Business: 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."