By on September 4, 2008

Way back in 1995, a certain Robert A Lutz, then president of Chrysler, proclaimed “there is no other area in the field of human communications that is as rife with disinformation as the story on Chrysler quality.” Much water has passed under the bridge since ’95. These day, Chrysler’s quality occupies the basement of most reliablle rankings, while overstuffed suits cry perception gap. Despite flying under the industry standard in J.D. Power and Consumer Report rankings, Chrysler has recently taken to trumpeting a 29 percent decrease in warranty costs. Now the Cerberusian dog is putting its lack of money where its mouth is, telling the Detroit Free Press that it’s setting aside less money for warranty costs. “When you ship a car, you reserve the money for its whole lifetime of warranty. Based on where you think you’re at, that’s how much money you reserve,” explains Chrysler’s chief customer officer and former Nissan man Doug Betts. “A decrease of “30% … is hundreds of millions of dollars.” But the Freep catches something that deserves some attention. “Betts said Chrysler is measuring quality by the rate of warranty claims within a new vehicle’s first 3 months in service, a reliable bellwether for predicting total problems for the life of a vehicle’s warranty.” But doesn’t reliability become most important towards the end of a vehicle’s life? Isn’t that why Chrysler introduced its “lifetime powertrain warranty?” And all this while Chyrsler’s is squeezing suppliers for a 25 percent cost reduction? Auburn Hills must be incredibly cash-starved confident to light this financial time bomb now.

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22 Comments on “Chrysler Counting Its Quality Chickens...”


  • avatar
    Pig_Iron

    This whole situation pains me to no end. Chrysler had the most potential of the bunch. I fear they are now past the point of no return.

    The only good thing out of it, is that the good employees (floor & tech) will wow their new employers with their resourcefulness, and the bad ones will have to learn to survive in the outside (non-auto) world.

  • avatar
    beetlebug

    That’s a great ad image there. Just to give credit where it’s do http://fuselage.de/ is a great site for information on those big Mopars.

  • avatar
    yankinwaoz

    I’m curious. Are there US laws that require companies to maintain funds to honor warranties? Common sense would indicate that is smart to do. But this is the Detroit 2.8 we’re talking about.

    In other words: Can they plan to pay any claims only from future revenue? If so, then it seems a desperate company would tap its warranty reserve fund to keep the lights on.

    After all, they finance their other future obligations this way (healthcare, pension, etc).

  • avatar
    mel23

    There’s an interesting, and unsurprising, item in the WSJ today regarding Cerberus. Recall that Mervyn’s filed bankruptcy recently, and that Mervyn’s was acquired by Cerberus from Target in 2004. At the time of the Mervyn’s filing, the WSJ noted that Cerberus had acquired the retailing operation separately from the real estate, had rented the real estate to Mervyn’s, had sold some of the real estate, and had gotten out of Mervyn’s before the filing, and the whole thing was profitable for Cerberus. The article today notes that Mervyn’s is suing Cerberus charging that Cerberus stripped Mervyn’s. Cerberus nearly doubled the rent charged to Mervyn’s the occupant, charged them a special dividend, and preventing the closing of unprofitable stores. Of course there’s no way of knowing the fate of Mervyn’s without being acquired by Cerberus, but we know that 26 stores will be closed and about 1,700 people will be fired as things stand.

    I don’t have any idea how they thought they’d be able to strip and flip Chrysler or GMAC, and it seems increasingly unlikely they’ll escape without taking a big time bath. These parasitic bastards are all over the place with their financial ‘instruments’.

    Looking at the largest share holders of Ford and GM shows considerable overlap. Thus these outfits that have supported/permitted the dismal performance of these companies stand to get doubly rewarded by a bailout.

  • avatar
    jaje

    Funny – I’ve always considered Chrysler to be the first to go…and really should as they have really nothing and I doubt they can sell a car at or even close to their MSRP (sans Viper). If you look at their sales they are cresting 50% total sales directly to fleets meaning their 1,000s of dealers sell even less retail (and many dealers now a days deal highly in fleets and are now focusing less on “new” cars but on CPO – including non Chrysler vehicles! – where they can actually make some money.

