Center for America

Legal Reform Leaders

February 12, 2006

 

Tom LaSorda

President and CEO, Chrysler LLC

Remarks at The Chicago Economic Club

February 9, 2006

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 Center for America, 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:

  • higher consumer prices (according to the book, “The Liability Maze, each new vehicle sold comes with a $500 lawsuit “surcharge ... an estimate that’s already 15 years old!)
  • higher insurance rates

  • higher unemployment

  • higher health care costs (due to “defensive medicine” and the high cost of malpractice insurance)

  • lower wages

  • less innovation

  • reduced competitiveness

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!

* * *

Contacts:

Steve Hantler

Chairman

Center for America

248-884-7070 (Cell)

sbh2@Chrysler.com 

 
 

 

If you know of or have authored an article or report that deserves recognition among corporate and public policy leaders, please send an email to LegalReform@lawexec.com.  Original material © 2006 Center for America.