Product Liability: Its Impact on the Auto Industry, Consumers, and Global Competitiveness.

From its beginnings in the Industrial Revolution, the growth in the large-scale manufacture of goods for mass consumption has led to the familiar benefits of the modern consumer society. However, a darker side has also been revealed--of manufacturing mistakes, accidents, and injuries to consumers and other victims who, usually with little in the way of resources, seek redress through the legal system in claims for product liability. In no industry is this contrast between the positive and negative aspects of the consumer society more apparent than in the auto industry.

Technological advances have transformed vehicle transportation. The modern consumer expects a high-quality product that is, above all, a safe one, though still at a reasonable price in this highly competitive industry. But new technology involves risks, some of which are easily foreseeable and some of which may emerge much later often only after an accident. Should the manufacturer shoulder the costs of both development and liability when things go wrong?

Product liability law has evolved piecemeal and inconsistently, leading to a position in which manufacturers are unsure of the extent of possible liability, especially if punitive damages are awarded against them. Fearing the likely monetary consequences of lawsuits, manufacturers may be deterred from introducing new technology and could lose out in global competitiveness as a result. Mired in a climate of high-profile verdicts against carmakers, they argue that this is precisely what has happened in the U.S. automotive industry.

In contrast, few high-profile lawsuits are filed against automakers in Europe or Japan. Despite strict product liability laws, trials in those countries have neither juries nor punitive damage awards. Foreign carmakers are skeptical about introducing new technology in America because of the litigious climate of the U.S. auto industry. Some European carmakers have ceased providing after-sales parts and accessories directly to the United States. Their marketing and distribution costs have thus risen, while they have seen a fall in profits from the American market.

With extreme decisions and huge jury awards capturing the headlines in the area of product liability, the numerous interested parties in a web of interrelationships are often overlooked. Besides manufacturers, there are distributors, retailers, victims, and the wider public of consumers in general. A balance needs to be struck when assessing who bears the brunt of the responsibility. All parties have an interest in a fair system of justice in product liability cases, but this goal still seems distant. At stake are both the future of a competitive auto industry and consumer confidence in its products.

Development of Product Liability Law

The law of product liability derives from both contract law and the law of torts. The principle of strict liability in tort, regardless of fault, has vied with the fault-based standard of negligence for center stage. This hybrid legacy has proved to be a drawback in the long-term development of a coherent body of law. Product liability's roots in contract law rest on the implied warranty of merchantability (which protects people having direct contact with a merchant seller) and certain statutorily protected users or consumers. The judicially created concept of strict liability in tort makes any seller in the supply chain liable for defective products, regardless of whether or not the seller is blameworthy. Hence, a car dealership could be liable in tort for injuries caused by a defect in a car it sold, such as defective brakes that caused an accident, even though the defect originated solely with the manufacturer.

From the consumer's point of view some disadvantages have been associated with claims based on contract law, such as a seller's use of a disclaimer to exclude warranty obligations. But the doctrine of privity of contact, under which only a direct purchaser of the product could sue a merchant seller, has …