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The Feds’ Firestone Fiasco
Who's really to blame?


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Larry Kudlow

What did he know and when did he know it?” was then-Sen. Howard Baker’s battle cry during the Nixon-Watergate hearings over 25 years ago. But the exact same questions could be asked about the Firestone tire fiasco, in which an outbreak of tread separation has so far led to 88 deaths and 250 injuries from fatal accidents in Ford Explorers. And as the facts of this mishap roll in, it turns out that Firestone, Ford, and the government’s highway safety regulator all knew before hand that a problem was brewing — yet none took appropriate action.

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The public-safety issue has caught the election-year attention of Congress, which is now holding hearings in both the Senate and the House. Sen. Arlen Specter wants to establish federal criminal penalties, including second-degree manslaughter. Sen. Barbara Mikulski wants the Transportation Department to assign inspectors to auto factories, much as the Agriculture Department assigns inspectors to chicken processors. Janet Reno and the Justice Department are looking for the application of federal criminal or civil statutes. Sen. Richard Shelby wants a big budget increase for the National Highway Traffic Safety Administration, which is part of the Transportation Department.

Wednesday night on Hardball (in a debate with me), Chicago Tribune Washington bureau chief James Warren blamed Reagan-era deregulation for the recent tire disaster. Sure, Jim. The problem with this interpretation is, none of the parties involved in this fiasco did what they were supposed to do under current regulatory law. That includes NHTSA, which is charged with overseeing the car and tire industry. Two years ago an insurance company whistleblower named Samuel L. Boyden e-mailed the highway agency about 21 tire-related accidents. That was in July 1998. But no one in the regulatory agency bothered to answer his e-mail. The buck could have stopped there.

So if the senior executives of Ford and Firestone are going down for a murder rap, why not include the top people in the Department of Transportation? The issue here does not cry out for billions of dollars and multiple new bureaucratic layers; what’s really necessary is that the government and private-sector people involved simply comply with existing law. Because they didn’t, tragedy occurred.

There’s plenty of blame to go around. It was in fact a real cover-up. The Firestone people apparently knew of the tire problem in March 1999, when they began a tire recall in Saudi Arabia. Soon after, they recalled tires in Venezuela and 14 other countries. But Firestone did not announce a formal official recall in order to avoid formally filing such an action with the Transportation Department.

In Congressional testimony, Ford CEO Jacques Nasser repeatedly argued, “This is a tire issue, not a vehicle issue.” But in fact, Ford lawyers were aware of the unofficial Firestone recalls long before last Aug. 9, when Firestone finally announced an U.S. recall. So, one might say, a pox on all three houses: DOT, Firestone, and Ford. If any one of these had properly complied with existing regulatory law, than the tragic deaths might well have been avoided.

In the election-year frenzy to pile on more laws and more regulations — to a problem that could easily have been solved in the first place — America’s solons are forgetting about the ultimate enforcement mechanism — namely, consumer demand and market discipline. A recent poll showed that only 19 percent of prospective SUV buyers believe that the problem is being adequately dealt with. Three weeks ago that number was 70 percent. Obviously, until consumers are totally convinced that the tire problem has been solved, they are not going to buy any SUVs with Firestone tires.

Because of the consumer boycott, the Ford Motor Company itself is walking away from its long-term supplier Firestone. Ford said its relationship with Firestone is now on a day-to-day basis, and is holding talks with Goodyear tire and rubber about supplying tires for next year’s Explorers. The Japanese company Bridgestone, which owns Firestone, has seen its stock crash, and trading in those shares has completely stopped. This time next year, there may not even be a Bridgestone/Firestone company.

In other words, the market is disciplining the guilty company, whether or not members of Congress pile on with unnecessary regulations, laws, and murder charges. Consumer discipline means no more sales, no more profits, and perhaps, no more company.

This is a tough story, and a lot of executives in the government and the private sector are culpable. But if calmer heads prevail, people will realize that Reagan’s deregulation polices were one of the primary reasons for the long economic boom, which continues to this day. The ultimate disciplinarian for bad corporate behavior is the well-informed consumer whose own life and well being is on the line. Consumer markets always work better than top-heavy federal regulations.

If George Bush would make this point once in a while, he might even defeat Al Gore.



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