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‘Black eye for the company’: How Ford is fixing spate of quality problems

By Jordyn Grzelewski, The Detroit News
Published: July 17, 2022, 6:02am

Kevin Mamajek already had waited nearly eight months for his Mustang Mach-E when he got a call from the dealership telling him he’d have to wait a little longer.

After months of supply-chain snarls and shipping delays, this time the holdup was due to a recall on the Mach-E that prevented car dealers from being able to deliver new units of the all-electric crossover.

“I just hit my head on the desk,” said Mamajek, 55, of Richmond, Virginia. “I joked with people on the (Mach-E owners’) forum — I showed a car that was broken down in the desert sand. I’m like, ‘My car is stuck somewhere.’”

Now that Mamajek finally has his Mach-E, he loves it. He’s likely to keep buying Fords. But the protracted delays and recall were frustrating — and reflective of deeper issues at the Blue Oval: Quality has been a nagging problem for the Dearborn automaker, evidenced most recently by Friday’s recall of more than 125,000 vehicles for engine fire risk.

“It’s been the albatross at Ford,” said Dan Ives, an equity analyst at Wedbush Securities, “and it’s ultimately the biggest black eye for the company.”

Ford’s latest spate of quality issues emerged in 2019 with the botched launch of the redesigned Explorer, a debacle that saw SUVs rolling off assembly lines with major issues such as faulty seats, loose wiring harnesses and digital displays with glitchy software. The episode dragged down Ford’s 2019 financial results and SUV sales.

“Everyone at Ford Motor Co. knows the situation we’re in,” said Jim Farley, then the company’s incoming chief operating officer, in early 2020 as he sought to soothe investor concerns about new-vehicle introductions. “I can see it on the face of my colleagues, and it takes me back to about 10 years ago.”

He noted at the time that quality issues with older vehicles had weighed on Ford’s finances, increasing warranty costs by $1.5 billion to a total of $5 billion in 2019. Then, in October 2020, Farley became CEO — and immediately honed in on quality as job No. 1 for the company to address.

Since then, he’s repeatedly emphasized that improving quality and reducing costs tied to recalls and warranties are top priorities. The company has said it’s targeting $1 billion to $2 billion in warranty cost reductions by mid-decade. And in January, Ford brought in a new quality czar to oversee the effort.

Josh Halliburton came from data analytics firm J.D. Power to serve as Ford’s new executive director of quality. His specialty is in process quality improvement, and he’s helped overhaul processes at more than 100 plants around the world. In his new role, Halliburton is tasked with implementing a strategy to improve quality across Ford.

“We’re trying to make people in the organization passionate about quality. We want to bring quality to top-of-mind for everybody in every discussion,” he told The Detroit News in an interview. “What was happening is that people would talk about quality in pockets or react to quality issues, but it wasn’t at the forefront of every meeting. It wasn’t driving the culture of the company.”

He added: “For Jim, for myself, for the leadership team, we want quality and our customer satisfaction to be the No. 1 thing that people talk about, before we go into any of the other business factors. So that was one key piece that we’ve tried to change and we’ve got several things we’re doing to help drive that change.”

Those changes are happening as the company targets an adjusted operating profit margin of 10% by 2026, driven by higher volumes, improvements in EV costs and a reduction of up to $3 billion in structural costs tied to internal combustion engine vehicles.

But recent quality issues have called into question whether Ford is moving quickly and effectively enough. Meanwhile, those issues are colliding with ongoing supply-chain issues that are frustrating dealers and customers, as well as looming targets in Ford’s electrification strategy.

“The quality issue is like trying to change the oil while the car’s going 65 miles an hour,” Ives said. “There is a fork in the road coming up because if these issues start to accumulate — especially as we get into later this year — then I think that’s where Wall Street really starts to have significant concern.

“And Farley, it’s been a Cinderella story mostly,” he added. “I think the clock is striking midnight on this issue.”

‘This has to change’

The recall affecting Mamajek applied to nearly 50,000 Mach-Es and was due to a safety defect that could result in power loss. Ford said in June that the defect could cause high-voltage battery main contactors in some vehicles to overheat. The fix is a software update.

Mach-E owner Kevin Collins, 59, of Portage, Michigan, was not overly concerned about the recall since the issue did not prohibit him from driving his vehicle.

The Ford retiree took delivery of his Mach-E in September and has put about 12,000 miles on it without major problems. It’s his first EV, and he bought it understanding that it might take some time to work out all of the kinks.

“This is one of their first electric vehicles out the door. And I know when Tesla first came out with their first few ones, they had a lot of issues, as well,” he said. “You run into things like this with newer vehicles.”

Indeed, Ford recently has run into quality issues with several of its other new products — including a National Highway Traffic Safety Administration investigation into reports of engine failures in the Bronco SUV and the recall last month of nearly 2,900 all-electric F-150 Lightning pickups over an issue with a tire pressure monitoring system.

Also last month, the automaker recalled more than 3.3 million vehicles in North America due to a risk that they could roll away.

