Forewarnings of Fatal Flaws

But Firestone continued to sell a troubled tire

We are making an inferior quality radial tire which will subject us to belt-edge separation at high mileage.

That blunt assessment of the dangers of the ill-starred Firestone 500 steel-belted radial was sent to the company's top management by Thomas A. Robertson, Firestone's director of development, in September 1973, one year after production started. Despite his memo, others like it and an epidemic of auto accidents apparently caused by the tire's failing, Firestone over the next five years went ahead to make and sell nearly 24 million 500s at about $50 each. All along, the company insisted that the tire had no safety defects.

Only last year, under intense Government pressure, did the company end production of the 500 and agree to an order from the National Highway Traffic Safety Administration (NHTSA) to recall and replace all the tires on the road with newer 721-model radials. In May 1978, the House Subcommittee on Oversight and Investigations determined that the failure of the tires had been the major cause or the chief contributing factor in a large number of accidents. To date those accidents have involved at least 41 deaths, about 60 injuries and hundreds of incidents of property damage. Over the six-year period the company tried, unsuccessfully, to correct the faults. The primary and recurring problem: blowouts and other failures following a separation of the tread from the steel-belted inner layer.

The company so far has replaced about 3 million tires, or roughly 40% of those estimated to be still in use, and NHTSA Director Joan Claybrook has charged that it is moving too slowly. Says Frank Berndt, the agency's chief counsel: "The recall has been very disappointing."

TIME has learned that since last November the Securities and Exchange Commission has been quietly investigating Firestone. In a thrust that could be applied to other companies, the SEC is weighing whether firms must report to shareholders actions that officers know might risk civil penalties--such as discharging pollutants or making faulty products. Thus the SEC is interviewing Firestone officers and probing company records to see whether top executives knew about and should have disclosed the 500's problems much earlier.

Reports TIME Washington Correspondent Jonathan Beaty, who studied hundreds of Firestone documents: "Internal Firestone corporate records turned over to the NHTSA last year show that top Firestone managers--including President Mario A. Di Federico, who has just announced his resignation--were deeply enmeshed in the several years' effort to deal with and correct the failure problems of the 500 and were, from the beginning, aware of the tire's flaws. The documents show that while Di Federico and virtually all other top executives at one time or another were receiving detailed reports about tire failure from their own production people and major corporate buyers like General Motors and Atlas Tire Co., they still assured the public that the 500 had no safety defects, and were not telling stockholders of the problems."

Firestone confirms that it is under investigation by the SEC. Says a company spokesman: "From the questions they are asking, they are trying to determine just who in management was aware, and whether we disclosed in a timely manner. We are confident that the SEC will find we disclosed properly." The unexpected resignation of Di Federico, 57, he added, "was for personal reasons."

But the truckload of records that the company was obliged to turn over to the NHTSA show that:

>In November 1972, the first year of 500 production, Development Chief Robertson wrote to Di Federico, then head of North American operations, a memo stating: "We are badly in need of an improvement in belt separation performance, particularly at General Motors, where we are in danger of being cut off by Chevrolet because of separation failures."

>In September 1976, representatives of Shell, which had been selling the 500 as the "Super Shell Steel Radial," met with Firestone personnel. The Firestone minutes of the meeting say that "due to the problems" of customer returns, Shell was prepared to quit marketing the tire or shift to another supplier, perhaps Michelin.

>In late 1976, Montgomery Ward, which had been selling the 500 under its own "Grappler 8000" label, reported to Firestone that returns had reached "epidemic proportions," which "amplifies the fact we were given a bad product."

>Customers returned 17.5% of the tires to dealers, an industry record, although company spokesmen originally said the figure was 7.5%. A Firestone document in 1977 showed that in one year the 500 return rate was as high as 27% and that half of this was probably because of the separations.

The list of references to the early troubles of the tire is long. Atlas Tire wrote to the company in 1973: "In the eyes of Atlas, it appears Firestone is coming apart at the seams and drastic action is required." General Motors and Ford both complained strongly about the 500's high rate of failure.

Even before these new revelations, Firestone's potential legal payments over the matter of the 500 series were large. Last year it settled out of court for $1.4 million one lawsuit involving two deaths and a quadriplegic survivor, and it now acknowledges at least 250 pending private liability actions, plus further class-action suits demanding billions of dollars in compensation. The company considers such claims to be "outlandish." The Center for Auto Safety, founded by Ralph Nader and Consumers Union, estimates that current liability suits could cost the company as much as $100 million.

That estimate could prove low, and Firestone's product liability insurance coverage could be partly invalidated if it is proved that top management knew of and covered up the defects. None of the memos and records in Washington that Beaty saw hint that Firestone ever considered stopping production. The company just kept churning out the 500 tires; they just kept failing; customers kept returning them. And company lawyers just kept defending lawsuits brought by accident victims--and their heirs.

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