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Thank you, Charles,
and good afternoon to all of you! It’s a pleasure to be here
with you in Chicago, as the country’s best-attended auto show
gets ready to open its doors to the public.
 There is something
truly sinister about the way our auto industry forefathers
planned the auto show circuit with the major shows in Detroit,
Chicago and New York all coming at the most frigid time of the
year.
We’re just six
weeks into 2006 and I can already say that it’s been a busy year
for the Chrysler Group and Chrysler LLC in Illinois. Last
week I joined Governor Blagojevich and the 1,600 employees of
our Belvidere Assembly plant to christen one of our newly
launched vehicles.
It was a milestone
event for our company on two levels.
First, our $419
million investment in Belvidere brings its manufacturing
flexibility – namely, the capability of building multiple
products on the same production line – up to world class levels.
In that regard, Belvidere is now equipped to compete with any
assembly plant in North America.
Second, Belvidere
will build three new vehicles that will fill key positions in
our product lines. Those include the all-new Dodge Caliber and
Jeep Compass, both of which you can see right here at the auto
show. We’ll announce the third new Belvidere-built product later
this year.
Caliber and
Compass are among ten of the all-new products the Chrysler Group
will roll out in 2006. In the 82-year history of our company,
we’ve never launched more vehicles in a single year!
Here at the show,
yesterday we unveiled the new Dodge Nitro, the first-ever
mid-size sport-utility for the Dodge brand. This Dodge is
destined for both the North American and international markets.
Our new Dodge Rampage concept truck also made its world debut.
Meanwhile, our
sister company Mercedes-Benz, has the world debut of the R63 AMG,
and the North American premier of the ML63 AMG – all
high-performance luxury rides that would look right at home on
Michigan Avenue.
Well, enough about
the auto show for now.
I’ll keep my
remarks brief today, so you’ll have plenty of time to go
downstairs and see these new products, as well as the latest the
auto industry has to offer. Better yet, treat your spouse to
tonight’s “First Look for Charity” preview event, and help raise
money for local charities.
As Charles
mentioned, I’ve got deep roots in the auto industry.
Four generations
of LaSordas have worked in Chrysler auto assembly plants in
Windsor, Ontario, on the far side of the Detroit River. Having
begun my career on the plant floor, and then having come up
through the ranks in manufacturing, I’ve learned that
competitiveness in industry all too often is heavily influenced
by external factors – factors that have nothing to do with
products, quality, productivity or any of the other attributes
that we use to define competitiveness in this business.
Now, you’ve all
heard chapter-and-verse about the thorny legacy issues that
hamper competitiveness in old-line industries. There’s no
question that the employer-based health care system is broken.
While other
countries have found a way to help their businesses with this
burden, we’ve not done this in the United States. Health Care is
an important structural issue that needs to be addressed, but
this will require long-term solutions across all industries (but
that’s another whole speech).
There is one issue
I’ll discuss today in which we can make a meaningful difference
fast, namely, legal reform.
Even if your business isn’t hard pressed by global competition
today, as we are in the auto industry, you know that could
change tomorrow.
As businesspeople
and government officials, we have to be at the absolute top of
our game to meet this global challenge.
Unfortunately, the
out-of-control legal environment in which we operate today is a
big drag on U.S.-based companies’ competitiveness. Now, it’s
long been conventional wisdom that this is a “lawsuit happy”
society, but the true costs of this are staggering.
A legal system
that was intended to protect citizens against negligence has
been twisted into a multi-billion dollar industry run by
plaintiff’s lawyers. In fact, the “lawsuit industry” is one of
the fastest growing industries in the country. Plaintiff’s
lawyers now take in $46 billion in fees annually.
To put a local
perspective on that number, that’s more than the twice the
annual revenues of McDonalds, and it’s significantly more than
Kraft Foods, Caterpillar, Motorola and Sears Holding
Corporation. And it’s rapidly gaining on the revenues of Boeing!
This should come
as no surprise. According to the American Justice Partnership,
about 16 million lawsuits are filed in already overwhelmed state
courts every year. That’s an average of one lawsuit every two
seconds! America now spends twice as much on its tort system as
it does on new cars.
Now that really
breaks my heart!
Our “litigation
lottery” costs America $246 billion a year. That’s 2.23 percent
of our GDP, compared to less than one percent in countries like
France, Japan and Canada. Furthermore, according to the
President’s Council of Economic Advisors, as much as two-thirds
of that $246 billion price tag is made up of unwarranted or
frivolous costs.
