Image: Ford’s 2007 Lincoln MKZ
Ford Motor Company  /  AP file
Ford’s Lincoln nameplate, featuring such models as the MKZ, rose from No. 12 to a No. 3 overall industry ranking in J.D. Power’s initial quality study.
By Roland Jones Business news editor
msnbc.com
updated 6/13/2007 8:22:46 AM ET 2007-06-13T12:22:46
ANALYSIS

When Ford took top honors in the J.D. Power and Associates reliability survey last week, it was a mild surprise to those who follow the industry — especially since the automaker beat perennial champ Toyota.

Ford’s top finish is significant. General Motors, Chrysler and Ford have made a big effort to match the improved quality and performance of their Japanese rivals in recent years. The last time a U.S. automaker topped the survey was 1998, when Ford tied with Toyota and Honda.

This year, Ford bettered its 1998 showing, earning top honors in five out of J.D. Power’s 19 segments for vehicles like the Mustang, the Lincoln MKZ and Mercury Milan. Toyota fell from capturing 11 spots in 2006 to just four in 2007.

The survey came fresh on the heels of another report on car quality, and it brought more downbeat news for Japan’s Toyota. Market research company Strategic Vision said its latest annual vehicle quality study showed Toyota falling from dominating four categories in 2006 to just one in 2007.

Is this an automotive coup d’etat? Not exactly.

Experts say it’s way too early to write off Toyota, which toppled General Motors in the first quarter to become the world’s largest automaker. Toyota is expanding at a blistering pace, making it harder to ensure its reputation for superior vehicle quality.

“Toyota has had more quality issues recently, but it seems to be working hard to address them,” said John Wolkonowicz, senior auto analyst for North America at Global Insight.

Wolkonowicz says the company has learned from an engine sludging problem that plagued its cars a few years ago and it now very concerned about taking care of customers as soon as a quality issue arises.

“Their quality reputation is so strong they are entitled to make few mistakes, and they are going to be forgiven as long as they take responsibility for them and that appears to be what they’re doing,” he said.

Toyota has issued a number of high-profile recalls in the past two years, but it still leads the pack when it comes to quality notes Joe Ivers, executive director of quality and customer satisfaction research at J.D. Power.

“There’s no strong call to action in Toyota’s [initial quality study] results,” Ivers said, noting that when results for all of Toyota’s brands — Toyota, Scion and Lexus — are taken as a whole, the automaker ranked second on the study, averaging 109 problems per 100 vehicles.

“Toyota’s still doing well,” he said. “[The company] fell a few ranking positions, not because it did badly, but because Lincoln and Mercedes passed it by. When it comes to initial quality, Toyota retains a strong position, and its position is even stronger when it comes to long-term dependability.”

Therein lies the key issue, notes Ivers. While U.S. automakers have found success in J.D. Power’s Initial Quality Study, which measures car problems after 90 days of purchase and strongly influence car consumers’ buying habits, they have achieved limited success in long-term as measured by J.D. Power’s Vehicle Dependability Study. That report measures problems experienced by owners of three-year-old vehicles and is due out in August.

“The graph of car reliability is like a bathtub,” said Ivers. “Cars have problems initially, and then when they age parts wear out and things start to go wrong. Toyota and Honda have traditionally been the masters of scoring highly on both ends of this spectrum, while other manufacturers have found it more achievable to find success early on in reliability.”

While Ford has managed to score highly on J.D. Power’s initial quality study, it doesn’t necessarily follow that it will also score highly on the three-year reliability report said Ivers. Although he notes that doing well in a short-term quality study raises the odds. He also says success in long-term quality has a bigger impact on consumers’ buying habits.

“They expect quality to last, and if a car has a problem later on in its life it tends to influence a consumer’s repurchase decision,” he said. “When we ask how important these surveys are for choice in vehicles, 33 percent say initial quality is the most important and half say long-term quality is what influenced their decision.”

For automakers, maintaining quality for longer also benefits the bottom line by reducing costs because they don’t have to replace car parts and honor warranties, and it also improves resale prices.

For example, a few years ago J.D. Power compared new and used vehicle transaction prices by brand and found that Honda’s Civic, which has one of the best records in its three-year reliability study, sold new for $1,200 more than cars in its class. At three years it sold for $1,500 more. So long-term quality can increase resale value, Ivers said.

“So the bigger impact ultimately for consumers and manufacturers is from long-term quality, and that’s harder to achieve,” said Ivers. “But it’s much more straightforward to achieve initial quality.”

Still, there remains a cautionary tale for Toyota.

In the 1980s, Germany’s Mercedes-Benz dominated J.D. Power’s quality rankings, and in the 1985 model year it ranked as number-one and Toyota came in at number-two in the three-year reliability study. But Mercedes slid to the bottom of the list by the 2000 model year, and has only just bounced back.

“It became common for journalists and analysts to point out the decline in quality at Mercedes, but we’ve been watching for evidence of their resurgence and this year’s initial quality study shows evidence of that,” Ivers said. “They moved from 25th to fifth position — that has happened in the past, but never in one year.”

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