Thursday, September 4, 2008

Chrysler banks on vehicles' quality

Automaker tucks away less for warranty fixes


Chrysler LLC is so confident in the quality of its new vehicles that it has set aside less money to pay for future warranty repairs, a top executive tells the Free Press.

Internal numbers at the Auburn Hills automaker show a 29% decrease in the rate of warranty claims in new vehicles since February -- when a new quality program was instituted -- compared with a year ago. This allows the company to save "hundreds of millions of dollars" in money reserved to pay for problems, said Doug Betts, Chrysler's chief customer officer.

Betts was hired almost a year ago from Nissan Motor Co., after Cerberus Capital Management acquired a majority stake in Chrysler, and given the task of improving quality -- something that has eluded the automaker in third-party studies of its Chrysler, Dodge and Jeep brands.

"When you ship a car, you reserve the money for its whole lifetime of warranty. Based on where you think you're at, that's how much money you reserve," Betts said. A decrease of "30% ... is hundreds of millions of dollars."

Since becoming private, Chrysler has placed greater attention on cash management. The company said it has $11.7 billion in cash and marketable securities on hand, and that in the first half of this year, it earned $1.1 billion before interest, taxes, depreciation, amortization and certain restructuring charges.

Betts said Chrysler is measuring quality by the rate of warranty claims within a new vehicle's first 3 months in service, a reliable bellwether for predicting total problems for the life of a vehicle's warranty. "We can see the trend," Betts said.

Chrysler set up 18 teams to address key systems of a vehicle -- such as brakes, air-conditioning, engine and transmission -- breaking down the automaker's old way of doing things. "Before, we were functionally oriented," Betts said. "Before, you'd have a group of design engineers working on what they believed to be design engineering's responsible problems. Manufacturing was working on manufacturing's responsible problems. The trouble is, you can't look at a problem and know with certainty whether it's design or manufacturing or supplier, so lots of problems don't get solved efficiently because there's some debate over whose problem it is."

The new system allows for the automaker to more quickly address problems, he said. "We're finding that not only are we solving the problems faster, but the solutions are more likely to hit the mark. There's a higher percent of actually solving the problem," Betts said.

Frank Ewasyshyn, Chrysler executive vice president of manufacturing, told the Free Press that seeing the warranty expense per unit sold decrease by 29% is "a sign of improvement in process quality." He added: "As we go forward, we're going to continue to see more improvement. What we've got to get at are the perceived quality" issues, he said.

A recent J.D. Power and Associates survey of long-term quality showed Chrysler's three brands ranking below the industry average. Another J.D. Power survey, this one of new-car quality, released in June, ranked the Jeep brand last among 36 brands. Chrysler and Dodge, which showed some improvements over last year, lagged behind the industry average.

Betts said there's a new goal at Chrysler: to rack up red dots in Consumer Reports. Car shoppers are heavily influenced by the magazine.

"There's a long wait on Consumer Reports," Betts said. "We're really using Consumer Reports as our way of setting a target for ourselves."

"It will take awhile," he added, noting it will take a few years for improvements made now to show up in that study.

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