Future of Firestone Questioned as Costs Mount
Robert Patterson guards one of the most sought-after secrets in the nation’s legal community.
Almost every day, plaintiffs’ attorneys from across the country bombard his small Corpus Christi, Texas, office with telephone calls. They want to know how much cash Bridgestone/Firestone Inc. paid to settle a suit blaming defective tires for the deaths of a Texas couple, his clients’ parents.
“Was it $5 million?” they ask. Or $10 million? More than $10 million?
Patterson doesn’t tell, citing a confidentiality agreement.
The settlement is the first since Bridgestone/Firestone voluntarily recalled 6.5 million tires in August. Since then, more than 150 deaths and 500 injuries worldwide have been linked to accidents in which tread peeled loose from Firestone tires.
How much the company paid to Patterson’s clients could help determine the amounts other victims would receive--and whether the tire maker will survive hundreds of consumer and personal injury suits filed against it.
Many experts are already writing Bridgestone/Firestone’s obituary, saying that both the Firestone brand and the company itself--the U.S. subsidiary of Bridgestone Corp. of Japan--might not be able to survive a combination of potentially lethal woes: plummeting sales, mounting legal troubles and shattered consumer confidence.
“I’m not going to write them off yet, but it’s bleak,” said Russell Winer, a professor of marketing strategy at UC Berkeley. “It shows how fragile some of the strongest brand franchises can be when there is a major product catastrophe.”
Others are even more pessimistic--such as C. Britt Beemer, chairman of America’s Research Group, a Charleston, S.C.-based consumer research firm. A recent ARG survey found that customers are rapidly deserting Firestone, with 63% of 1,000 consumers interviewed saying they would not buy the company’s tires.
“You can’t keep a company going with a small and shrinking customer base,” Beemer said. “There are strong indicators that Firestone will probably be out of business in the not-too-distant future. It’s going to take a miracle.”
A Bridgestone/Firestone spokesman said the company “continues to prosper” and will survive. And analysts in Japan say the parent company has the financial strength to weather the storm and will try to preserve its investment in the U.S.
But last week, more evidence surfaced to support Beemer’s prediction. Bridgestone announced Friday that it will lay off at least 1,100 workers in Tennessee and Oklahoma, citing plummeting sales. Yoichiro Kaizaki, president of Bridgestone, said sales at the company’s U.S. subsidiary dropped 40% in September and October in the wake of the massive U.S. recall. Kaizaki raised estimates of recall costs by 29% to about $450 million.
That figure, a Bridgestone/Firestone spokesman said, does not include the possibly hundreds of millions that experts say the company may have to pay to compensate consumers and victims of crashes and their survivors in the U.S., Venezuela, Colombia and Mexico. Add to that the millions more the company will incur in legal bills for its small army of outside attorneys defending these suits.
The vast majority of the class-action suits seek reimbursement for tire costs paid by possibly millions of consumers, while personal-injury cases seek to compensate individual victims for medical expenses, lost work, pain and suffering.
Bridgestone/Firestone’s new chief executive, John Lampe, said recently that he didn’t know whether the company will settle all claims in a single settlement or take its chances on a case-by-case basis.
But as trial dates for some of the death and personal-injury suits approach, legal experts say Bridgestone/Firestone has few choices.
“There will be a lot of pressure to settle the early cases in light of intense public scrutiny that has taken place and continues today,” said David Bernick, a Chicago attorney who has defended tobacco, asbestos and pharmaceutical companies in mass tort cases.
Bernick and others cite prevailing national sentiments. Some 75.6% of potential jurors surveyed by DecisionQuest, a legal research firm, said they believed that executives of big companies often try to cover up the harm they do. And according to 30% of the polled potential jurors, punitive damages in the billions are necessary to send such companies an effective message.
Attitudes such as those found in the DecisionQuest poll help to explain why the value of cases against Bridgestone/Firestone has soared. Experts caution that each case is different, but, generally, a case in which the head of a household was killed as a result of a tire failure can command a $10-million settlement, up from about $2 million.
Other cases are far more lucrative--such as ones involving paralyzed victims. For example, attorneys for Christy McKinney, the 21-year-old Arkansas woman who says an accident caused by defective Firestone tires left her a quadraplegic, said she will need constant care costing more than $20 million.
Because Bridgestone/Firestone, like most large corporations, is self-insured, almost all of the money will come from its own coffers.
Bruce Kaster, an Ocala, Fla., attorney who specializes in representing victims of tire failures, said he believes the company may not be able to withstand the legal onslaught and could file for bankruptcy.
But analysts in Tokyo say Bridgestone has invested a great deal of money, marketing effort and brand development in its American subsidiary and will work hard to keep it financially solvent. That could include a substantial capital injection, if needed, to stave off bankruptcy.
“Bridgestone is committed to Firestone,” said Junichi Yamaki, analyst with Moody’s in Tokyo. “The U.S. market is a big part of Bridgestone’s global business strategy, so they will work hard to secure it.”
Yamaki and others say Bridgestone is likely to stand behind Firestone in large part because it wants to preserve and bolster its global image and operations. Its business supplying tires to Ford Motor Co., which has dried up since the August recall, accounts for only 13% of Bridgestone/Firestone’s total revenue.
Although the deaths linked to separated treads in the United States and Latin America have been widely publicized around the world, consumers in Europe and other regions not directly affected have not punished the company at the cash register.
“So far, it’s really only a North American issue,” said Takaki Nakanishi, an analyst with Merrill Lynch Japan. “In that sense, Bridgestone is a bit lucky.”
Based on rough estimates of the legal exposure Bridgestone/Firestone faces, Bridgestone appears to gain more by shoring up Firestone and eventually rebuilding it than by distancing itself from the troubled unit, Tokyo-based analysts say.
Bridgestone, one of the world’s largest tire makers, has relatively deep pockets. It has consolidated net worth of $7 billion to $8 billion, throws off $400 million annually in cash flow and reported a profit of $822 million for the fiscal year ended March 31.
As a Japanese blue chip, it has ready access to extensive bank capital. And it could sell off a number of subsidiaries that are not central to its strategy--including those in the housing material and chemical sectors--that could raise tens of millions of dollars.
The big question is the cost of Bridgestone/Firestone’s legal liability. If the case follows past cases, analysts say, the cost to the company could total $2 million to $10 million per death. With more than 150 deaths now attributed to tire separation, that might put the total in the range of $200 million to $1 billion, an amount the company could handle with the help of its parent.
The real wild card would be punitive damages. In a few auto-related cases, out-of-court settlements reportedly have neared $100 million per death when punitive damages are added. If this amount is reached in the Firestone tire cases, the bill for 100 deaths could approach $10 billion. This probably would result in long-term debilitating damage to the companies, analysts said.
These numbers generally represent a worst-case scenario in which Bridgestone/Firestone is found 100% responsible. In fact, given the disproportionate number of crashes that involved Ford Explorers, Ford Motor Co. could be found partially responsible. In that case, the cost to Bridgestone/Firestone could be significantly lower.
If, in a worst-case scenario, Bridgestone/Firestone is forced into bankruptcy because its legal liability is far greater than was expected, Bridgestone’s exposure probably would be limited to its investment, given the legal firewalls between the two, said lawyers in Japan.
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Maharaj reported from Los Angeles and Magnier from Tokyo.
