Automakers Need A Crash Course In Quality

Design Expert Says Detroit Must Address Product Reliability, Fail Rates To Compete Successfully

(CBS)  By product design expert Allise Wachs

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Seeing the leaders of the Big Three car makers begging Congress last week for a federal bailout was a sobering sight, and one that begged the question, "How did U.S. manufacturing get into this mess?"

Many Americans seem uninterested in digging into the real reasons for our industrial malaise, instead choosing to point a finger at some familiar bogeymen: unions, healthcare costs, offshoring, pensions, government regulations, and currency fluctuations.

While all of these have contributed to the massive job losses in our manufacturing sector, there are more fundamental reasons for our inability to compete successfully in the global marketplace.

The key to understanding the root causes of our failure lies in studying the success of Japan, a small, bombed-out nation with few natural resources 60 years ago that is now one of the great industrial powerhouses.

After World War II, Japan's infrastructure had been decimated and it had almost no natural resources to aid in the rebuilding effort. Yet, in a few decades it became the world's second largest economy when measured by gross domestic product.

This resurrection was made possible because Japanese companies learned four of the most important keys to manufacturing excellence:

1. Manufacture products as similar to each other as possible (minimize variation).
   
2. Design products so that they perform in realistic environments for a long period of time (high reliability).
   
3. Prevent and predict issues, rather than detect and react.
   
4. Educate employees in quantitative methods to accomplish the first 3 items.

Variation in product components (and how they fit together) largely explains why products fail at different times. For example, two of the same model washing machines may fail at drastically different times due to variation in their parts or construction. The impact of variation is often noticed by customers, and largely determines their loyalty and purchasing decisions.

While some manufacturers have been successful at reducing variation, others, such as American car makers, have not (despite highly touted "quality programs"). Combined, GM and Ford spent more than $8 billion in warranty costs last year. From 2003 to 2006, DaimlerChrysler spent an average of 4.5 percent of revenue on covering products under warranty, while GM spent roughly 3 percent. By comparison, Toyota spent only 1.25 percent of its revenue on warranty costs.

Then, there is safety recall data. From 2000 to 2006, GM had 1,014 safety-related recalls, Ford had 558, and Toyota had 131, despite the fact that Toyota sells more vehicles than Ford.

Perhaps the biggest reason for the decline of the U.S. automotive and electronics industry is what happens after warranty period ends. When the manufacturer pays for warranty repairs it's an inconvenience, but when consumers are forced to pay for costly repairs, they lose loyalty to the brand.

The consequences of product variability include huge losses within a manufacturing facility as well. Because products vary, many will not even be good enough to be sold. Those products are thrown away or re-worked. The loss in profits can be considerable, and the rate of "bad parts" being made internally is disturbingly high.

Executives argue that there is only a "perception problem" when it comes to the quality and reliability of American cars. However, the data strongly suggests otherwise. Executives should review statistics from the Consumer Product Safety Commission, the National Highway Traffic Safety Administration, the Federal Trade Commission, the National Transportation Safety Board, Consumer Reports, their own warranty databases, customer complaint data, and legal expenses.

To get the American auto makers back on track they must:

1. Use proper industrial quantitative methods to minimize variation in components and products.
   
2. Develop products with high long-term reliability, not just acceptable initial quality.
   
3. Prevent manufacturing problems through the use of proper quantitative methods.
   
4. Educate employees in necessary predictive methods for superior engineering.

The good news is that Japan has already shown that adherence to these rules can work. The bad news is that Japan is no longer an isolated competitor. Recent statistics indicate that Japanese product performance is now declining due to increasing variation in their products. Chinese and Indian manufacturers are the new threat.

If U.S. manufacturers don't get serious about quality and reliability soon, who will be the next CEOs seeking handouts from American taxpayers?

Allise Wachs is founder of Integral Concepts, a consulting company which provides solutions to complex product design and manufacturing challenges.

[boycottchina]

The writer fails to mention that small bombed out nation called Japan was COMPLETELY rebuilt by AMERICAN dollars!
And they were given stste of the art manufacturing plants after the rebuild.
When you buy a foreign made car you are spitting on American workers everywhere!
The US automakers provide jobs for MILLIONS of Americans in dozens of industries.
Companies like US Steel, Dupont, PPG, and Bayer, are just a FEW of the companies who employ millions of AMERICANS that make the various material that goes ito the production of an American automobile.
People who think they are saving a few dollars have sold out their own country for their OWN selfish gain.
This mentality has DESTROYED this nation!
When you buy foreign made goods, you are a TRAITOR to your fellow Americans and sooner or later will cut your OWN throat as a result!