    None of their cars or trucks are competitive except only when it comes down to the deal you can get. In addition to their products being in also ran / or ranked last status, hardly any of their cars are above average in the major reliability studies.

    Chrysler’s time has come and gone long ago. In the overall markets’ scheme of things they should have never been bailed out back then. GM & Ford would have conquested almost all of their sales, network, etc. as they had the capacity and reputation (and back then Toyota or Honda still were small boutiques and had no manufacturing presence). Time and time again Gov’t interference does not work well and the market needs to adjust itself by weeding out the weak so the strong can survive. Bankruptcy is required to reinvent companies that are stronger – but we’ll undoubtedly throw money into Waggy’s bank account and he’ll still lead the charge and never set a tone for true recovery – just staving off the inevitable.

  • avatar
    SherbornSean

    I once brought in my Dodge for warranty work. The dealer basically told me he didn’t see any problems and refused to do any work on the car without charging me.

    That was the last time I set foot in a Chrysler dealer.

  • avatar
    iNeon

    Once, I bought a Dodge– brought it in for warranty work, and the dealer basically repaired my car for free.

    That was the last time I had to set foot in a Dodge dealership for a mechanical fault. 2001, if I recall correctly.

  • avatar

    Eh, there doesn’t seem to be a federal law requiring sane escrow limits. Normally it would get you red flagged in an audit, but they are privately held so no one would know.

    If Chrysler went bankrupt… eh the matter gets complicated, more or less you’d have to get in line at bankruptcy court with a bunch of other people. It would probably be the largest dollar value failure of in effect warranties in the history of the US. Past precedent does not always apply in those situations.

  • avatar
    ihatetrees

    mel23:
    At the time of the Mervyn’s filing, the WSJ noted that Cerberus had acquired the retailing operation separately from the real estate, had rented the real estate to Mervyn’s, had sold some of the real estate, and had gotten out of Mervyn’s before the filing, and the whole thing was profitable for Cerberus. The article today notes that Mervyn’s is suing Cerberus charging that Cerberus stripped Mervyn’s.

    Fer cryin’ out loud. Cerberus will never win a Corporate Goody-2-Shoes Award. But your wording that Cerberus “had gotten out of Mervyn’s before the filing” means that some financially retarded firm / individuals purchased Mervyn’s from Cerberus.

    My guess: Some buyer didn’t do due diligence in the midst of the credit bubble and is now bleating his/her way to a judge.

  • avatar
    RedStapler

    I’ve had a window regulator and turbo fixed under warranty on my Jeep Liberty (KJ) CRD.

    Aside from the dealer taking a half day over their time line on the turbo I’ve been pleased with their honoring the warranty.

    Now the people who fell for the “lifetime” power train warranty are SOL. Its going to be the lifetime of Chrysler, not the vehicle.

  • avatar
    Nemphre

    What a great advertisement. Not for Chrysler mind you, but for all of their competitors. It’s good for a hearty laugh as well.

  • avatar
    Usta Bee

    “9 out of 10 new Chryslers registered over the last 10 years are still on the road”

    ….STRANDED on the road.
    The 1 remaining car actually made it home. ;)

  • avatar
    KixStart

    usta bee, That’s cruel. But very funny.

    What Chrysler is doing by cutting the allowance for warranty work makes the operation look more profitable in the short-term. If they actually have improved the quality, then this all works out OK. If they haven’t, they’ll be booking additional expenses down the road… but tomorrow gets to take care of itself in Detroit, I think. This is a lot like all of GM’s unfunded liabilities.

    It also occurs to me that Chrysler has lately been stiffing their suppliers. Are they also extremely slow-pay or creatively no-pay to the dealers for warranty work? If the dealers are getting stiffed, that would lead to them straight-arming the customer, too, wouldn’t it? Such a strategy would reduce warranty claims. But it’s another tactic that has adverse strategic implications.

    And the real expense and value of that “lifetime” warranty have yet to be judged. In the short term, no problem.

  • avatar
    Ryan

    Usta Bee and KixStart,

    It is isn’t it?? You made me laugh too.

    jaje,

    I have always considered them basement dwellers too.

