The problem with quality
A closer look at quality ratings
In May, automotive quality gurus J.D. Power & Associates released the results of its 2003 Initial Quality Study (IQS). As is the case every year, the winners will trumpet their scores while the losers will promise improvement. A closer look at the numbers, however, reveals some interesting observations.
The companywide scores, which represent the number of problems per 100 vehicles, are as follows:
Considerable variation exists among individual divisions of some OEMs. At GM, for example, Cadillac's results prove to be the second best in the survey (103), while Hummer's are the lowest (225).
Analysts have noted one interesting observation on the results: Hummer's remarkably low score largely is caused not by poor panel fit or breakdowns, but by poor fuel economy.
Simply put, the survey is not measuring quality by the criteria to which we are accustomed—having everything fit and function correctly. The fact that the buyer of a 6,000 lb. SUV expects good fuel economy from his new vehicle is unbelievable. However, labeling that fact a quality issue is misleading. Customer satisfaction and all the ponderous intangibles that go along with it are creeping into the quality realm.
Looking at the scores in detail reveals another shortcoming. The quality gaps among OEMs as a whole are quite small. This year's results are clustered more tightly around the industry average than ever before.
Overall corporate scores for GM, Ford, and Nissan, for example, are all one point apart. The likelihood of a statistical significant difference among these results is rather small. In fact, if these brands are on your shopping list, you're better off choosing on the basis of exterior color than the IQS score.
Strategic Vision (SV), a California-based research company, recently released its annual Total Quality Index (TQI). The TQI rating is based on a combination of expectations realized; general quality; emotional attributes, such as styling; as well as the dealer experience before, during, and after the sale.
Using the same research model—surveying new vehicle buyers—SV ranks Volkswagen, Honda, Nissan, and Toyota as the highest-quality multiline automakers, a markedly different ranking from the J.D. Power survey.
Like the IQS, Cadillac ranks second in the survey and is the most improved brand compared to the 2002 TQI results. GM shows the most improvements of the Big 3.
Shortcomings in the surveys and inconsistencies in the rankings aside, customers and OEMs still closely watch quality studies. The level of competition for quality improvement is fierce and can have a large impact on suppliers.
The Effect on Suppliers
Suppliers are no strangers to the OEMs' calls for quality. If the quality of the components shipped by a supplier is poor, the result can be loss of business. This has always been the case, though the quality level demanded by OEMs has increased substantially.
Each of the OEMs has its own efforts in place to reduce warranty costs. Among these efforts is the practice of making suppliers financially responsible for vehicle repairs linked to the poor quality of a supplied component.
The drive for quality improvement has been coupled with another source of pressure on the suppliers—cost cuts. As both surveys show, Detroit's Big 3 OEMs have not matched the quality levels of their Japanese competitors.
At the same time they face the higher warranty costs brought on by inferior quality, the Big 3 also must address the cost of vehicle incentives. In April, the average Big 3 vehicle carried over $3,000 of incentives, compared to about $2,000 for the industry average.
If the quality rankings are to be believed, the Big 3, then, are spending more money to sell cars that will hit them with greater warranty costs after the sale. The result of this incongruence is greater pressure on suppliers to improve quality at the same time they cut costs.
As imperfect as the studies and ratings are, automakers, suppliers, and consumers continue to look to them as quality benchmarks affecting buying habits and reputations. As OEMs hone their own quality metrics and consumers increasingly take excellent quality for granted, the effect of these studies on suppliers can be expected to grow.