tire pressure of 26 p.s.i.rather than the 30-to-35 p.s.i.

Big Tire BLOWOUT

Which company was responsible???
or

Many people
blamed
Firestone.

Other believed
that Ford should
share
Responsibility.

Companies try to pin blame on each other,

but others say both are at fault7 Forbes

Big Tire BLOWOUT

Financial implication

Ford
Firestone

After effect consequences

Firestone shut down illinois plant
eliminating 1500 jobs.
Bridgestone recalled 6.5 million
tires estimated $750 million cost
of the recall
Extraordinary loss of $570
million in lawsuit.
Long term
sales hit of $372 million a year .

After-effect consequences
Ford approximately took a $2.5
bn after-tax cost to replace 18.1
mn.
Ford closed new car production
plants for three weeks . Paid
salaries to 6,000 workers.
Undisclosed amounts in legal
settlements.
Long term
Earnings sink by 65% in 2001 to $
2.3 bn. Ford's share of the US
automobile market fall by 1.7
percentage points in 2001 to
23.1%.

http://www.cbsnews.com/news/firestone-tire-settles-with-ford/
http://edition.cnn.com/2001/BUSINESS/asia/05/22/japan.bridgestone/index.html
http://content.time.com/time/business/article/0,8599,128198,00.html

Big Tire BLOWOUT

Prisoners Dilemma

Key features:
Each players have a dominant strategy to Confess to
pursue self-interest but confess confess is sub optimal
solution .
- Instead Dont confess by would be perfect solution.

Big Tire BLOWOUT

Prisoners Dilemma- Context

-

Both Firestone and Ford played this at real time

simultaneously unaware of how other is playing the
situation.
Perfect information: Both players knows the full history of
the play of the game
Actions of each party:
Share : Owning the responsibility and co-operate for
Tyre failure
Assumed Pay-offs
Shaft the Blame : Blame the other party for failure to
Fords Actions
avoid liabilities
Firestones
Actions

Blame

Share

Blame

-1.5, -3

-0.5, -3.5

Share

-2, -0.5

-1, -1.5

Big Tire BLOWOUT

Prisoner Dilemma- Choices/

Existence of sub-optimal dominant equilibrium
consequences
-Dominant strategy exist if an action each players optimal choice no matter
what the other players do:
Ford: Ublame (-3or-0.5) vs Ushare(-3.5 or -1.5)->Blame is dominant
strategy
Firestone: Ublame (-1.5 or -0.5) vs Ushare (-2 or -1)-> Blame is again
dominant
-Playing this as dominant strategy bring them in PR war ending up escalating
Ford
Strategy
situations and sensitizing Market,
consumer,
authorities.

Firestone
Strategy

Blame

Share

Blame

-1.5, -3

-0.5, -3.5

Share

-2,

-1,

-0.5

-1.5

Sub-optimal Consequence Blame, Blame

-Tyres replaced from even non-faulty tyres for Ford.
Replacement of tyre : 20 million * $100 replacement/ tyre 2 billion
-Paid legal settlements to many claimants
-Lost confidence and trust of consumers.

Big Tire BLOWOUT

Prisoner Dilemma- Choices/

Optimal Consequence : cooperate- co-operate
consequences
- They were both aware of the issues and they could have communicated
the issue to each other. They could have Improved tread material, design
the vehicles and informed the government.
-Worked collaboratively to give same message to consumers and co-share the
cost of replacing tyres

Ford Strategy

Firestone
Strategy

Blame

Share

Blame

-1.5, -3

-0.5, -3.5

Share

-2, -0.5

-1, -1.5

Big Tire BLOWOUT

Prisoner Dilemma- Choices/

What should they do then?
consequences
Strategy 1) Best is not to get into Prisoners Dilemma from
beginning:
Change the Structure of the game so that mutually advantageous outcome is
secured.
e.g) Make credible Commitments & Threats:
1. Commitment to renew contract if Firestone do not blame Ford, terminate
contract if Firestone blames Ford (-5B in Firestones blame payout due to
lost of future contracts)
2. Firestones dominant strategy becomes Share
3. With Commitment of contract, if Ford blame Firestone, they would lost good
partnership with Firestone (-1B) if they continue to Blame Firestone
knowing that their future contracts
are committed to them.
Ford Strategy
4. Fords dominant strategy becomes Share

Firestone
Strategy

Blame

Share

Blame

-1.5-5, -3-1

-0.5-5, -3.5

Share

-2,

-1,

-0.5-1

-1.5

Big Tire BLOWOUT

Prisoner Dilemma- Choices/

What should they do then?
consequences
Strategy 2) Once you are caught, get out of it
Communicate directly & collaborate:
- They were both aware of the exact root cause and issues and thus the
optimal way to resolve those issues
- Discuss about future relationships, forgive, dont be envious of payoffs of
others but gain through corporation
- Blame to the industry or technology, and that their products are compliant
to the engineering standards
- Worked collaboratively to give same message to consumers & federal to
improve credibility

Ford Strategy

Firestone
Strategy

Blame

Share

Blame

-1.5, -3

-0.5, -3.5

Share

-2,

-1,

-0.5

-1.5

Big Tire BLOWOUT

BMW

BMW REACTS IMMIDIATELY AS COMPARED TO FORD:

German automaker BMW faced similar crisis in 2004-06 with faulty
passenger seat airbags.
Problem was the small cracks that develops in the seat detection mat
which used to deactivate the front passenger air bags
BMW acknowledged the fault in the front passenger seat airbags. .
Immediately recalled 200,000 of its cars.
BMW responded to the problem by
1)Extend the warranty to 10 years for the above mentioned vehicles
without any mileage limit.
2)it replaced the detection mats for the customer free of charge

Thanks

http://content.time.com/time/business/article/0,8599,128198,
00.html
http://edition.cnn.com/2001/BUSINESS/asia/05/22/japan.bridgestone
/index.html
http://www.icmrindia.org/free%20resources/casestudies/The%20Fi
restone%20Tire%20Controversy3.htm

What is Tread Separation?

Tread Separation occurs when the rubber tread
begins to separate from the steel belts inside the
tire. This occurs because it is hard to adhere
rubber to steel. Tread Separation becomes more
likely at high speeds and in warmer climates.

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14-04-2015