Informing Buyers of Risks: Analysis of the Marketing and Regulation of All Terrain Vehicles

An examination of the marketing practices and the regulation of the all terrain vehicle (ATV) industry during the 1980s is presented. This review includes a content analysis of ATV advertising, an examination of the Consumer Product Safety Commission's (CPSC) regulation of the ATV industry, a study of the consent decree regulating the marketing of ATVs, and an analysis of the costs and benefits to the ATV industry of providing additional information to consumers. The paper concludes that deaths and injuries from ATV-related accidents might have been reduced substantially if the CPSC had been more aggressive in informing the public about the safety hazards associated with ATV use. Cost/benefit analysis reveals that the profit-maximizing strategy for ATV manufacturers was to market ATVs aggressively even when faced with the prospects of lawsuits and regulatory action. What actions should have been taken by the Consumer Product Safety Commission (CPSC) when it learned that the use of all terrain vehicles (ATVs) was associated with a high incidence of adolescents' deaths and serious injuries? Did the ATV industry inform prospective purchasers through advertising, product labeling, dealers' salespeople, point-of-sale material, and training programs about the potential product hazards? Was it more profitable for ATV manufacturers to inform consumers about the hazards of ATV use or to downplay ATV risks and pay the resulting costs of products liability lawsuits? This research explores these questions by focusing on three objectives. First, it provides a history of the ATV industry, including an examination of ATV sales and of deaths and injuries from ATV accidents, and it includes a content analysis of ATV print advertising. Second, it examines whether consumers benefitted from the 1988 consent decree negotiated by Department of Justice (DOJ) and CPSC attorneys with the ATV industry. The agreement banned three-wheeled ATVs, required public service messages, and mandated point-of-sale and advertising disclosures. The regulatory analysis in this paper provides insights into how well the regulatory process worked to provide consumers with information about ATV hazards. Third, it contains a cost/benefit analysis of alternative approaches to informing consumers about ATV risks. This analysis examines the potential effect on industry profits of increasing consumers' awareness of the hazards associated with ATV use. ATV SALES AND ACCIDENTS ATVs are three- and four-wheeled motorized vehicles intended for use on nonpaved terrain and are characterized by large, low-pressure tires, a seat designed to be straddled, and handlebars for steering. During the early 1980s, there was a substantial increase in both ATV sales and accidents associated with ATV use. Since 1982, ATVs have been associated with over 800,000 injuries treated in emergency rooms and at least 2,650 deaths ("ATV Fatalities Reach 2,430 in Latest CPSC Statistical Update" 1993; CPSC 1994). The history of ATV sales is summarized in Table 1. There are three key findings that emerge from analysis of the data in this table. First, from 1980 through 1983, sales increased by more than 50 percent a year and peaked at more than 600,000 units in 1984 and 1985. In 1988, the year the consent decree was signed, ATV sales fell to 217,000 units. Sales declined to less than 130,000 units in 1990 and have increased by approximately ten percent per year since then. TABLE 1 Estimated Unit Sales and Estimated Total Stock of Three- and Four- Wheeled A TVs, 1972-1993 Unit Sales (1,000s) Percent Sales Year 3-Wheel 4-Wheel Total 3-Wheel 4-Wheel 1972-77 139 139 100.0 1978-79 154 154 100.0 1980 126 126 100.0 1981 188 188 100.0 1982 290 290 100. …