    In my opinion the American automobile market would be better off without Chrysler. I wish an auto maker that has a quality standard would buy Jeep. Then turn it back into the nitch product it was meant to be.

    Ryan

  • avatar
    jurisb

    Why instead of shouting we can, you admit that you can`t manufacture sophisticated mechanisims for car industry on par with germans or japanese and ask for help? Is dying proud better than surviving humble? go to Japanese ask for the answers, and you will end up calling them racists…….

  • avatar
    1996MEdition

    Actually, Chrysler’s method of forecasting their warranty based on early data is valid as long as it is based on proven statistical methods such as Weibull life analysis. When used correctly and with uncertanty estimates included in the analysis, these conditions can be extremely accurate, although usually erring on the conservative side. Sarbanes-Oxley requires warranty set-asides, or accruals, for public companies using proven forecasting methods…..Chrysler, however, is private and could be using unproven statistics in their forecasts….I guess time will tell.

    Much of the cost of automotive warranty occurs early in the life cycle when companies pay 100%. I am sure that if you look at the fine print, there are some pro-rate clauses in Chrysler’s warranty based on age or mileage. I myself have never looked, as I would never buy a Chrysler product.

  • avatar
    mel23

    Fer cryin’ out loud. Cerberus will never win a Corporate Goody-2-Shoes Award. But your wording that Cerberus “had gotten out of Mervyn’s before the filing” means that some financially retarded firm / individuals purchased Mervyn’s from Cerberus.

    Uh, yeah. I suppose what Cerberus did was not in violation of any criminal statutes, and the civil case will go however it goes. But IMO, stripping a going business and destroying hundreds of jobs and screwing up people’s lives is wrong. Legal, but wrong. Nothing personal in this, but this is what comes to my mind when I hear complaints about greedy union types.

  • avatar
    Airhen

    My two Jeeps (’04 and ’06) have been basically problem free. A couple of things were taken in and repaired under warranty, but they were minor and not really a build issue (radiator leaked in one case, the other, a rear diff was not sealed correctly, which were both supplier issues).

    I’ve been very happy with them and would buy from Chrysler again, but I’m tired of the UAW and who they support. So my next car will be a non-union built Honda. :)

  • avatar
    Geotpf

    Pig_Iron-I agree with jaje that Chrysler is the weakest of the Detroit Three. They are the smallest of the Three, have the weakest domestic product line, and have extremely minimal overseas business to fall back on. By all rights, they should collapse first (and save Ford and GM in the process-they people (and companies, such as rental car agencies) who buy Chrysler products will still purchase vehicles from somebody, and Toyota and Honda don’t have enough spare production capacity to make up for all the unfilled Chrysler demand).

    As for the specific article, warranty claims are, in fact, a good indication of quality, even beyond the warranty period. If they really have decreased their warranty costs, that is a good sign for Chrysler’s future. Of course, the current private nature of Chrysler means they could basically just make shit up and nobody would be the wiser.

  • avatar
    y2kdcar

    Pig_Iron :
    This whole situation pains me to no end. Chrysler had the most potential of the bunch. I fear they are now past the point of no return. …

    I hope you’re wrong about Chrysler being past the point of no return, because I’ve always had a warm spot in my heart for the company and its products. The full-size Plymouths that my dad owned when I was growing up were better handlers than the comparable Ford and GM cars of the day and had a unique style and character. Even some of the later Mopars from the K-car era and beyond were distinctive. While this wasn’t always good (Chrysler’s TC by Maserati, anyone?), it did make for a more interesting and competitive auto market. I hope the company stays alive long enough to address the weaknesses in its product line and show some of its old-time creativity and audacity again.

  • avatar
    tony-e30

    As there is a reaction for every action, it seems quite likely that this will require dealers to tighten up their standards for what is deemed a warranty repair/replace. I’m not quite sure who sets that standard, actually, so perhaps it will be Chrysler changing the standard? Either way, the dealership repair experience for customers is not likely to improve. This will be interesting to keep an eye on.

  • avatar
    Geotpf

    tony-e30-Yeah, you might have a point. One way to lower warranty costs is to deny a bunch of claims for warranty repairs. That just pisses people off, of course.

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