172 Cases

7. Would the outcome have been different if the Japanese stock market
had not fallen?
8. What actions could Barings have taken to prevent its failure?
Sources: BBC, "Nick Leeson and Barings Bank," http://www.bbc.eo.uk/crime/casec/osed/
nickleeson.shtml; Marcus W. Brauchli, Nicholas Bray, and Michael R. Sesit, "Barings PLC
Officials May Have Been Aware of Traders Position," The Wall Street Journal 132, 44 (March 6,
1995), pp. A 1, A6; Nicholas Bray and Michael R. Sesit, "Ba rings Was Warned Controls Were
Lax but Didn't Make Reforms in Singapore," The Wall Street Journal 132, 42 (March 2, 1995),
p. A3; Paula Dwyer, William Glasgall, Dean Foust, and Greg Burns, "The Lessons from Barings'
Straits," Business Week, 3415 (March 13, 1995), pp. 30-33; Alexander Macleod, "Youthful
Trader Sinks Britain's Oldest Bank," The Christian Science Monitor 87, 64 (February 28, 1995),
pp. 1, 8; Jeremy Mark, Michael R. Sesit, and Laura jereski, "Losses at Barings Grow to $1.24
Billion; Authorities Begin Sale of 'Good' Assets: Trader Sent to Clean Up Backroom Woes Left
a Globe-Rattling Mess," The Wall Street Journal 132, 40 (February 28, 1995), p. A3; Sara
Wed, Michael R. Sesit, Nicholas Bray, and Robert Steiner, "Britain's Barings PLC Bets on
Derivatives-and the Cost is Dear," The Wall Street journal 1 32, 39 (February 27, 1995),
pp. A 1, A6; Richard W. Stevenson, "Germany Orders Leeson Extradited to Singapore; Ex-
Barings Trader Prefers Trial in Britain," The New York Times 145 (October 5, 1995), p. CS;
Michael R. Sesit and Laura jereski, "Barings Trader Forged Document to Obtain Funds,
Singapore Alleges," The Wall Street journal 1 32, 45 (March 7, 1995), p. A 1 7.

Case 4

Chrysler-Disconnected Odometers
On June 24, 1987, the U.S. Government issued a 16-count indictment against
Chrysler Corporation and two high-level executives, charging that the
odometers on selected new cars and trucks were disconnected prior to turn-
ing the vehicles over to Chrysler executives for up to six weeks of personal
use. When the vehicles were returned, the odometers were reconnected and
the vehicles were then shipped to dealers as new vehicles. The government
claimed that the practice had been going on for the past 38 years; some of
the vehicles had been driven up to 400 miles. It was further claimed that
some of the vehicles had been involved in accidents and then repaired with
no notice of the accident provided to the new owner.
The government asserted that at least 60,000 vehicles had been involved
in this practice between July 1985 and December 1986. Chrysler vice presi-
dent Baron Bates refuted the charge that vehicles were given to company ex-
ecutives for extensive personal use. He defended the practice of testing cars
with odometers disconnected as part of a quality-assurance program that
involved randomly selected vehicles. Bates stated that the vehicles were
driven home overnight for the purpose of isolating potential quality or
safety defects. The vehicles were driven an average of 40 miles, with a few
driven more than 65 miles. Chrysler further stated that fewer than 40 cars
had been involved in accidents inthe last 10 years, and those cars had been
fully repaired prior to being handed over to dealers for sale.
 Chrysler-Disconnected Odometers 173

