AUGUST 14, 2000
Big problems for Bridgestone Firestone
THERE are likely to be big spending cuts at Bridgestone Firestone as a result of the company's problems in the United States with the recall of an estimated 6.5m tires after a series of fatal accidents resulting from tire failures on light trucks and sports utility vehicles. Most of the accidents have involved cars built by the Ford Motor Company, notably the Ford Explorer. An investigation is currently being conducted by the US government's Highways and Safety Administration into allegations that Firestone's 15-inch tires have been losing their treads at high temperatures. The company has agreed to replace all 6.5m tires and as each one costs in the region of $40 this will mean a cost of around $250m without taking into account any possible damages which could come from law suits from the families of people who have allegedly been killed in accidents caused by tire failures. There are believed to be around 20 cases at the moment and several law suits have already been filed against Firestone and Ford. There are also suggestions that Firestone may have to recall 16-inch tires as well which could add considerably to the costs.
And while the cost of replacing tires and settling law suits may cost half a billion dollars there are worries that the problem will do considerable damage to the company's reputation and so affect the long-term sale of tires around the world. The company's share price dropped 15% when the problem came to light while shares in rival Goodyear enjoyed a steep rise in value as the company is expected to take a larger share in the market.
While Bridgestone Firestone is a huge company, the loss of half a billion dollars is not going to be easy and it is expected that there will be cutbacks to pay for the disaster. Motor racing activities are a luxury and are always at risk although it may be that the company will use its sporting projects to try to keep up the image of its products. The danger Bridgestone faces is that there could be trouble if Michelin arrives in F1 and proves to be more competitive than Bridgestone. That could lead to a Bridgestone withdrawal to save face and to save money. It would also detract from Michelin's efforts in F1 as without competition between two tire companies the amount of coverage generated by the sport is minimal - as Bridgestone has discovered since the withdrawal of Goodyear.
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