Jim Copland writes that the $500 per car figure comes from Murray Mackay’s article, “Liability, Safety, and Innovation in the Automotive Industry” in The Liability Maze (p.199):
“In researching this paper, I persistently asked manufacturers what the cost and consequences of the rise in liability have been. In simple financial terms the answers have varied by a factor of ten, ranging from $50 to $500 per car sold.” The variance may suggest that the $500 figure is on the high side; but Mackay indicates that the costs seem to be much higher for domestic manufacturers than for importers, which may be why Chrysler sticks to the higher number. Steve Hantler, DaimlerChrysler’s assistant general counsel, tells me that the $500 estimate, being 15 years out of date, is itself probably low; he suggests that today’s liability cost is closer to $1000 per car.
Justinian Lane was kind enough to email me a link to the full Chrysler CEO Tom LaSorda speech at the Chicago Economic Club. Read the whole thing.
5 Comments
If it is $500 on cars, can you imagine what it is on private aircraft?
Ted, do you (or does anyone) know if ‘liability costs’ are defined as those costs only relating to insuring against and defending against liability lawsuits, or if those costs also include design modifications made to vehicles to deter liability lawsuits?
JL,
Even if it DOES include such design modifications, it definitely does NOT include safety features NOT added to due liability concerns (a well-documented problem).
Also, not all such changes (design by lawsuit) are a real gain… see the very next post for a good example of what I’m talking about. “Increasing liability” is NOT the same thing as “safer”.
Mackay’s full discussion seems to suggest that the cost estimate includes legal defense/settlement/verdict/overhead, not the cost of design modifications themselves: “First, as a matter of principle, it is clear that the customer ultimately pays. He or she pays because the manufacturer has higher costs arising from defending cases in court, from investigating claims in great detail, from making settlements, and from paying fines when found guilty. The manufacturer has increased its overhead because of a legal staff devoted to defending the product and outside lawyers and experts who have to be hired where appropriate. The definition of these costs is difficult. A proportion must be fixed costs that would exist if liability operated only at a much lower level, but the great bulk of the costs of product liability must be directly due to the enormous volume of litigation.” (pp. 199-200)
It’s a great myth that auto makers, and most other manufacturers, are generally stingy on product safety design to save a few bucks. Yes, car safety features tend not to be effective at sales generation, as Graham’s article in The Liability Maze makes clear: “safety has historically been a minor consideration in consumer choices compared with more salient product attributes such as vehicle appearance, ride, performance, price, fuel economy, and maintenance record” (p. 123). But manufacturers are very concerned about potential publicity about alleged defects — whether real or imagined — that could have a dramatic impact on sales. Moreover, since the creation of NHTSA in 1966, car manufacturers have been subjected to rigorous regulatory review. Often — as with Ted’s seat back example in the following post — design choices necessarily involve choosing between features that are safer for certain types of crashes but more dangerous for others. And when manufacturers have resisted implementing safety-enhancing features, such as airbags, it has had little to do with cost and often a lot to do with liability: juries wouldn’t find a manufacturer liable for not including an airbag, but they certainly might for accidental airbag deployments that caused injury.
Ted, perhaps the response to Detroit is the same thing they say on the lot to the rest of us — “Now, now — it’s only $14 a month when you finance!”