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Stock Market Operations

Notes The tank placement did have a constructive purpose in the vehicle design. GM wanted the
truck to have a large fuel capacity so that drivers would not need to refuel the trucks
frequently. Achieving this objective required the use of two tanks located outside of the
frame rails that comprise the underbody of the truck.
In a 1973 analysis, GM engineer Edward Ivey prepared a benefit-cost analysis of the fuel
fed fire fatality issue. It is instructive to review this analysis in detail. Consider first his
calculation of the health costs associated with fuel fed fires. Based on Ivey’s “value analysis,”
there would be a maximum of “500 fatalities per year in accidents with fuel fed fires where
the bodies were burnt.” He assigned each fatality a value of $200,000, thus following the
same approach taken in the Ford Pinto analysis. Multiplying five hundred fatalities by the
value of $200,000 each, and dividing by the forty-one million GM automobiles currently
on the highways, yielded an estimated fatality cost of approximately $2.40 per automobile.
He then amended this calculation to focus on new models sold during the current model
year, for which he estimated fifty-five fatalities for the five million new models, leading
to an estimated accident cost of $2.20 per new-model automobile.

He concluded:
This analysis indicates that for G.M. it would be worth approximately $2.20 per new
model auto to prevent a fuel fed fire in all accidents. . . . This analysis must be tempered
with two thoughts. First, it is really impossible to put a value on human life. This analysis
tried to do so in an objective manner but a human fatality is really beyond value,
subjectively. Secondly, it is impossible to design an automobile where fuel fed fires can be
prevented in all accidents unless the automobile has a non-flammable fuel.

It is noteworthy that this analysis pertains to fuel fed fires more generally, and not to
those in the specific target population of vehicles that was the object of the litigation. It is
likely that the risks will be quite different for trucks with side saddle fuel tanks rather than
the entire fleet of motor vehicles sold by GM. Consequently, the Ivey memo is not directly
pertinent to the specific aspects of the Moseley case, except insofar as the memo indicated
the character of corporate thinking. As in the case of the Ford Pinto analysis, the $200,000
value per fatality uses a compensatory damages measure of the value of life, which was
the approach used by NHTSA at that time. This amount is smaller than the willingness-to-
pay measure of the value of life developed later in the economics literature.
The GM approach was consistent with state-of-the-art research on value-of-life estimates
at that time. Just as companies should be judged against the state-of-the-art with respect to
scientific knowledge pertaining to safety designs rather than the state of future knowledge,
they should not be expected to have applied methods of analysis that had not been
developed by economic literature until after the corporate decisions in question were
made. In the 1970s the dominant approach to measuring the value of life was the human
capital method, which focused on the present value of the lost earnings of the deceased.
This was, for example, the basis for the government’s approach with respect to traffic
safety. Indeed, the first estimates of the value of life from a prevention standpoint using
the appropriate concept of the value of a statistical life did not occur until later in the
1970s. Federal agencies did not use this concept until 1982, after a debate between the
Occupational Safety and Health Administration (OSHA) and the U.S. Office of Management
and Budget over the merits of the proposed hazardous communication regulation, which
was appealed to then-Vice President Bush. Based on OSHA’s analysis using human capital
assessments, which he termed the “costs of death,” the costs of the regulations exceeded
the benefits. Using the willingness-to-pay measure of the value of life, however, the benefits
exceeded the costs. For all contemporary benefit-cost analyses, one would expect the value-
of-life measure to reflect the willingness-to-pay value, as in Scenario 4. [Scenario 4 - used

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