When the government began its investigation of Chrysler in October

1986, Chrysler stopped disconnecting odometers and limited the test
drives to 65 miles. They also placed notices in the glove compartments of
the test vehicles, -advising buyers that the car had been involved in the test-
ing program.
On July 1, 1987, Chrysler president Lee Iacocca defended the legality of
Chrysler's 'actions, stating: "The only law we broke was the law of com-
mon sense." He went on to express that the practice may have caused buy-
ers to lose faith in Chrysler, faith that had been carefully nurtured since the
government bailout. "We asked [customers] to trust us, and they did. Now
they've been given reason to question that trust. Simply stated, that's un-
forgivable." Referencing the odometer disconnecting, Iacocca stated: "Did
we screw up? You bet we did: I'm damned sorry it happened and you can
bet it won't happen again, and that's a promise."
Iacocca announced that Chrysler was extending the current five-year
or 50,000-mile engine and power-train warranty on all vehicles involved
in the testing program to seven years or 70,000 miles. In addition, the
warranty was expanded to cover additional major systems including air-
conditioning and brakes. Owners of all cars involved in the program
were offered a free inspection. Owners of vehicles that were damaged
during testing and then repaired prior to shipment were offered a brand
new car or truck of comparable value at no additional cost. Chrysler ran
ads on television and in newspapers (see Figure A.1) apologizing for dis-
connecting odometers on test cars and outlining its compensation pro-
gram. Iacocca was careful to note that the program was not considered a
legal settlement by stating: "This is not a product recall. The only thing
we're recalling here is our integrity."
1. Who are the stakeholders in the case?
2. What priority rank do you give to each stakeholder?
3. Were any ethical norms or principles violated by Chrysler?
4. How effective was Iacocca's response?
5. If you had been Iacocca, what would you have done differently?
6. What decision dimensions did Chrysler use to implement the testing?
7. What decision dimensions did Iacocca use in responding to the charges?
8. What could have been done to prevent this practice from occurring?

Sources: Paul A. Eisenstein, "Chrysler Denies It Falsified Auto Mileage," The Christian
Science Monitor 79, 148 (June 26, 1987), p. 11; John Bussey, "Lee lacocca Calls Odometer
Policy 'Dumb,'" The Wall Street Journal 117, p. 2 (July 2, 1987), p. 2; Paul A. Eisenstein,
"Chrysler Chairman Tries to Make Amends-and Boost Image," The Christian Science
Monitor 79, 153 (July 3, 1987), p. 11.
174 Cases

FIGURE A. 1 Chrysler Ad Regarding Testing Cars with Odometers Disconnected

"Testingcars
is a goo<I idea. That'sa mistake
Disconnectingagainwe won't make
at Ch~sler.
odometers Period!'
is a lousyidea. f~
LET ME SET THE RECORD STRAIGHT.
1. For years, spot checking and road testing new cars and trucks that come off the
assembly line with the odometers disengaged was standard industry practice.
In our case, the average test mileage was 40 miles.
2. Even though the practice wasn't illegal, some companies began connecting their
odometers. We didn't. In retrospect, that was dumb. Since October 1986,
however, the odometer of every car and truck we've built has been connected,
including those in the test program.
3. A few cars-and I mean a few-were damaged in testing badly enough that they
shoukl not have been fixed and sold as new. That was a mistake in an otherwise
valid quality assurance program. And now we have to make it right.

WHAT WE'RE DOING TO MAKE THINGS RIGHT.

1. In all instances where our records show a vehicle was damaged in the test program
and repaired and sold, ue will offer to replace that vehicle with a brand new
1987 Chrysler Corporation model of comparable value. No ifs ands or buts.
2. We are sending letters to everyone our records show bought a vehicle that was in the
test program and offering a free inspection. If anything is wrong because of a
product deficiency, we will make it right.
3. Along with the free inspection, we are extending their present 5 year or 50, 000 mile
protection plan on engine and powertrain to 7 years or 70, 000 miles.

4. And to put their minds completely at ease, we are extending the 7 year or 70,000
mile protection to all major systems: brakes, suspension, air conditioning, electrical
and steering.
The quality testing program is a good program. But there were mistakes and we
were too slow in stopping them. Now they're stopped. Done. Finished. Over.
Personally, I'm proud of our products. Proud of the quality improvements we've made.
So we're going to keep right on testing. Because without it we couldn't have given
America 5 year 50, 000 mile protection five years ahead of everyone else. Or maintained
our warranty leadership with 7 year 70, 000 mile protection. I'm proud, too, of our
leadership in safety-related recalls.
But I'm not proud of this episode. Not at all.
As Harry Truman once said, "The buck stops here." It just stopped. Period.

,~
~
CHRYSLER
MOTORS
71E
,_;'.....,,··
CHRYSLER· PO'MO.JTH· OC>DGECARS · OO(XjE TRUCKS