Michael I. Krauss, Professor of Law, George Mason U. Law School.
1. What Do We Know About The Tire Debacle
By now, everyone who
drives has heard that there is a problem with some tires on some
sport utility vehicles. The tires are Firestones (a unit of
Bridgestone of Japan), and most of the vehicles are Ford Explorers.
Most of the problems consist of blowouts caused by tread separation
of one of the rear tires, resulting in rollovers. It seems
that over a nine-year period approximately 100 people have lost
their lives in such accidents (though we must be careful
one reported victim turned out to be of the canine persuasion).
The problem was spotted and reported entirely by private enterprise
(analysts at Ford and at State Farm Insurance, for the most part).
Millions of tires have been recalled and hundreds of thousands of
motorists are panicked. Detailed investigations are of course ongoing.
But enough of the dust has settled that it seems possible to offer
at least tentative answers to the following questions: What happened?
Who is to blame? How does current law deal with the situation?
And, do we need more laws: should marketing defective products be
transformed into a federal criminal defense, and does NHTSA need
more powers to combat such problems?
- What happened? As best we can tell, the two steel belts glued
to the rubber on certain models of Firestone tires are separating
in high temperatures and at relatively high speeds. This
is almost certainly due to a manufacturing defect and to lax quality
control by Firestone. The weakened tires, after heavy use
and if grossly under-inflated (Americans are notorious about ignoring
tire pressure), evidently present a significant risk of tread
separation. Firestone has virtually admitted as much. Millions
of tires supplied in the same sizes, with the same recommended
tire pressure, and during the same years by Goodyear have not
suffered suspicious numbers of failures.
- Who is to blame? Anti-SUV forces have, as expected, blasted
Ford because of the rollovers. And of course SUVs,
with their higher center of gravity, are more prone to rollovers
in case of rear tire failure than are passenger cars. But
the death rate in rollovers for Explorers is over 40% lower than
for Chevrolet Blazers, to take an example, even though the Blazer
has not been victimized by Firestone tire problems. And
the overall death rate in Explorers is much lower than the average
for all passenger cars weight and height may increase some
highway risks, but they drastically decrease many others.
In sum it appears that a combination of defectively weak tires
and poor maintenance habits best explains these accidents.
- How does current law deal with these tragedies? The Firestone
tires were likely defective and unreasonably dangerous.
Clearly Firestone (that is, Bridgestone) is liable for injuries
proximately caused by these defects under law in effect in all
50 states. Ford is also liable if the tires involved were
original equipment.  In addition to having to compensate
victims, Firestone might be subject to punitive damages and criminal
prosecution if it turns out that it was or should have been aware
of the defects and failed to notify Ford and individual car owners.
Forty States Attorneys general are presently investigating
criminal liability, perhaps for involuntary manslaughter (i.e.,
reckless endangerment of human life), should the evidence warrant
this. It should be noted that there is little evidence at
this point that Ford hid any relevant information..
- How else have these companies been disciplined? Government
policymakers often become so obsessed with legal constraints that
they neglect to notice that, in addition to product liability
law in the fifty states, and in addition to criminal law in the
fifty states, our market structure provides plenty of penalties
of its own for inappropriate behavior. The Bridgestone Corporation
has lost over 50% of its market capitalization: this represents
a loss of billions to shareholders, and this has endangered the
careers of company managers. The Firestone brand name is
dead in the water, and the manager of the US Firestone unit is
apparently about to be fired. Ford Explorers, meanwhile,
have lost six percent of their resale value, creating many hundreds
of thousands of disgruntled current Ford consumers. Not
to mention future Ford consumers because of the loss of
residual value, which is a prime consideration of lease rates,
it currently costs less to lease a much less to lease a Land Rover
(sale price thousands more) than to lease an Explorer. This
is not the best time to be a Ford dealer
2. Should Auto Safety Defects Be Criminalized?
Given the loss of
life, and given the pre-election climate, one perhaps natural reaction
is to make a federal case of the matter to create
yet another federal crime, of introducing defective products into
This idea, embodied
in Senate Bills 3014, 3070 and 3059 (the latter unanimously approved
in committee on Sept. 20) , may have good intentions. But
it is in my opinion disastrous for several reasons, which I will
A. Federal Criminalization Is A Recipe For
Disaster In Product Design And Innovation
As those of us who
teach and practice in the field of products liability know, there
is no such thing as a perfectly safe product. Every safety
feature has a cost attached to it. Just as no American has
enough money to purchase the perfectly safe automobile (whatever
that could be), so engineers must make tradeoffs in designing products.
To repeat, for example, SUVs roll over more than do passenger
cars, but they withstand collisions much better and their increased
height and four wheel traction provides a huge margin of safety
in certain situations. Now, sometimes the engineering and
marketing staff get the balance wrong, and design an unsafe product.
As I have just shown, they pay dearly for this mistake already,
in market share and in product liability damages. They are
fully incentivized not to make design mistakes.
