Chrysler banks on vehicles' quality

As sales take a catastrophic drop wouldn't warranty claims also drop-at
least gross $$ spent? So why the joy at Chrysler? More smoke & mirrors?

Chrysler banks on vehicles' quality
http://tinyurl.com/5677gl

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.
Advertisement

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.