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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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August 20, 2007 12:01 AM ET
Punchstock
WHEN LIFE GIVES YOU LEMONS DaimlerChrysler's warranty costs for 2006 were 36.8% higher than General Motors'.
DaimlerChrysler paid an eye-popping $6.1 billion in global warranty claims in 2006, according to regulatory filings. Chrysler, whose vehicles consistently rank below industry average for quality, didn’t account for all that, of course. DaimlerChrysler’s warranty payouts also cover Mercedes-Benz, Smart and DaimlerChrysler’s commercial truck unit. The data did not separate the results for Chrysler. DaimlerChrysler’s warranty costs were 36.8% higher than General Motors’ $4.46 billion in claims last year. The figures for other top automakers: Ford, $4.10 billion; Toyota, $2.37 billion; and Honda, $960 million. The online publication Warranty Week gathered the five automakers’ data. Financial Week sister publication Automotive News converted those costs—expressed in yen or euros for Toyota, Honda and DaimlerChrysler—into dollars as of the end of each company’s fiscal year. Ford, GM, DaimlerChrysler and Toyota have confirmed that the numbers are generally correct. Now that automakers are competing to offer the longest warranties, the reduction of warranty claims has grown in importance. Last month, Chrysler introduced a lifetime limited power train warranty on all models. GM and Hyundai offer 100,000-mile power train warranties. “We’re talking billions in costs,” said Eric Arnum, editor of Warranty Week. “The car companies just don’t want failures.” Mercedes contributes to the high warranty costs of DaimlerChrysler—which becomes Daimler AG in October, if shareholders approve. Mercedes’ reputation for quality took a hit in recent years because of bugs in its Comand infotainment system. Mr. Arnum said DaimlerChrysler’s medium and heavy trucks play only a small part in total warranty costs. In April, Consumer Reports slammed Chrysler for the quality of the Dodge Caliber, Jeep Compass, Dodge Nitro and Chrysler Sebring. Mr. Nardelli is entering a Chrysler that has made progress. Over the past five years, the Chrysler group has cut warranty costs 40%, said Frank Klegon, Chrysler’s executive vice president of product development. Ford has also improved. In the first half of 2007, it has reduced its warranty costs by $700 million from the same period a year earlier. But the campaign to cut warranty costs has created tension between the Detroit Three and their suppliers. Traditionally, automakers have paid 85% of warranty costs and suppliers the rest, said Mr. Arnum. Suppliers produce about 70% of a vehicle’s components. The automakers’ contracts hold suppliers liable for the quality of their parts. But there are limits to what an automaker can recover, said Bo Andersson, General Motors’ vice president of global purchasing and supply chain. “It’s hard to determine who was at fault because you develop things together,” Mr. Andersson said. “Sometimes it’s 100% us. Most of the time it’s 50-50.” GM is pushing suppliers to reduce warranty costs by 10% to 50% annually, he said. GM said it reduced its warranty costs by $700 million last year. Bruce Culver, vice president at technical services firm MSX International, said carmakers can achieve additional savings by making sure vehicles are fixed right the first time at dealerships. “Although there have been impressive gains in vehicle quality and warranty costs,” Mr. Culver said, “there is an opportunity to reduce those costs further by focusing on process waste in the dealer network.” —Automotive News
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