“Within each of those, we’ve seen that it didn’t meet our expectations in terms of stability and output,” said Halliburton, acknowledging that some recent launches did not meet the standards for which the company is striving. “We’re really focused on our upcoming launches. How do we get in front of those risks?”

In its latest setback, Ford said Friday it was recalling more than 100,000 Ford Escape and Lincoln Corsair SUVs and Ford Maverick pickups for a problem that can cause engine fires. The company also expanded a recall of Ford Expedition and Lincoln Navigator large SUVs by about 27,000 vehicles after a series of engine fires that can happen even when the ignition switches are off.

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So far this year, Ford leads all automakers in the U.S. in recalls, according to NHTSA, with 44 recalls — not counting Friday’s action — covering nearly 6.7 million vehicles.

Ford’s quality woes have huge financial implications at a time when the automaker is spending $50 billion on electrification through 2026. During the company’s first-quarter earnings call, executives said that financial results in North America were dragged down in part by higher warranty expenses.

Progress has been made: in 2021, the company delivered $1.4 billion of the targeted $1 billion to $2 billion in warranty cost reductions. But executives acknowledged there had been “deterioration” in Q1 this year and that more work remains to be done.

“We’ve made good progress on initial quality and launches,” Farley told analysts. “However, we continue to be hampered by recalls and customer satisfaction actions. This has to change. We must do more to aggressively address our engineering process and improve our robustness.”

J.D. Power’s 2022 U.S. Initial Quality Study, which surveyed tens of thousands of owners of 2022 model-year vehicles about their early ownership experience, showed the Ford and Lincoln brands doing slightly worse than last year but outperforming the industry average.

“They were certainly a better-performing company compared to some of the others. They were hit with the same supply-chain issues and bottlenecks that other manufacturers were, and I would say based on the results, they did a very good job of managing that,” David Amodeo, global director of automotive at J.D. Power, noted in releasing the results.

“I can’t overstate how complicated a vehicle is to build,” he added. “What manufacturers go through to build one of these things, from the logistics to the actual engineering and manufacturing of these vehicles, it’s very complicated. And then you throw stuff on like supply-chain disruptions and that’s a heck of a challenge.”

For Ford dealers, the inventory shortages caused by those supply-chain disruptions are adding an extra dose of frustration to the recent quality setbacks.

“We’re frustrated. It seems to be just pouring right now,” said Doug North, president of North Brothers Ford in Westland, Michigan. “We have a difficult time getting product right now. So I can’t tell you at this point what the long-term consequence of having this many recalls in a short period of time will be, but it’s never good for the brand. It’s never good for the dealers. It’s never good for the consumer.”

What is Ford doing about it?

Likewise, Halliburton regards recalls as “the worst kind of failure we can have” because of the hassle they create for customers but also “the right thing to do is to prevent issues from happening in the field.”

“In terms of the prevention activities, we are doing work upstream with engineering to improve our understanding of how customers use their vehicles and the things that could go wrong,” he said. “And we’re making sure that our engineering sign-offs are more robust around those use cases so that the products have less likelihood to fail, which is, I think, very critical to how we move forward in terms of our designs.”

In terms of cultural changes, Halliburton said he is trying to improve problem-solving within Ford’s product development teams, getting employees to work together across areas and developing a “common language” about the issues they’re attempting to solve. He’s also pushing for greater transparency.

“We want people to raise their hands and say, ‘Hey, here’s a risk. Here’s something that could cause an issue for our customers. Here’s something that if we don’t change it, could cause a quality issue,’” he said. “Historically we’ve been very celebratory of people who resolve the issues … but the reaction is too late.”

Other changes include providing clarity on which teams are responsible for specific quality targets; comparing Ford’s results to its competitors rather just itself; and making it clear that everyone who works for Ford is responsible in some way for quality.

“What my team is specifically focused on is developing the processes, the tools to support the rest of the organization in delivering quality,” Halliburton said. “That goes hand-in-hand with the really hard work done day-to-day by the people who are engineering the products, building the products, working with our supply base. That’s really where the quality outcome comes.”

At the same time, Ford is using new tools to help monitor, improve and ultimately solve quality issues. Data analytics and over-the-air software capabilities, for example, provide opportunities to catch issues sooner and fix them remotely.

“Our biggest issue right now is that we need to be able to be faster in being able to (over-the-air update) those that are software-fixable, so the customer doesn’t have to deal with a problem long-term,” Halliburton said. “We will grow that capacity in the next year.”

Halliburton expects to see fewer defects and improvements in the initial ownership experience within a year or so based on changes his team is making with manufacturing processes and suppliers. Improvements tied to product development will take longer to show up for customers given the longer timeline of those processes.

“We are not happy with our quality,” he said. “It’s something that we think is really important to drive a great experience for our customers. And that customer-first mindset is pervasive here. So the team is very much focused on, ‘What things can we do to improve things, both near-term and long-term?’“