Ford settles ignition lawsuit; no recall, but deal could cost automaker $2.7 billion

Saturday, October 27th 2001, 12:00 am
By: News On 6

HAYWARD, Calif. (AP) _ Ford Motor Co. could end up paying $2.7 billion to repair millions of flawed ignition systems in a settlement that saves the automaker from a recall but still puts a dent in its bottom line after a series of financial setbacks.

The deal, approved Thursday, ends years of litigation over the faulty ignition systems that are believed to have contributed to as many as 11 deaths and 31 injuries.

Ford admitted no wrongdoing in the settlement, but agreed to reimburse owners nationwide who paid or will pay to repair the ignition systems, so long as the vehicle had less than 100,000 miles at the time of failure. Ford, which disputes the plaintiffs' $2.7 billion repair estimate, also will cover related costs, such as towing fees. Wrongful injury and death suits are not affected.

The settlement in the class-action lawsuit was the latest hardship to beset the automaker.

Ford has seen a 15 percent erosion in vehicle sales. It is spending $3 billion to replace 13 million Firestone tires. And in September, it recalled nearly 788,000 Windstar minivans with faulty parts that could catch fire. The company also is eliminating 4,000 to 5,000 white-collar jobs this year and has reduced auto production.

Ford lawyer Richard Warmer said the cost to repair the vehicles ``will not be something that will have a material effect on the company's financial position.''

Industry analysts, however, say 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.

Alameda 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 Thursday after weeks of closed-door negotiations.

The agreement came two months after The Associated Press reported that at least 11 deaths and 31 injuries were blamed on stalling vehicles. The AP also obtained internal Ford memos indicating the automaker had evidence its ignition design could make engines suddenly fail.

Critics note that the deal does nothing to remove from the road the estimated 12 million Fords nationwide equipped with the ignition system. The systems originally were installed in 20 million vehicles. These cars and trucks, including models of the popular Taurus, Mustang, Escort and Ranger, 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.

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 weren't flawed.

Had the case gone to trial later this year as planned, Ford could have been exposed to billions of dollars in damages under California consumer laws.

The lawsuit challenged Ford's placement of the thick film ignition (TFI) 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. 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 ignition 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, potentially resulting in ``rapid catastrophic failure.''

A former National Highway Traffic Safety Administration investigator told the AP that Ford concealed this information from federal safety regulators, who were studying hundreds of complaints about Ford vehicles stalling. Michael Brownlee, who oversaw the defects investigations, said the government might not have closed its four investigations if Ford had provided key documents.

Consumer groups backed the settlement 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, resulting in reduced dividends. Ford shares closed up 46 cents, or 2.9 percent, on Thursday after the announcement.