Briefing - Remarks of Michael Krauss
 


Michael I. Krauss, Professor of Law, George Mason U. Law School.  Mkrauss323@aol.com

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?

  1. 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.
  2. Who is to blame?  Anti-SUV forces have, as expected, blasted Ford because of the rollovers.  And of course SUV’s, 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.
  3. 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. [1] 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..
  4. 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 interstate commerce. 

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 briefly outline.

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, SUV’s 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 children’s 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 deemed non-defective.

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.

Aviation accidents 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 Accused.

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 NHTSA’s Powers And Resources Be Increased?

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 these bills.

A. First Theoretical Observation:  Shifting Power From A Liable To A Non-Liable Source Is Never A Good Idea

Product manufacturers 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 Minimization.

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 didn’t purchase a product that would have prevented the injury. [Why didn’t he purchase the product?  Perhaps because it was unavailable or too expensive for him, thanks to pervasive government regulation.]

Government agencies 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 don’t 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 don’t 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 doesn’t 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 Defects

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 Chrysler’s 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 administration’s efforts to relax NHTSA air bag requirements).

 Consumer advocate 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 NHTSA’s 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 didn’t 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 court’s 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. NHTSA’s Corporate Average Fuel Economy program forces companies to sell small, light cars at a loss (they can’t sell them at a profit – consumers wouldn’t 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 NHTSA’s 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 wouldn’t be purchased, and that denied they were dangerous.  Such a company would be driven from business by liability rulings. 

Conclusion.

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 agency’s 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 freedom.

Thank you.


[1] This liability is independent of the automobile’s warranty – a new car warranty typically does not cover tires, but the car’s manufacturer is nonetheless liable for their defects in tort.

   

2003 The Federalist Society