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Farley to address high warranty costs.


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30 minutes ago, Trader 10 said:

In the article Ford seems to blame suppliers. I know that they are part of the problem but Ford needs to get its act together too. Seems to me a significant problem is in engineering/testing.

 

It boils down to this-Ford specs a part out and they want it at a certain cost...the supplier might make changes in the spec (if/when they can) or skip certain things like QC checks to keep profits up. Both parties are at fault, but this has been an on going thing for years...they used to throw out harnesses for Ranger due to QC issues.

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49 minutes ago, Trader 10 said:

In the article Ford seems to blame suppliers. I know that they are part of the problem but Ford needs to get its act together too. Seems to me a significant problem is in engineering/testing.

 

They do talk about this: 

 

"Bad parts from suppliers account for about one-third of Ford's warranty costs, Drake said. The rest stem from design and manufacturing issues, Galhotra said."

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"For the first nine months of 2020, Ford's warranty costs totaled $3.87 billion, while GM's were $1.68 billion, according to regulatory filings."

 

That is a huge difference and drops right to the bottom line....looks like their warranty costs have been trending up for years.  Years ago, under Mullaly, the supplier's had given Ford a fairly high ranking compared to GM and FCA....I think the latest rankings have them near the bottom.  

 

 

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Well this confirms the results we saw in the thread about the Consumer Reports results.  I find it incredible that Ford’s warranty costs are $2 billion dollars higher than GM.

 

I think this is a direct result of Hackett’s leadership and it’s a very very good thing he is gone.  This goes well beyond a plant changeover, etc.  This is institutional and a wonderful example of awful leadership.  
 

It’s good to see Farley not only taking action to correct this but Ford owning it.  

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I've been saying that it comes down to money and when warranty costs are too high they'll do something.  $4B is way too high.

 

The model where the supplier pays up front and then recovers all or some of that cost is a very good model.   We've used it on IT contracts.  E.g. if the supplier has a problem and blows their KPI target for the entire year in February, there would be no incentive for the supplier to make any effort to continue meeting the performance target the rest of the year.   So you charge them for the screwup in February, but if they exceed the objective over the next 6 months consecutively they can earn all or part of it back.

 

In this case if the supplier supplies a bad part but they fix it very quickly then it costs them nothing or only a fraction of what it could cost them if it takes them months to fix it.  It's a win/win.  They still have incentive to prevent the problem in the first place but also incentive to fix it as quickly as possible.   Clearly Ford has had suppliers who didn't fix their problems quickly.

 

Now on the flip side - suppliers need to push back on Ford if they don't believe they can deliver quality parts that meet Ford's spec at the requested price.  They can't nickel and dime the suppliers and then hit them with penalties.   This should be a lot easier to justify against $4B a year in warranty costs.   They should probably do the same thing with dealership warranty repairs.  Loosen up the purse strings and pay the dealers more for legitimate repairs, but at the same time penalize the ones who can't do repairs correctly or in a timely fashion.

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39 minutes ago, CoolScoop said:

 

They do talk about this: 

 

"Bad parts from suppliers account for about one-third of Ford's warranty costs, Drake said. The rest stem from design and manufacturing issues, Galhotra said."

 

This is actually encouraging news... the first steps in fixing a problem is acknowledging the problem exists and identifying what's causing it!

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2 minutes ago, FR739 said:

I think this is a direct result of Hackett’s leadership and it’s a very very good thing he is gone.  This goes well beyond a plant changeover, etc.  This is institutional and a wonderful example of awful leadership.  

 

Here's the thing though.   I guarantee you that Hackett understands quality and warranty costs.   But it always comes with a tradeoff in speed and cost.   His goal was to get new products out the door as fast as possible while gambling that quality and warranty costs would remain at acceptable levels.  

 

On Explorer and Aviator, every month of down time represented a loss of revenue and profit from Explorer which was already in production and loss of new and higher revenue from Aviator.

Assuming combined sales of 20K/month at ATP of $50K that's $1B in revenue every month.   At even a 5% net profit margin that's $50M per month.

 

Same argument for speeding up development of new vehicles.  Delivering months early can add a lot to the bottom line, but it's a gamble.  Only Ford knows if the gamble pays off on specific vehicles.   I'm willing to bet it did not for Explorer and Aviator but maybe it did on Escape/Corsair.

 

I think with the bulk of the new products out or almost out the door (Bronco, Maverick, Bronco Sport, Mach-E, BEV Transit and F150) it will be much easier to slow down and take more time to get things right going forward and stop taking so many chances.   Which is what Farley seems to be embracing and that's good news for buyers.