In my business, we
have a word for this kind of non-value added cost: waste.
In effect, this
legal system levies a “tort tax” that’s nearly $1,000 per
American annually on every man, woman and child…up from just $12
per year in 1950! We pay this tax in the form of:
I’m sure you’ve
all heard plenty of stories of ridiculous lawsuits and
exorbitant settlements, so I’ll spare you those. On the advice
of counsel, I won’t tell any lawyer jokes, either. Plus, I’ll
add the disclaimer that I’m not a lawyer. Nor do I claim to be a
legal expert.
But, given that
lawyers make up almost half of the U.S. House of Representatives
and Senate, and have made little progress in legal reform, we
have to ask ourselves this:
Has the rule of
law been replaced by the rule of lawyers? Perhaps a little
“blue-collar grounding” and manufacturing common sense could go
a long way in making sense of the U.S. legal system. It would
allow all of us in business to use more of our limited resources
where they count.
Here are four
simple suggestions for legal reform at the state and federal
levels that would get us off to a good start.
First, in tort
cases we need to allow witnesses to tell the full story, so that
juries can hear it.
Now, this
statement comes as a shock to those of us who grew up watching
shows like “Perry Mason” and want to believe that witnesses are
compelled to “tell the whole truth and nothing but the truth!”
But product
liability laws in the majority of states actually compel
witnesses to tell the “partial truth,” and thus prohibit juries
from hearing the “whole truth.”
For example, most
people realize the importance of seatbelts in auto accidents.
After hearing about an accident, most people ask: “were they
wearing their seatbelts?” How many of you do this? I know I do.
Certainly, this question also comes to the minds of jurors
deliberating an automobile accident case. After all, seat belts
are a key component of driver and passenger safety.
When properly
worn, seat belts prevent ejection and assist in keeping
occupants positioned so that they can benefit from other safety
systems such as air bags and head rests.
Yet in 32 states
juries are not allowed to consider a plaintiff’s failure to wear
seatbelts in assessing damages – even though wearing seat belts
is required by law in every state except New Hampshire! In some
product liability suits in some states, we can’t even introduce
the evidence that one or more drivers was under the influence of
alcohol. I’m sure this is as shocking to all of you as it is to
me.
Let’s move on to
my second point…
We need to set
some reasonable and fair limits on damages in product liability
cases. There are three components to legal damages:
- economic
(hard costs associated with loss of wages, medical care,
etc.)
- non-economic
(also known as “pain and suffering”) and
- punitive
While the economic
costs can be established with some objectivity, the non-economic
and punitive costs are completely unpredictable – it’s a total
lottery. According to a recent report by Richard Nicolaides, of
the Chicago law firm, Bates & Carey, only a fraction of the
total costs of the tort system goes toward compensating the
injured plaintiff.
For every dollar
awarded in tort liability, the injured party typically receives
only about 46 cents to compensate them for their injuries. That
means that the majority of every tort system dollar goes
elsewhere:
- 14 cents are
spent on defending claims;
- 19 cents are
spent on plaintiffs’ attorneys’ fees;
- 21 cents go
toward administering costs.
Let me be clear:
We need a system that first assesses realistic economic damages,
and then sets reasonable limits on other damages. Here’s a good
– or should I say, bad – example of the problem.
Last year
Chrysler LLC was hit with more than $50 million in
compensatory and punitive damages in one case. Why? Because a
17-year old driver fell asleep at the wheel and plowed into a
Dodge Caravan minivan at a combined closing speed of more than
70 miles per hour.
As a result, a
245-pound rear seat passenger in the Caravan, who had chosen not
to wear her safety belt, was hurled forward and slammed
head-first into the driver. The coroner confirmed the Caravan
driver was killed by blunt force trauma to the back of the head.
This was a
horrific tragedy and needless loss of life. But the lawsuit was
less about the accident and more about the trial bar going after
“deep pockets.” If you doubt that, then consider that the
sleeping driver who caused the accident was not even sued.
We need to stop
punishing the defendant with the deepest pockets and get back to
a system based on guilt and innocence.
