Business: Forewarnings of Fatal Flaws

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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.