October 27, 2001 - Settlement in Suit Over Stalling Vehicles Could Cost Ford $2.7 Billion
Oct. 26--Ford Motor Co., still facing dozens of lawsuits over Firestone tires, agreed Thursday to settle a long-running legal battle over repairs on millions of cars and trucks prone to stall because of a flawed ignition system.
Plaintiffs' lawyers estimated that the deal, approved by Alameda Superior Court Judge Michael E. Ballachey, affects 12 million vehicles still on the road and could cost the automaker as much as $2.7 billion.
Ford spokesman Todd Nissen called that estimate "way overstated and wrong."
He said Ford incurred a cost of "several hundred million dollars" in the third quarter to cover the expected expense, as well as unrelated warranty expenses to replace head gaskets on 3.8-liter V-6 engines used in several models during the 1990s. The expenses contributed to a $692 million loss for the quarter.
The agreement affects 29 models of cars and trucks from the 1983-1995 model years. When the agreement takes effect in three months, Ford will reimburse owners of those cars for replacing the thick film ignition module, which has been blamed for stalling problems, if the repair was made before the car had 100,000 miles.
Ford owners who have had repairs can be reimbursed even if they do not have receipts. However, they must sign a sworn statement saying they paid for repairs and any related towing fees.
Ford will try to notify owners of vehicles with the ignition system by mail after the deal takes effect, and the company will also set up a Web site with claim forms and a toll-free number with information.
But Ford spokeswoman Kathleen Vokes said the agreement, in which Ford avoids a recall of the vehicles, includes no provision for owners to have their ignition modules checked or replaced if the modules have not failed.
"We are not replacing good parts," she said. "If you haven't had a problem, you just keep driving your vehicle."
As many as 11 deaths and 31 injuries have been linked to stalling Ford vehicles. Ford has maintained that its ignition devices and vehicles are safe and admitted no wrongdoing in the settlement.
Don Lough, a Ford attorney who worked on the lawsuit, said Ford's records show that most of the ignition modules lasted more than 100,000 miles. "Like other parts, they fail with age," he said.M
Lough said the most common problem among cars affected by the settlement was that the vehicle wouldn't start, and the second-most common was a vehicle stalling while idling. He said an engine stalling while the car was in motion was "the least likely" scenario.
"If your vehicle starts, there's nothing wrong with it," Lough said. "Either it works or it doesn't."
Critics note that the deal does nothing to remove from the road the estimated 12 million Fords nationwide equipped with the ignition system, which was originally installed in 20 million vehicles. These cars and trucks, including the high-selling Taurus, Mustang, Escort and Ranger models, remain prone to stall without warning, according to Ford's internal documents.
"I think it's as good as they could have possibly gotten, short of a recall," said Jeff Fazio, the lead attorney suing Ford.
Industry analysts said 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.
Shares of Ford were up 46 cents, or 2.9 percent, to $16.52 on the New York Stock Exchange.
Judge 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 Thursday after weeks of closed-door negotiations.
"I thought this wasn't going to happen," Ballachey said.
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 by claiming the modules were not flawed.
A trial was expected to begin later this year and could have exposed Ford to billions of dollars in damages under California consumer laws.
The suit challenged Ford's placement of the thick film ignition module, which regulates electric current to the spark plugs.
From 1983 to 1995, in 29 models, the module was mounted on the distributor near the engine block, where it was exposed to high temperatures. The government, which decided against a recall years before the memos became known, cannot recall the vehicles now because the legal deadline has elapsed on the aging vehicles, experts said.
Ballachey ordered Ford last year to recall as many as 2 million vehicles in California. Ballachey had no jurisdiction over vehicles in other states, but found that the 29 models of cars and trucks were equipped with a design defect.
The new settlement ends this recall threat and expands the class to Ford vehicles nationwide that have 100,000 miles or less.
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.
The settlement comes at a difficult time for Ford.
Last week, Ford reported the $692 million loss. Standard & Poor's lowered its credit rating two notches after Ford said it would cut fourth-quarter dividends in half.
The federal government has blamed at least 271 deaths on Firestone brand tires that experienced tread separation. Many of those tires were installed as original equipment on Ford Explorer sport-utility vehicles, some of which rolled over.
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