Who Doesn’t Like Airbags?

Who Doesn’t Like Airbags?, Or, How “It Costs Too Much” Morphed into Competitive Advantage and Social Good, by Mark Chussil

“What’s Safer: a Chevy or Mercedes?” So asked the Wall Street Journal on September 22, 2010.

I remember car makers resisting safety innovations (going back to mandatory seatbelts!) the same way they resist fuel-efficiency standards now: it will cost too much. (Meaning, we think our sales will drop?)

The WSJ’s article reminds us of the 1994 Chevy Cavalier, an affordable compact car. No airbags, no electronic stability control, a price around $12,000 iin 1994 dollars.

The article continues that the 2011 Chevy Cruze, successor to the Cavalier, has 10 airbags, electronic stability control, and systems to prevent rollovers and to tighten seatbelts in advance of a crash. Starting price, $16,995… which, in 1994 dollars, is $11,553.

There’s much more in the WSJ article. What I particularly notice is three things.

First, costs did not go up. The automakers found efficiencies. Their suppliers, selling more units, got scale economies and went down the experience curve. And the automakers improved fuel economy and reliability while they were at it.

Second, the automakers switched from thinking “cost” to thinking “opportunity.” They compete now on safety. A combination of federal regulations and greater consumer awareness made safer cars easier to sell than less-safe cars. (Notice the flight from Toyota with the sudden-acceleration issue, which turns out to have some interesting twists that we won’t go into here. The point is the flight due to the perceived safety problem.)

Third, many automakers initially resisted the safety improvements. Due, perhaps, to what I call spreadsheet thinking, where costs are easy to see while benefits are hard to see. Spreadsheet thinking can unintentionally encourage companies to make shortsighted decisions. (See “Do Not Overtighten.”)

Two bottom lines.

First, as the WSJ says: “Embarrassment, it turns out, is a powerful motivator.” In 2003 the Insturance Institute started publicizing the results of safety tests. The cars of that year didn’t do well on the tests. Today, cars do much better.

Second, cars are indisputably safer than before. It shows. As the WSJ said, “The death toll on U.S. highways in 2009 is the lowest it’s been in 50 years, according to a federal Department of Transportation report earlier this month.”

Finally, an issue of trust. How can consumers trust companies to make safe products, and to make products safer? Some companies do, as a matter of principle and/or differentiation. (In general, think about airlines. Crashes are very bad for business.) Others don’t. We can rationalize that customers can decide how much safety (or eco-friendliness or whatever) they want to pay for. On the other hand, executives have told me that a “level playing field,” meaning rules they must all follow, is effective because no one is at a perceived cost disadvantage.

To that I would add that better decision-making would help everyone — consumers and businesses — tremendously. It is possible to factor safety and other so-called “intangibles” into strategy decision-making, and to do it quantitatively. I know it’s possible because I’ve done it, and I’m not the only one who has done so. Whether something is a threat or an opportunity is better decided by applying brains than by jerking knees.

Who doesn’t like airbags? These days, no one.

Update, December 5, 2013. Coral Davenport writes in The New York Times (Large Companies Prepared to Pay Price on Carbon) that some of the biggest companies around, including the five major oil companies (ExxonMobil, ConocoPhillips, Chevron, BP, and Shell), are factoring a carbon tax into their future plans. They’re seeing the “trend is inevitable” according to Tom Carnac, North American president of CDP, an environmental data company. Maybe they’ll start to see an airbags-like opportunity.

Update, October 17, 2013. Nicholas D. Kristof writes in The New York Times (This Is Your Brain on Toxins) about the sordid commercial history of toxins. An opportunity, just like airbags and “green,” for toxin-free companies. (BPA is one such endocrine disruptor and some companies are removing it from their products.)

Update, September 5, 2011. The New York Times reports, in A Debate Arises on Job Creation and Environment, on similar does good / too expensive debates in the political arena. Some claim EPA (Environmental Protection Agency) regulations cost jobs and are too expensive in a fragile economy. Others say those claims overstate costs and ignore benefits. Where’s the embarrassment? Where’s the opportunity-thinking? And what’s the equivalent of airbags for the economy and environment?

Update, April 13, 2011. The Wall Street Journal reports, in Hospitals Duel Over Wait Times, that hospitals are starting to advertise low wait times in their emergency rooms.

Update, March 22, 2011. Being green in the construction industry is becoming like being green and being safe in automobiles. In Show to Highlight Fuel Savings, the Wall Street Journal says “Makers of construction equipment, suddenly facing riskier near-term economic prospects, will stress fuel economy and compliance with tougher environmental standards at the industry’s mammoth Conexpo trade show opening Tuesday in Las Vegas.”

Update, October 1, 2010. The Wall Street Journal reports, in Plane Fires Prompt Battery Safeguards, that “U.S. regulators are devising various ways to crack down on air-cargo shipments of…electronic devices that contains lithium ion batteries.” They’re prompted by the fatal crash of a UPS 747 “filled with electronic goods” on September 3 in Dubai, due to fire, and five other safety incidents related to lithium batteries since August. A trade group for the wireless-device industry has told the White House that “restrictive rules could lead to price hikes for consumers.” Contrast: “At least one major cargo carrier, FedEx Corp., has committed to voluntarily equip more than 95 of its long-range, wide-body planes that fly oceanic routes with fire-suppression systems.” (Those are the aircraft at most risk and that often carry electronics.) FedEx started developing fire-suppression technology several years ago after fire broke out on a FedEx DC-10, caused by undeclared hazardous materials. No mention of price hikes at FedEx.