So, should federal
criminal penalties (for murder, what's more!) be added to these
incentives? Some point out that there already exists federal
criminal liability for violation of EPA regulations, FDA requirements,
and Consumer Product Safety provisions. Note, however, that
these three laws (EPA, FDA, CPSA) create objective regulatory standards
for manufacturers. They can know in advance when they violate
one of these standards. If a drug label recommends a dose
twice as high as the maximum the FDA has approved, or if pollutants
are dumped in the stream in excess of EPA allotments, or if childrens
toys are made from poisonous materials prohibited by CPSA, these
objective requirements were there for all to see BEFORE the crime
was committed. Not so for basic product design and quality control,
which as I have stated requires constant and subjective balancing.
Criminal liability will necessarily lead manufacturers to reduce
innovation and new product design and introduction, for fear that
a misstep will lead not only to civil liability (as it does now)
but to prison for executives. Worse yet, criminal sanctions
might lead executives to isolate themselves from design issues so
as to be able to plead not guilty to knowing of the
defect. On the other hand, old designs, if not
attacked by federal prosecutors for long periods, will be
So if we want to squelch
innovation and competition, and to make product design an invisible
corporate activity carried on near the shredding machine, federal
criminal sanctions are the best way to go.
B. Federal Crimes Represent Yet Another Encroachment
On State Programs That Work
As I have stated,
no one today claims that there is not enough product liability law
in the United States. Ford and especially Firestone will fully
regret these tires by the time courts are through with them.
And state criminal law (including possibly prosecution for reckless
indifference) might also come into play in extreme cases.
There is simply no
need for federal intervention from a Congress that takes seriously
its stated fidelity to federalism principles.
C. Criminalization Will Severely Hamper Investigation
And Correction Of Design Problems
When litigation is
civil, discovery is mandatory. When criminal sanctions come
into play, constitutional protections do too.
almost never used to result in the filing of criminal charges, but
in recent years the federal government has invariably pressed them.
A House Transportation Committee hearing in July of this year examined
evidence that feear of incarceration is now discouraging cooperation
with investigations into mishaps. I would be pleased to refer
you to expert pilot testimony that the delays and lawyering resulting
from criminalization of airplane disasters essentially guarantees
that these disasters will be repeated.
D. Last But Not Least, If Design Defect Is
To Be Criminalized, Federal Bureaucrats Would Be Among The Principal
I want to make that
case in much of my remaining remarks concerning NHTSA, so instead
of duplicating my arguments let me pass to the second prime characteristic
of the bills being considered currently.
2. Should NHTSAs Powers And Resources
A second characteristic
of proposed legislation (both the abovementioned Senate bills and
HR 5164) is the increased oversight and regulatory authority, not
to mention resource allocation, granted to the National Highway
Traffic Safety Administration.
Let me make two general
theoretical points against this move. Then I wish to spotlight
NHTSA as a poster child for these theoretical reasons not to enact
A. First Theoretical Observation: Shifting
Power From A Liable To A Non-Liable Source Is Never A Good Idea
are liable for their poor design choices, in all fifty states.
Governments are NOT liable for their poor design decisions in any
state. Transferring authority from liable to non-liable sources
intrinsically reduces incentives for effective design.
B. Second Theoretical Observation: Government
Agencies Have Skewed Incentives That Are Not Amenable To Total Loss
I have made this point
in print in some detail concerning a different agency, the FDA,
so let me be quite brief here.
The point is really
a simple one. Imagine two kinds of injuries (presumably we
want to minimize the sum total of both kinds). In one kind
of injury, a consumer is hurt because of a defect in a product he
purchased. In another kind of injury, a consumer is hurt because
he didnt purchase a product that would have prevented
the injury. [Why didnt he purchase the product?
Perhaps because it was unavailable or too expensive for him, thanks
to pervasive government regulation.]
are intrinsically biased toward prevention of the first kind of
injury, even at the cost of drastically increasing the second kind
of injury. Let me give three examples.
-The FAA wanted to
force parents to buy separate airline tickets for their newborn
infants (on the quite correct grounds that in case of a crash the
infants would be better protected in their own seat). But
it was shown that this would lead many families to drive to their
destination, which is much more dangerous than flying and which
would therefore lead to many more infants deaths. One
dead child in a plane is easy to blame on the FAA. Hundreds
of dead kids on the road dont show up on FAA radar.
-The FDA is very concerned
about the bad press it will get if one of its approved drugs causes
abreactions and deaths of citizens. But it is comparatively
unconcerned with the hundreds, even thousands times more citizens
who die because a drug is not available to them because of endless
FDA tests. Those patients dont think they were killed
by the FDA.
- NHTSA is up in arms
when a defective tire explodes. But what of the many more
deaths that would be likely to occur if tires get so expensive (because
of endless NHTSA data collection, inspection and design intrusion)
that poorer drivers choose not to replace their tires and die when
the old ones fail? NHTSA doesnt get blamed for that
in fact it will use those failures to justify further regulation
and intrusion into the tire industry.
C. NHTSA Is A Notorious Culprit In Auto Design
i) Example: Air Bags
When Joan Claybrook
headed NHTSA during the Carter administration, her agency claimed
that air bags were fully tested, were excellent for children, and
were so effective that car occupants did not have to wear lap belts
to be protected.