We, of course,
appealed this award, incurring even more legal costs to fight
it. Furthermore, the portion of the damages received by the
plaintiff’s lawyers must be reasonable and limited to an amount
that reflects the lawyer’s efforts. The benefit of these changes
will be a more open, impartial and predictable system – one that
compensates for real damages and doesn’t reward legal
theatrics…and does not punish a defendant because his company
has a healthy balance sheet.
Third, we must
stop punishing responsible companies for meeting or exceeding
federal safety and regulatory standards. In the auto industry,
we have two sets of “standards” to meet when it comes to product
safety.
The first set is
drawn up by the National Highway Traffic Safety Administration.
It includes objective and scientific measurements on, for
example, how a vehicle should perform in a low- or high-speed
collision. (By the way, as a rule we don’t design to meet
federal standards, we strive to exceed them.)
Then there’s a
second set of “standards.”
For lack of a
better description, let’s call it the “whatever a good trial
lawyer can convince a jury the standard should be.” Of course,
that is really no standard at all. Now, some people will argue
that the threat of product liability makes for “safer” vehicles.
Although litigation in the 1960s and ‘70s did wake up consumers
and business to safety concerns, the argument doesn’t hold up
today.
The real threat of
product liability suits is to dampen the incentive to innovate.
Make no mistake,
our Chrysler LLC engineers’ job is to continually evaluate
and improve our products, and they do just that. They continue
to look for quality and safety improvements, and they are not
reluctant to suggest or implement new designs. If there is a
clear product or safety reason for making changes, we aren’t
going to back down because of the threat of lawsuits.
We will
continuously evaluate our products and do what is right for our
customers. But the threat of product liability creates a huge
disincentive for self-critical evaluation of the features on
current and past vehicles. A promising proposal can also become
a nightmare if it is taken out of context in a lawsuit.
Our engineers and
designers often fear that their ideas or criticism of our
current products will be taken completely out of context and
twisted around in court.
Imagine, if that
logic were used in office technology, we’d all still be using
typewriters!
The stifling
effect of the legal system on innovation isn’t just an auto
industry problem. In an interview with the “Investors Business
Daily”, Bernie Marcus, the co-founder of Home Depot, seriously
questions whether he could succeed with Home Depot if he had to
start it in today's legal environment instead of that in 1978.
Fourth, we need to
pursue legal reform and eradicate what the American Tort Reform
Association has called “the judicial hellholes” in this country.
My hat is off to
the Illinois legislature and Illinois Supreme Court for progress
it’s made to improve the state’s legal environment. For years,
Madison County had the dubious honor of being ranked as the
nation’s number one “judicial hell hole,” and has now dropped to
number four, according to the American Tort Reform Association.
That’s why, for
example, so many asbestos lawsuits have migrated from there to
Delaware, and to a more “plaintiff-lawyer friendly” legal
environment. Illinois and a handful of other states are
recognizing that legal reform is critical for creating a
competitive environment for business, one that will attract and
keep business. And this isn’t just about big business with
so-called “deep pockets.” About 68 percent of all tort costs are
borne by small business. When you consider that small business
accounts for three of four jobs in this country, you can see
that there’s a huge cost opportunity for not undertaking legal
reform.
Other states
including Texas, South Carolina, Georgia, Ohio and Michigan,
under Governor John Engler, who fixed the legal system in the
Chrysler Group’s home state back in the ‘90s, have either
undertaken or are undertaking similar legal reform initiatives.
Those states that
don’t, will find themselves at a competitive disadvantage when
it comes to attracting and maintaining business. In fact, the
improving legal climate here in Illinois, while far from
perfect, has given our company more confidence in continuing to
invest here – much as we’ve just done in our assembly plant in
Belvidere.
Legal reform is an
issue that all of us in business and government – and as
consumers – should take up. Our competitiveness, the health of
our local and national economies, and our access to innovative
products are all at stake.
All we need to do
is exercise some common sense!
We need to fight
meritless lawsuits, and not to pay the form of blackmail that
settlements too often take. We need to speak out on legal reform
to our employees, government officials and the media. We need to
make legal reform a “top five” communications issue for our
companies. (If Bernie Marcus, the now retired CEO of Home Depot
is willing to take a stand, we should be, too!)
We need to join
organizations that are working for legal reform. As companies,
government officials and concerned citizens, we need to fight
back and stop this drag on our competitiveness!
Then, a car
company CEO like me can go back to talking about the products he
loves to build!
Thanks for your
attention. And be sure to enjoy the auto show!
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