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3 minutes ago, CoolScoop said:

 

This is actually encouraging news... the first steps in fixing a problem is acknowledging the problem exists and identifying what's causing it!

 

Don't kid yourself.  They knew exactly where the problems were coming from and why.   I'm 99% sure Hackett made a conscious business decision to trade quality for speed.

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10 minutes ago, akirby said:

 

Don't kid yourself.  They knew exactly where the problems were coming from and why.   I'm 99% sure Hackett made a conscious business decision to trade quality for speed.

You're most likely correct... let's just hope Farley reverses most of the bad decisions.

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Just now, CoolScoop said:

You're most likely correct... let's just hope Farley reverses most of the bad decisions.

 

I think losing $4B this year on that gamble has changed the game plan going forward and that's a good thing.  BTW - if not for the Explorer/Aviator debacle which is at least partially the factory's fault and the 2.0L Ecoboost engine issue it's likely the gamble would have paid off.

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You want to control warranty costs?  Go back to the old Rouge days when the raw materials came in the back door and the finished car came out the front.  Oh it would cost too much now you say?!  Not compared to what they're paying in warranty costs!  Not compared to the land and train stations.they're buying.  Full control!  And every day an inspector would walk around and watch everything.  There used to be a time when the Japanese car company TV ads would compare quality to their Japanese counterparts and amazingly Ford would also be mentioned.  But nowadays? The Japanese car companies only compare their cars to other Japanese companies.  I remember the sarcasm or snobbishness back in the 1960's when GM gave Japanese car entrepreneurs a tour of their factories and one guy whispered off to the side, "These guys won't be able to build cars like we do."  In a way he was right, but for the wrong reason.  Yeah, right!!  The Japanese don't build crap!  Will Ford and GM ever be on top in quality?  Even Mazda, which Ford owned, is above Ford!  I think it's above Toyota and Nissan now! Sad, very sad!  I'm a Ford guy!  But how much more baloney can I take?!

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12 minutes ago, akirby said:

 

 

Same argument for speeding up development of new vehicles.  Delivering months early can add a lot to the bottom line, but it's a gamble.  Only Ford knows if the gamble pays off on specific vehicles.   I'm willing to bet it did not for Explorer and Aviator but maybe it did on Escape/Corsair.

 

 

 

I remember reading about how Hackett was forcing culture change everywhere and some of it was tied to product development.....he wanted them to speed up development time significantly and I think this is a direct result of those inititatives.  Much debate about Hackett, but I will just say I'm glad to see Farley in charge. 

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7 minutes ago, kyle said:

 

I remember reading about how Hackett was forcing culture change everywhere and some of it was tied to product development.....he wanted them to speed up development time significantly and I think this is a direct result of those inititatives.  Much debate about Hackett, but I will just say I'm glad to see Farley in charge. 

 

There are 3 areas to product development:  design, engineering and testing.   Speeding up the design process probably doesn't affect quality and I know a lot of his changes were in this area.  Neither does eliminating unnecessary processes and process steps and other overhead.    But when you rush engineering and cut back on testing then you risk things slipping by into production.   Farley seems to acknowledge this and it sounds like he plans to address that.

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"Part of the quality push involves reducing the complexity of the automaker's vehicles, Farley said.


For example, the proximity key for the F-150 truck unlocks all four doors, but Farley said consumers only use it for the front doors, meaning Ford can eliminate two sensors — a manufacturing cost savings and a potential reduction in warranty risk."

So on an $80,000 truck you have to unlock the doors manually if you want to put anything in the backseat before you get into it. That is not going to save you warranty costs that going to save you production costs. Warranty costs are going to come down from actually demanding the highest quality components from a supplier not the lowest cost ones. 

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59 minutes ago, akirby said:

 

Here's the thing though.   I guarantee you that Hackett understands quality and warranty costs.   But it always comes with a tradeoff in speed and cost.   His goal was to get new products out the door as fast as possible while gambling that quality and warranty costs would remain at acceptable levels.  

 

On Explorer and Aviator, every month of down time represented a loss of revenue and profit from Explorer which was already in production and loss of new and higher revenue from Aviator.

Assuming combined sales of 20K/month at ATP of $50K that's $1B in revenue every month.   At even a 5% net profit margin that's $50M per month.

 

Same argument for speeding up development of new vehicles.  Delivering months early can add a lot to the bottom line, but it's a gamble.  Only Ford knows if the gamble pays off on specific vehicles.   I'm willing to bet it did not for Explorer and Aviator but maybe it did on Escape/Corsair.

 

I think with the bulk of the new products out or almost out the door (Bronco, Maverick, Bronco Sport, Mach-E, BEV Transit and F150) it will be much easier to slow down and take more time to get things right going forward and stop taking so many chances.   Which is what Farley seems to be embracing and that's good news for buyers.