This despite the fact
that in 1969 GM explicitly warned NHTSA that small children could
be killed by air bags, and that in 1971 Chryslers president
declared that air bags were dangerous for out-of-position
(read unbuckled) small adults or children. NHTSA wanted air
bags in all cars, and it used its bully pulpit to tout their design
attirbutes. [Play video of early Claybrook (1983, arguing
against Reagan administrations efforts to relax NHTSA air
Ralph Nader touted airbags at a 1977 press conference, and actually
demonstrated a simulated air bag deployment on an unbelted 3-year-old
girl. [distribute photo]
By NHTSAs own
calculations today, over 100 people (about the number killed by
defective Firestone tires) have been killed in low-speed collisions
by the high-powered airbags the agency itself mandated. 99
of those killed were innocent children. In fact, in a 1991
NHTSA memo which I can show you, NHTSA noted these deaths, but recommended
to car manufacturers that they not publicize them. [that is
EXACTLY the kind of behavior that leads to punitive damages and
state criminal sanctions if done by private companies]. And
the Government Accounting Office had already taken NHTSA to task
for not considering these deaths in its promotion of high-powered
air bags. Now listen to what NHTSA had to say after the deaths
from air bag use became public knowledge:
[Play video of Claybrook
in 1996. ]
In other words:
NHTSA advised the public that it didnt have to wear seat belts
in order to be protected by the air bags NHTSA was forcing us all
to buy. The industry complied. Today we know exactly
the opposite: for many Americans air bags make the car MORE
dangerous if you are not buckled in.
And NHTSA mandated
these air bags without any extensive real-world experience.
Since 1997, almost 2 million cars have been recalled voluntarily
by manufacturers due to problems that only real-world experience
could reveal (such as corrosion, environmental stress, durability
of new materials). If NHTSA had bothered to do real-world
testing the dangers of air bags would have been known. Instead,
NHTSA relied solely on laboratory simulations before mandating air
bags. Imagine a drug being marketed and falsely touted publicly
without any real world tests, then the real evidence hidden when
it is produced, then a third party blamed when finally the truth
cannot be denied any private company that did this would
be liable for tremendous compensatory and punitive damages.
NHTSA is liable for nothing at all, though.
This is a great illustration
of the dangers of shifting powers from entities that can be held
liable to government agencies that cannot be held liable. Private
corporations have the incentive and the capacity to produce reams
of information and evaluation of products. From Consumers
Reports to Car and Driver to Underwriters
Laboratories to State Farm Insurance (in our case), there are terrifically
powerful commercial reasons to produce and publish accurate information,
and severe commercial and tort penalties for screwing up.
NHTSA has neither these incentives nor these penalties.
ii) Truck Brake Standards.
In 1978 a federal
court overturned a NHTSA truck brake mandate because, in the courts
words, it made trucking more hazardous than before the
mandate. I have the decision if you wish to peruse it.
Note that NHTSA had persisted in going ahead with this standard
despite mounting evidence that the newly mandated brakes would malfunction.
iii) Fuel Economy Standards (Café Standards).
It is patently obvious
to all who have ever studied the issue that larger vehicles are
more protective during a collision. NHTSAs Corporate Average
Fuel Economy program forces companies to sell small, light cars
at a loss (they cant sell them at a profit consumers
wouldnt buy them) in order to be able to sell the larger cars
that consumers want. This means that CAFÉ increases
traffic fatalities. By how much no one knows for sure,
but the best estimate is that 2000-4000 lives per year are lost
because passengers are in small vehicles which they would not
be driving if car makers were free to sell the vehicles that
consumers want. This totally dwarfs the Firestone losses of
about 100 lives in ten years. But NHTSA is not liable, and NHTSA
refuses to admit that the small cars it mandates are dangerous.
This despite the fact that two federal appeals courts have called
NHTSAs data on CAFÉ fudged, bureaucratic
mumbo-jumbo, and dubious. Imagine a private company
that decided to sell dangerous products at a loss, because otherwise
they wouldnt be purchased, and that denied they were dangerous.
Such a company would be driven from business by liability rulings.
My time is up. I hope
I have shown you that: 1) our market system, and our state
common law of product liability, already provide excellent incentives
to manufacturers during their design decision-making process; 2)
criminalizing and federalizing product design defect decisions is
counter-productive and incompatible with respect for state sovereignty;
and 3) shifting decision-making authority even partially from corporations
(who are liable for their poor decisions) to bureaucrats (who are
not liable, and whose decisions are skewed because of their own
incentive structure) is a recipe for danger and deaths.
In a triumph of chutzpah NHTSA, bailed out by State Farm Insurance
in this case, maintains that if only it had a lot more money and
power all this would never happen again. So let me see if
I understand: If a federal agency detects a problem, this
means that it needs more resources and regulatory powers to reward
its good behavior and enhance its expertise further. If the agencys
incompetence is shown, however, that means that it needs more resources
and regulatory powers to remedy the situation. Such logic
is one of constantly expanding regulation, and constantly contracting