[joe68sg1]

Another reason for the BIG 3 failing is fuel economy. They brag about models that get 30 mpg. That is nothing to brag about. My Civic gets 45 mpg and will out perform any BIG 3 car in its class. And, it will last 5 times as long. After that, the resale value is way above any BIG 3 car.
Most of the ads I see on TV are for big, muscle bound trucks and fancy looking SUVs. It''s a HEMI...WooHoo

That is not what we need now...we need fuel efficient cars that last.
Til the BIG 3 gets it, they are doomed and my tax money should not be used to bail them out and let them continue to make the wrong vehicles.

[wpc0101]

I HAVE BEEN A CONTRACT QUALITY ENGINEER/ANALYST FOR THE AUTOMOVIVE AND AEROSPACE INDUSTRIES FOR 25+ YEARS.
THE AUTOMOTIVE INDUSTRY HAS TOO MANY TIERS OF MANAGEMENT. WHEN AN INDIVIDUAL FEELS THAT THEIR BONUSES WILL BE THREATENED BY QUALITY ALL EFFORTS ARE FOR NOTHING AND WILL BE ROADBLOCKED. I COULD PROVE THAT I COULD HAVE SAVED A DELPHI LOCATION MILLIONS OF DOLLARS AND IMPROVED QUALITY AND THRUPUT. IT WAS BLOCKED BECAUSE IT WOULD HAVE HELD PEOPLE ACCOUNTABLE AND CUT OUT OVERTIME. UNIONS WERE ONCE NEEDED BUT NO LONGER. THE HAVE SUCKED THE LIFE OUT OF THIS COUNTRY WITH THEIR GREED.

[mmmmmmike1]

This is not correct. David Champion of Consumer Reports says (in the Best and Worst for 2009 edition available on newstands) "Nearly all Ford prodcuts are now average or better in reliability." This is for vehicles that have some significant time in service (103 years), not just "initial" quality. The exceptions to this high quality are in the areas where Toyota doesn''t have any vehicles - the V8 Explorer and the diesel F-250''s. The top most reliable family gas cars are (in order) Ford Fusion 4, Mercury Milan 4, Kia Optima, Fusion V6, Milan V6, Fusion V6 AWD, Milan V6 AWD, Hyundai Sonata 4, Honda Accord 4, Accord V6, Mazda6, then eight more cars until you find the top ranking reliable Toyota Camry 4 cyl. IN the list of 32 different cars - Consumer Reports readers rated the Fords at the top and the Camry at 19th for the 4 cyl and 26th for the V6. Why are the people in the US settling for poorer quality Toyota Camrys over the Ford Fusion and Milan?

[mikezembill]

The problem in this country are the lazy a-s-s people that draw wellfare cut there money off now. And then hear them b-i-t-c-h about the people that work and pay taxes so they can sit on there a-s-s and do nothing.

[notopennshut]

Producing shoddy products, overpaying workers and executives is surely the path to self-destruction. For too long, everyone there have been overpaid, especially the executives,even though they have not deserved any of it. On top, they have many inferior products, requiring numerous recalls. Yet, those 3 were too arrogant to learn from the rest of the industry. Is it any wonder they are failing? It is time to wake up and smell the "exhaust fumes" for they have been way way behind for decades, but unwilling and unable to make the necessary changes in order to survive. Until then, not a penny more!

[mdmo1]

union my butt look at ceo

[nobody316-2009]

And the people of the union need to realize this before there workers will be out of a job on the street working at mcdonalds. then they can complain about there wages and health benefits.

[nobody316-2009]

The whole problem with the "big 3" is called the UNION! If they didnt have to pay people big benefits and big money to stand there and watch and hold a machine 8 hours a day. Vehicles would cost half of what they do now. which in return would sell more vehicles and the "big 3" wouldnt be in this predicament. So needless to say government needs to get rid of the union and government needs to dictate what people make an hour.

[skysoldier75]

@ incog-nito:

What an utterly retarded post; everything you said was pure baloney.

No wonder conservatism is on the wane...

[hologram5]

Posted by incog-nito at 09:33 PM : Nov 24, 2008
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I am a conservative and do not agree with you one iota. We are in serious trouble and if you don''t see that then pull your head out of the sand and take a look around...

[omnibus66]

The foreign car companies produce far fewer models under their brand than the American companies do. Consumers can buy a Honda Civic today with full confidence that it will not be a discontinued model three or four years from now when they trade.

On the other hand, you can buy a Ford or Chevy ''whatever'' with a pretty good likelyhood that it will soon disappear from the market and have very little resale value.

There are a lot of reasons to buy a Toyota, very few to buy a Dodge Ram behemoth.

[gekejo1]

incog-nito- are you for real? "I don''''t care about what the data says. I just know that America is number one in everything we do, and if you think otherwise then you are an America-hating commie Islamo fascist terrorist cheese-eating surrender monkey." Get an education and use your brain before you communicate. I''m a TRUE American, but think your comments are seriously retarded. Yes, we are a great country with great people, but people who think like you are lost and ignorant. There are many problems with our country that need working on and the sooner we as a nation realize this the better. No country or person is flawless- so, get real or be real stupid.

