Case Study: Risk and Crisis Management Firestone

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Problem Assessment: The Global Crisis of a Leading Tire Manufacturer

The Outcome:

In the year 2000, Bridgestone/Firestone, one of the world’s leading tire manufacturer, reported 80 percent decline in net earnings caused by product recall. The company established a reserve of $388 million to cover recall expenses, in addition to $463 million set aside to cover related legal expenses. The company’s stock value fell by $10 billion in one month alone. The CEO has been replaced and three plants shutdown operations and closed. (J.L Gelman (2001, March). How the Civil Justice System Uncovers the Truth for Consumers. Update on the Law … Product Liability, 23, 1-4).

The Cause:

Since August 2002, there were over 6.5 million automobile tires recalled, and deaths linked to tire tread separation have increased beyond 115. Due to wrong handling of the situation among the top executives of Bridgestone – Japan and its American subsidiary, Bridgestone/Firestone, the company suffered financially and damaged their reputation. This crisis affected Ford Motor Co., since it was Ford’s Explorer SUV that utilized most of the recalled tires. On the issue of accountability, Ford and Firestone have decades of business relationship. However, this recall caused their business relationship to also suffer. From the start, Ford blames the tread separations on Firestone’s defective tires. Firestone blamed Ford on the other hand for Ford recommending a lower pressure on the tires, then Firestone addressed it to drivers for not maintaining their vehicles properly. Tire failures were first reported in Venezuela in 1998, then in 1999 in Saudi Arabia, then Malaysia and Thailand. Ford began replacing the tires in those affected countries. There were many lawsuits filed against Firestone and Ford that were settled but because of a “no disclosure” provisions, it prevented information regarding possible tire defects from being released, and thus, no trends was established despite the growing number of common failures in the U.S. When a U.S. television station aired an investigative report linking Firestone and Ford Explorer to several deaths, numerous consumer complaints came in, that the U.S. National Highway Traffic Safety Administration requested Firestone for a voluntary recall, which Firestone refused. Three months after the tire maker agreed to meet the demands to issue a recall, tire supply for replacement tires were short. Firestone obviously failed to manage this crisis successfully. Ford turned to other tire manufacturers such as Goodyear, to outfit its vehicles. 

What do you think caused Firestone’s downfall? What could have been done at the ealy stage that could have prevented this crisis?

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