Ford Replacing 13 Million Tires

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A war of words has turned into a full-fledged battle between Firestone and Ford Motor Co. Confirming rumors that began circulating over the weekend, the automaker has announced plans to recall 13 million potentially defective Firestone tires. In turn, Firestone is accusing Ford of covering up safety problems of its own, and says it will no longer do business with the Michigan-based automaker.

With both sides pointing fingers, analysts say Ford and Firestone both could suffer serious consequences.

“Firestone and Ford are having a nasty divorce,” said Rep. Jim Greenwood, a Pennsylvania Republican, who was briefed by Ford CEO Jac Nasser before the automaker announced the latest recall Tuesday afternoon.

Blamed for over 170 deaths

The feud has been simmering since last August, when Ford announced that it was recalling 6.5 million of Firestone’s Wilderness AT tires, the majority of them used on the automaker’s popular Explorer sport-utility vehicle. Over the last decade, Wilderness tires have been linked to more than 170 deaths in the U.S. alone caused by catastrophic blow-outs. Scores of additional fatal accidents have been reported in Argentina, the Mideast and other parts of the world.

Since the initial recall was announced, critics have contended that it should have included millions more tires, a claim Firestone and Ford initially resisted. But the automaker says that extensive tests, along with real world reports, have led it to reverse its position. “These tires were sending out warning signals about future problems,” said Ford CEO Jac Nasser, adding that the tires covered by the second recall do not appear to be nearly as bad as those involved in last year’s action.

Ford’s unilateral decision is being strongly opposed by Firestone. While the tiremaker admits there were indeed problems with the tires recalled last year, it insists a second recall is not warranted. If anything, Ford is trying to cover up problems of its own, charges the tire manufacturer, a division of Japan’s Bridgestone-Firestone. “These tires are safe,” said Firestone CEO John T. Lampe, in a letter addressed to Nasser. “We believe you are attempting to divert scrutiny of your vehicle by casting doubt on the quality of Firestone tires.”

Whether the Explorer somehow contributes to the Wilderness AT’s unexpectedly high failure rate is likely to remain a matter of debate, though Nasser and other Ford officials vehemently denied the existence of any vehicle defects. To counter figures quoted by Firestone, Ford pointed to its experience between 1997 and 1990, when it used 2.9 million Firestone and another 2.9 million Goodyear tires on its Explorer. There were 1183 reports of tread separations with Firestones, but only two on the Goodyears. “Clearly, the tire was a major factor,” argued John M. Rintamaki, the automaker’s North American Chief of Staff.

Firestone just says “no”

While rumors of a new recall have been circulating for the last week, Firestone’s decision to end its supplier relationship with Ford came as an unexpected shot. This brings to a close a relationship which began in 1895, when Henry Ford bought some tires from Harvey Firestone to use on his pioneering quadricycle. Eleven years later, Ford called on his old friend to provide the rubber his fledgling Ford Motor Co. would ride on, and the two companies maintained a close relationship for the next 95 years.

It was more than just a business relationship—it became family. Henry’s grandson, William Clay Ford, married Harvey’s granddaughter, Martha Firestone. And their son, Bill Ford, now serves as chairman of the company bearing his family name. “Firestone was a part of my legacy,” the young Ford noted, “so, from a personal standpoint, this was tough….and deeply disturbing.”

But what was clearly even more disturbing to Ford was the prospect of having another media debacle like the one last year. The automaker was sharply criticized by consumer groups and the media for not moving sooner to stage the initial recall. The fiasco threatened to tarnish one of Ford’s most significant products, the Explorer contributing an estimated 20 percent of the company’s total profits.

Just how much of an impact events have had on the Explorer is unclear. In the months immediately following the first recall, sales remained strong, though Ford used its marketing might—and plenty of incentive money—to prop the Explorer up. But sales have begun to sag lately. During the first four months of the year, Explorer sales were down 22.3 percent, while the overall American SUV market was off only 9.2 percent.

New Explorer in trouble

Even more significant is what has happened with the all-new and completely redesigned 2002 Explorer. The automaker delayed its introduction by almost six months, ostensibly to ensure a smooth launch, but insiders say it also was hoping to get past the negative publicity of the original Firestone recall. But in April, the first full month that the ’02 model was available, Explorer sales were down by 15.7 percent compared to year-earlier figures.

Ford expects the latest Firestone tire recall to cost it about $2 billion after taxes—a charge that will be accrued in the second quarter, resulting in a sizable loss for America’s second-largest automaker. The recall is expected to take as long as nine months to complete. To speed up the process, Ford intends to idle three of its plants for as much as two weeks, so it can divert tires to its dealers, who will install replacements.

As for Firestone, its hard-line stance suggests it does not intend to pick up any of the recall costs, and it likely wouldn’t have to, analyst Stephen Girsky of Morgan Stanley Dean Witter & Co., wrote in a report, unless the National Highway Traffic Safety Administration decides to follow up with a mandatory recall order. Ford relied heavily on NHTSA data to justify its actions.

Meanwhile, it appears likely that Congress will get involved in the Firestone recall, reopening hearings staged last year to investigate the matter.

Even if Firestone avoids any recall costs, it doesn’t appear likely to escape unscathed. Ford has lately accounted for only a modest share of its overall tire sales, though overall volume has taken a hit because of all the negative publicity. The company is expected to try to make up the business it is giving up with Ford by signing up other carmakers. But industry analysts expect potential customers, such as General Motors to become increasingly reluctant to do business with such a seriously tainted brand. “There is a risk that Firestone will lose all its buyers,” analyst Churyon Ryu, of Credit Suisse First Boston, was quoted as warning.

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