Ford’s Tire Recall Will Cost $3 Billion
Ford Motor Co. said Tuesday that its recall of 13 million Firestone tires on its SUVs and pickup trucks will cost the company $3 billion and force it to idle three plants to free tires to use as replacements.
The $3-billion cost before taxes will translate into a one-time $2.1-billion charge after taxes in the second quarter. The company said the charge will reduce 2001 earnings to $1.25 to $1.35 per share, compared with analysts’ estimates of $2.60.
Ford will replace all 15-, 16- and 17-inch Wilderness AT tires on its vehicles for free at Ford and Lincoln Mercury dealers, and reimburse owners who buy tires elsewhere for as much as $130 for the 16- and 17-inch tires. Eighty percent of the tires were sold on Explorers, but they are also on Ford Expedition SUVs, Ranger and F-150 pickups, Mercury Mountaineers and Mazda B-series pickups.
Ford will contact customers by mail regarding the replacement process. Customers can obtain information at any time by contacting Ford toll-free at (866) 300-1226, or by e-mail at tireinquiry@ford.com.
Ford said it was taking the extraordinary step of recalling the huge number of tires because it considers them unsafe and the manufacturer, Bridgestone/Firestone Inc., refuses to recall them.
“We lack confidence in the performance of any of Firestone’s Wilderness AT tires,” Ford Chief Executive Jacques Nasser said. “There are enough warning signs there, and we wanted to act in a precautionary sense.”
Bridgestone/Firestone responded immediately, repeating its accusations that Ford has ignored questions about the Explorer.
“No one cares more about the safety of the people who travel on our tires than we do,” CEO John Lampe said. “The real issue here is the safety of the Explorer. Ford refused to look at issues surrounding the Explorer in August. Ford failed to do that today.
“We stand by our tires and look forward to the opportunity to show Congress, NHTSA and the American public why our tires are safe and that there are significant safety concerns with the Ford Explorer.”
Rep. Billy Tauzin (R-La.), chairman of the House Energy and Commerce Committee who held hearings on tire failures last fall, said he would hold follow-up hearings this month to examine Ford’s new analysis of the Firestone tires, and the Explorer’s design.
Ford officially calls its move an “owner notification program,” but Nasser used the word “recall” several times at a news conference at Ford’s headquarters in this Detroit suburb.
The company said it has not yet determined how long the replacement will take.
The move covers twice as many tires as last year’s recall by Firestone of 6.5 million tires, which took five months to complete. Those tires were deemed dangerous because they lost their treads at high speed, throwing the vehicles, mostly Ford Explorers, out of control. At least 184 people were killed in accidents involving Firestone tread failures.
A Ford analysis of non-recalled Firestone tires prompted Tuesday’s recall. Ford looked at real-world tire performance data supplied by Firestone, information on competitors’ tires provided by the National Highway Traffic Safety Administration, and Ford’s own laboratory and field analyses, Nasser said.
The Wilderness ATs that were not recalled last year are “vastly” better than the ATX tires and Wilderness AT tires from one factory included in last year’s recall, said John Rintamaki, Ford’s chief of staff.
But compared with the 10 light truck tires made by three non-Firestone manufacturers, the Wilderness AT tires still on the road “exhibited failure rates at what we believe is above the acceptable industry rate,” Rintamaki said.
Ford’s timing of its recall was prompted by various factors, but the advent of summer was also on executives’ minds, and customers in Southern states will be contacted first, spokesman Ken Zino said. Most of the fatal accidents involving Firestone tires were recorded in hot Southern states during summer, and heat buildup is considered one of the factors in the tread separations.
By moving now to begin replacing tires, Ford also is seen as trying to head off a rash of potential fatal accidents--as well as costly lawsuits and further damage to the company’s battered image.
The move comes at a time Ford is getting another black eye for its Explorer--this time for the completely redesigned 2002 model that just went on sale.
Ford delayed the launch of the ’02 model, which has a lower center of gravity and so has a reduced tendency to roll over, to comb through it and ensure there were no quality problems. But already the new Explorer has been recalled twice: once because of rear gate windows that could break when shut, and an additional 50,000 last weekend because an assembly line that was too narrow accidentally slit the tires.
Ford will close its Twin Cities plant in Minnesota and Edison plant in New Jersey, both of which make Ranger pickup trucks, for two weeks, and idle its Louisville, Ky., plant, which makes Explorer variations, for one week to make appropriate tires available.
Ford also will obtain replacement tires from Goodyear Tire & Rubber, Continental Tire and Groupe Michelin. All have said they are ready to help Ford deliver the necessary tires.
Ford Chairman William Clay Ford Jr., who is a great-grandson of both Henry Ford and Harvey Firestone, said the recall was a difficult move. “The decision is a painful one for me personally. . . . But our bond with our customers is only as good as the trust between us,” he said.
He also noted that the Firestone Tire & Rubber Co. was purchased by Japan’s Bridgestone Corp. in 1988 and that the family ties effectively ended then.
“At the moment, there is no relationship, but we never close the door,” he said, leaving open the possibility that the two companies could do business once again.
General Motors Co., which uses Firestones on a variety of vehicles, said there were no plans to change suppliers. Toyota Motor Co., which since 1996 has sold some of its Tacoma pickup trucks and 4Runner SUVs with Wilderness AT tires of different specifications than those used by Ford, said there had been no complaints and there are no plans to make any changes.
Ford announced the details and financial impact of the recall after the stock market closed. Ford shares closed down 67 cents at $25.98 on the New York Stock Exchange.
