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Ford Warranty Cost Reduction Plan Hinges On Supplier Accountability

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Ford Motor Company is altering how it works with suppliers in an effort to improve vehicle quality. The automaker, whose Lincoln luxury arm and namesake Ford brand fared poorly in the annual Consumer Reports automotive reliability survey, is seeking to reduce warranty costs by making some internal and external changes to its day-to-day operations. Increased profitability and decreasing the amount of problems in vehicles in the name of shrinking Ford warranty claims are the desired outcomes.

Ballooning warranty obligations cost Ford a staggering $3.87 billion from January through September of 2020, according to Automotive News. Warranty-related costs were much lower in the past, averaging 2 percent of total vehicle sales for 2012 and 2013. At the end of 2018, that figure reached 3 percent and steadily trended upwards through Q2 2020, to 4.3 percent.

The Ford warranty processes and costs previously rested entirely on the company’s shoulders. But to combat recent quality issues, The Blue Oval will being charging suppliers for half the cost of a warranty problem. In the past, Ford didn’t employ the practice, although supplier contracts allowed for it to occur.

Charging part makers right away for a problem is meant to incentivize the financially impacted supplier to resolve an issue at a faster pace, and Ford says that suppliers may get their money returned to them if they resolve problems quickly.

“What we are striving for is to fix the issues as fast as possible so that those adjustments are as small as possible,” said Kumar Galhotra, president of Ford’s Americas and International Markets group.

But faulty parts from outside companies only represents one-third of the Ford warranty cost reduction plan. Design and manufacturing issues account for the other two-thirds. Additionally, some internal mechanisms aimed at preventing quality issues were disbanded as part of a cost-cutting move at an unspecified period in the past. Ford atoned for that error by reforming the teams responsible for tracking the quality of inbound parts at its assembly plants.

Increasingly complex vehicles have also impacted Ford’s bottom line, and going forward, the company intends to simplify the parts contained inside each of its products. For instance, the Ford F-150 utilizes several sensors to unlock all four doors if the truck detects a key in its proximity, but the company discovered that owners only use the function for the driver’s door. In that case, Ford could reduce a potential warranty liability by eliminating the additional sensors responsible for unlocking the other doors, which would also reduce the cost to produce the truck.

Ford needs to properly address quality issues soon, as it has several high-profile launches on the horizon, starting with the 2021 Mustang Mach-E that’s already in production at the Ford Cuautitlan plant. Additionally, production of the 2021 F-150 is already under way at both the Ford Dearborn Truck plant as well as at the Kansas City Assembly plant. Additionally, the all-new 2021 Bronco Sport will soon begin arriving at dealers from the Ford Hermosillo plant, followed by the start of production of the 2021 Bronco at the Ford Michigan Assembly plant.

The F-150 is the backbone of the entire automaker, while the Mach-E is Ford’s first dedicated battery electric vehicle that will foreshadow its entry into the world of EVs. The Bronco, meanwhile, will be a very high-profile launch, as interest in both the new Bronco Sport as well as the reborn 4×4 continues at feverish paces. Problem-free launches of all four models would go a long way towards making the Dearborn-based automaker more appealing to potential customers and investors alike.

We’ll have more about Ford’s quality push soon, so subscribe to Ford Authority for the latest Ford business news and continuous Ford news coverage.

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Ed owns a 1986 Ford Taurus LX, and he routinely daydreams about buying another one, a fantasy that may someday become a reality.

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Comments

  1. Michael Fornetti

    It sounds like the auto companies have turned into assembly operators putting together parts engineered and built by others.
    Maybe vertical integration needs another look.
    The original Henry Ford was fanatical about the vertical integration business model, to a fault, but now they seem to have swung to the other extreme.

    Reply
    1. The Gentle Grizzly

      So was General Motors. Guide, Delco REMY, Harrison, Frigidaire and others made lenses and signals, generators and other electrical parts, radiators and heater cores, and auto air conditioning respectively.

      Chrysler brought their electrical parts in-house in the late 1950s and made most of the rest of their parts.

      Reply
  2. Kenneth Shillts

    You can not keep asking for lower prices from vendors and keep getting the same quality. The Ford engineers have to think of the consumer and how the product will endure over time. The vendors and Ford engineers have to work as a team. Otherwise, Ford will become a subsidiary of another bigger manufacture. NOBODY wants that to happen. It gives me hope to look forward to a brighter future for Ford. My hope now, that Ford is taking these steps to prevent that from happening. Now that you (Ford Motor Company) is finally working on warranty cost. I hope this is not a short-sighted plan, but a major part of a 50-year plan. This problem must be taken seriously.

    If not Ford Motor Company will be an answer in car manufacturing history triva question.

    Reply
  3. Mick sisco

    These practices should have been introduced and enforced 20 years ago ..?

    Reply
  4. Richard

    There was a time when quality was Job 1, according to the slogan. Not so much anymore.

    Reply

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