Ford Settles Ignition Lawsuit; Deal Could Cost $2.7 BillionOct 26, 2001 | AP
Ford Motor Co. settled one of the industry's biggest auto defect cases Thursday, agreeing to pay for repairs on millions of cars and trucks with an ignition-system flaw that can cause the vehicles to stall in traffic.
The deal could cost the automaker $2.7 billion, the plaintiffs said. Ford attorney Richard Warmer disputed that figure but offered no specifics except to say that the settlement will have little effect on the automaker's financial position.
At least 11 deaths and 31 injuries have been blamed on stalling Ford vehicles that were equipped with the ignition device.
Ford has maintained that the devices and its vehicles are safe and admitted no wrongdoing in the settlement.
Under the deal approved by a California judge, Ford will reimburse owners nationwide who paid or will pay to repair ignition systems that have failed, so long as the vehicle had less than 100,000 miles at the time of failure. Ford will also cover related costs, such as towing fees.
The settlement does not affect any of the wrongful-death and personal-injury lawsuits filed over the defect.
And it does not remove from the road an estimated 12 million Fords nationwide equipped with the ignition system, which was originally installed in 20 million cars and trucks between 1983 and 1995, including the popular Taurus, Mustang, Escort and Ranger.
The deal ends years of litigation, avoids a court-ordered recall and averts a trial expected to begin later this year that could have exposed Ford to billions of dollars in damages under California consumer law.
For the plaintiffs, "I think it's as good as they could have possibly gotten, short of a recall," said a lead attorney suing Ford.
The deal comes amid a series of setbacks for the automaker, including a drop-off in sales. Ford is already spending $3 billion to replace 13 million Firestone tires it blames for deadly rollover accidents involving the Ford Explorer.
Industry analysts said that whatever its final cost, the settlement is not good news for Ford.
"Unfortunately it's a hit to their balance sheet, which is Ford's last remaining strength," said David Littmann, chief economist at Comerica bank.
Ford stock was up 46 cents, or 2.9 percent, to close at $16.52 on the New York Stock Exchange.
Superior Court Judge Michael E. Ballachey, who said earlier that the automaker was living in an "Alice in Wonderland" dream by denying the ignition modules were defective, signed the settlement after weeks of closed-door negotiations.
"I thought this wasn't going to happen," Ballachey said.
The agreement came two months after The Associated Press reported on the many deaths and injuries blamed on the defect. The AP also obtained internal Ford memos that show the automaker had evidence its ignition design could make engines suddenly fail on the road.
Ballachey ruled that Ford knew as early as 1982 that the vehicles were prone to stalling, especially when engines grew hot, and that Ford failed to alert consumers and repeatedly deceived federal regulators.
The lawsuit challenged Ford's placement of the thick film ignition module, which regulates electric current to the spark plugs.
The module was mounted in 29 Ford models on the distributor near the engine block, where it was exposed to high temperatures. According to internal documents obtained by the AP, Ford had designed it this way to save up to $2 per vehicle and increase fuel economy.
One document indicates Ford knew the devices should not be exposed to temperatures above 257 degrees. Another indicates Ford warned its engineers that many engines ran at temperatures higher than this, raising the risk of "rapid catastrophic failure."
A former National Highway Traffic Safety Administration investigator told the AP that Ford concealed this information from federal regulators, who were studying hundreds of complaints about Ford vehicles stalling. Michael B. Brownlee, who oversaw the defect cases, said the government might not have closed its four investigations if Ford had provided these and other key documents.
The government decided against a recall years before the memos became known. It cannot recall the vehicles now because the legal deadline has passed, legal experts said.
Ballachey ordered Ford last year to recall as many as 2 million vehicles in California but had no jurisdiction over vehicles in other states. The settlement ends this recall threat and expands the class to Ford vehicles nationwide.
Consumer groups backed the accord, but were frustrated nevertheless.
"If Ford were concerned about public safety, they would have recalled the vehicles," said Clarence Ditlow, who heads the Center for Automotive Safety.
Last week, Ford reported a third-quarter loss of $692 million. Standard & Poor's lowered its credit rating two notches after the automaker said it would cut its fourth-quarter dividend in half.
The federal government has blamed at least 271 deaths on Firestone tires whose tread peeled away. Bridgestone/Firestone Corp. insists the vehicle is partly to blame. Ford says the tire is the problem.