[riho08]

GM, Ford, Chrysler have been international companies for decades. They make fuel efficient cars all over the world. They could do it here, but, executives are paid, their bonuses depend upon double digit gains in percentage of stock. After all costs, health care, suppliers, legacy retirees are accounted for, the profit on an SUV is $10,000; the profit on a Ford Escort is $900. 11 Escorts for one SUV. Even in the face of loss of market share, executives chose their own greed to the detriment of the companies. This is exactly Greenspan''s lament in the financial realm, he could not believe that banks would go against their own best interests, but they did. Billions of dollars in bonuses in failing enterprises. In the US auto industry, executives, boards of directors, and major stock holders (listening pension plans?), went along with fewer vehicles at higher profit margins, only trouble was the need for much much more foreign oil, at a cost. The Big 3 can build the needed cars and trucks, just not with this management, boards of directors, and the influence of major stock holders.

[riho08]

GM, Ford, Chrysler have been international companies for decades. They make fuel efficient cars all over the world. They could do it here, but, executives are paid, their bonuses depend upon double digit gains in percentage of stock. After all costs, health care, suppliers, legacy retirees are accounted for, the profit on an SUV is $10,000; the profit on a Ford Escort is $900. 11 Escorts for one SUV. Even in the face of loss of market share, executives chose their own greed to the detriment of the companies. This is exactly Greenspan''s lament in the financial realm, he could not believe that banks would go against their own best interests, but they did. Billions of dollars in bonuses in failing enterprises. In the US auto industry, executives, boards of directors, and major stock holders (listening pension plans), went along with fewer vehicles at higher profit margins, only trouble was the need for much much more foreign oil, at a cost. The Big 3 can build the needed cars and trucks, just not with this management, boards of directors, and the influence of major stock holders.

[Hkrodin]

There are many working-level people in the auto industry that want to focus on the long term, but there is usually an initial larger investment to be made to do the extra modeling, testing, analysis, etc. You won''t find much support in the US auto industry for doing that extra work since they have been struggling and losing market share for 30+ years. Their focus is on saving money right now and playing defense, which is a natural reaction for companies that are on the decline.

Let''s face it, most Americans are short-term thinkers as well. Many Americans only want to keep a car for a few years because they grow tired of the styling. Many Americans move from one house to another and don''t invest in putting in new windows, new roofs, new insulation, etc., because they know they''ll be moving on in a few years. Since the Big 3 car companies are run by Americans that have to answer to short-term thinking Wall Street investors, they react accordingly.

The auto industry demands huge investements in capital equipment and runs on thin margings. Allise is spot on with the warranty costs eating them alive. The health care costs, jobs banks, etc. are a big part of the problem as well. With all those things draining your profits, and investing in long-term quality design costing more up front, it''s not surprising the US auto industry is in the state it''s in.

[jaykay3141]

Detroit''s also been hurt by its insistence on a product mix that seems aimed at teenage boys and midlife-crisis men. OK, the Japanese learned really quickly that there''s a certain segment of the American public that''ll buy any pile of metal if it''s sprayed with enough testosterone (Nissan Titan, Infiniti FX) but they also kept building those Camrys and Versas and Civics for the rest of us.

Detroit figured that the party would go on forever and just kept churning out bigger and bigger hulks like the Chrysler 300, Ford Edge, etc. Now it''s shocked, SHOCKED that they can''t sell these lumpish monsters in a down economy.

If the execs'' performance in Washington is any indication, they''re STILL clueless. Before the government gives them a penny these guys should be sent packing.

[incog-nito]

As a lifelong conservative, I don''t care about what the data says. I just know that America is number one in everything we do, and if you think otherwise then you are an America-hating commie Islamo fascist terrorist cheese-eating surrender monkey. I''m sure my fellow conservatives feel the same, as evidenced by their posts. As the bumper stickers on our pickup trucks like to say: Freedom isn''t free, love it or leave it, we will never forget!!! YES!!!

[blackbox7]

Allise has a very good point. I%u2019ve always purchased American made cars and have been relatively satisfied. I think that initial quality should be expected by the consumer but what about 3-4 years down the road? My wife and I own a Dodge minivan and it has been nothing but a money pit due to small annoying problems that are fixed then occur again. We%u2019ve had electrical system problems fixed at least 3-4 times not to mention the other nickel and dime issues with the vehicle after the warranty ran out. I am certain of one thing. I will never purchase a Dodge, Chrysler or Jeep again (I also owned a Jeep that was a money pit). Unfortunately long-term quality issues are typical with American vehicles and the Big Three need to seriously address the issue.

[lucyok]

I have seen the Detroit auto industry begin its collapse many years ago. I applaud Allise Wachs for her knowledge and insight into the many challenges facing the industry. Auto manufacturers must utilize our gifted and talented resources if they hope to improve quality and restore confidence in their products.