 

The one cost that Ford can't quantify is the loss of future sales/customers due to this. There are probably a few pissed off customers or potential future customers that won't touch a(nother) Ford product because of this. You can't piss off customers with poor quality and expect them to keep coming back. Likewise, you can't expect new customers to purchase your products with perceived quality issues.

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18 minutes ago, valve said:

 

The one cost that Ford can't quantify is the loss of future sales/customers due to this. There are probably a few pissed off customers or potential future customers that won't touch a(nother) Ford product because of this. You can't piss off customers with poor quality and expect them to keep coming back. Likewise, you can't expect new customers to purchase your products with perceived quality issues.


All true and I’m  pretty sure Ford can quantify that and it’s probably already factored into the equation.  So that $4B today could be double that in lost customers over the next few years.  Again it’s part of the gamble.

 

Its also true that delaying a new product like Bronco or Aviator loses potential new customers.  I’ve already seen Bronco reservation holders buy a Jeep because they got tired of waiting.  Both sides have to be factored in.

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2 hours ago, Trader 10 said:

In the article Ford seems to blame suppliers. I know that they are part of the problem but Ford needs to get its act together too. Seems to me a significant problem is in engineering/testing.

 

Well, they did mention the 1/3 is supplier issues, and 2/3 is on Ford's end.  So the effort mentioned in the article "against" suppliers is probably something they can "immediately" implement to work on chipping away at 1/3 of the warranty/quality cost issues right away, while working on the 2/3 Ford end over time.

 

21 minutes ago, jasonj80 said:

"Part of the quality push involves reducing the complexity of the automaker's vehicles, Farley said.


For example, the proximity key for the F-150 truck unlocks all four doors, but Farley said consumers only use it for the front doors, meaning Ford can eliminate two sensors — a manufacturing cost savings and a potential reduction in warranty risk."

So on an $80,000 truck you have to unlock the doors manually if you want to put anything in the backseat before you get into it. That is not going to save you warranty costs that going to save you production costs. Warranty costs are going to come down from actually demanding the highest quality components from a supplier not the lowest cost ones. 

 

No, you walk 3 feet up and unlock via the front handle, (which unlocks all of the doors if you have it set that way), and then you open the rear door.

 

I agree, it's a dumb example of cheapening out, but not as drastic as you make it sound.

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1 hour ago, akirby said:

 

Here's the thing though.   I guarantee you that Hackett understands quality and warranty costs.   But it always comes with a tradeoff in speed and cost.   His goal was to get new products out the door as fast as possible while gambling that quality and warranty costs would remain at acceptable levels.  

 

On Explorer and Aviator, every month of down time represented a loss of revenue and profit from Explorer which was already in production and loss of new and higher revenue from Aviator.

Assuming combined sales of 20K/month at ATP of $50K that's $1B in revenue every month.   At even a 5% net profit margin that's $50M per month.

 

Same argument for speeding up development of new vehicles.  Delivering months early can add a lot to the bottom line, but it's a gamble.  Only Ford knows if the gamble pays off on specific vehicles.   I'm willing to bet it did not for Explorer and Aviator but maybe it did on Escape/Corsair.

 

I think with the bulk of the new products out or almost out the door (Bronco, Maverick, Bronco Sport, Mach-E, BEV Transit and F150) it will be much easier to slow down and take more time to get things right going forward and stop taking so many chances.   Which is what Farley seems to be embracing and that's good news for buyers.

from an old foggy it is 'quicker, better and cheaper.  I used to teach from the Ford/Deming SPC method manual and as far as I know there is still nothing better and it worked until a bunch of money hungry consultants bastardized it with sigma 6.  ISO-9000 was great and again a money hungry group who had NO idea what it was meant for was disastrous, plus/minus 3 sigma was and should have always been the goal of the local workforce and anything else is management.

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19 minutes ago, mackinaw said:

I'm surprised that any supplier would ship parts that could be up to 1/3rd defective.  


They don’t know they’re defective either due to lack of QC by the supplier or a change in spec or materials.

 

Witness the Fusion/Escape/Edge door handles.

 

I remember a problem on the Lincoln LS where the rear door window regulators were breaking.  It’s the same plastic regulator used on other models including Mercedes with no problems.  And it was happening more frequently in hotter climates.  Turns out what happened was a last minute change to the material in the door frame which caused the glass to stick after sitting for several days in the heat.  Using the window frequently prevented the problem which is why it showed up mostly on rear doors first.  And durability testing showed no problems whatsoever.  Nobody would have thought to test it by letting it sit unused for a week.

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