Ford Motor CEO William Ford Jr. has a big "To Do" list in his turnaround quest: Revive sagging auto sales, rebuild the product pipeline, and reassure skittish investors, agitated dealers, and demoralized employees. So what's Job One? "Quality," says Ford.
That's why it was welcome news at Ford's Dearborn, Mich., headquarters that the carmaker has moved up two places in the closely watched quality rankings, issued May 30 by J.D. Power & Associates. Last year, Ford (F) ranked dead last among the seven major auto companies in Power's quality survey. Those scores are based on the Westlake, Calif., firm's annual poll of some 65,000 new car owners each fall, seeking their impressions and problems during their first 90 days of ownership.
This year, Ford's score of 143 problems per 100 vehicles, down from 162 last year, advanced the company to fifth place. Its 12% year-over-year improvement was the largest of the three domestic auto makers. Korea's Kia, at 212 vs. 267 in 2001, was most improved overall, with a 21% one-year jump.
TOYOTA ON TOP. General Motors (GM), which vaulted into third place with 130 problems per 100 vehicles, behind Toyota (TM) at 107 and Honda (HMC) at 113, posted a 30% improvement over the past five years. In rankings of individual model quality, Toyota swept 9 of 16 vehicle segments, including 6 of the 7 truck categories. DaimlerChrysler (DCX) placed fourth at 141, with Nissan (NSANY) and Volkswagen tied at 152. (Click here here to go to the rankings.)
Poor quality in recent years contributed to Ford's $5.4 billion loss in 2001. Shoddy vehicles have alienated customers, and Ford's U.S. market share has fallen by three points, to 20.9%, since the end of 2000. Defects led to numerous recalls in the past two years and delayed the arrival of crucial new models, such as the 2002 Explorer and 2001 Escape SUVs. Deutsche Bank analyst Rod Lache estimates Ford's average warranty cost per vehicle at $650, vs. only $400 for Toyota. And because poorly made cars have lower resale values, auto makers usually have to kick in cash subsidies when owners trade in, further depressing profits.
The uptick in quality follows several initiatives two years ago by quality chief Louise Goeser. Recruited from appliance maker Whirlpool in 1999, Goeser launched Ford's Six Sigma system to root out defects. Six Sigma, patterned on methods pioneered by such companies as AlliedSignal and General Electric, is a systematic, quantitative method for finding and correcting defects.
"COLLECTIVE AMNESIA." In addition to reducing the frustration level of Ford customers, Goeser says that, so far, Six Sigma has saved Ford $500 million. The company also has adopted a comprehensive, Toyota-style Quality Operating System that emphasizes consistent processes and elimination of waste.
Of course, this all should be old-hat for Ford. For decades, the company was Detroit's quality leader. In the '80s, it recruited octogenarian quality guru W. Edwards Deming to drill its troops -- and saw steady improvement in its quality ratings. Television advertising trumpeted "At Ford, Quality is Job One."
In the late '90s, dazzled by e-business opportunities and diversification into everything from mortgage lending to junkyards and auto repair, the No.2 U.S. auto maker's attention to quality slipped. CEO Bill Ford blames Detroit's tendency toward "collective amnesia" -- learning painful lessons and then forgetting them in times of prosperity. "But the fundamentals have never changed," he says.
REGAINING FOCUS. Among those basics: zeroing in on the glitches that bother drivers the most. The company tallies warranty reports and its own customer surveys to identify top concerns. Wind noise, for instance, was the leading complaint of Focus owners. Now, line workers pull six cars off the line each day and pump them full of smoke to check for air leaks originating from, say, poorly fitting door seals, which can create wind noise.
Bill Ford says he's pleased with the progress on improving quality so far, but adds, "It's never fast enough. Quality is not something you declare victory on."
Given how Ford has struggled to keep its focus on quality in the past, that caution is well deserved.
J.D. Power Quality Survey
(complaints per hundred vehicles)
Source: J.D. Power & Associates By Kathleen Kerwin in Detroit