Does Ford Have a Quality Problem?


J.D. Power & Associates released its widely watched annual new-car quality survey this week, and it came with some surprises. While Toyota (NYS: TM) and Honda (NYS: HMC) did well as usual, Tata Motors' (NYS: TTM) Jaguar -- a brand long known for everything but quality -- made a huge leap to second place.

Jaguar wasn't the only brand on the move in the survey. General Motors' (NYS: GM) Cadillac moved up to fourth, and GMC and Chevrolet both turned in above-average marks. It was GM's best-ever performance in the 26-year history of the survey, a big plum for the much-maligned General as it prepares to shift its product-line overhaul into high gear.

But its ancient crosstown rival didn't do so well. What's up with Ford (NYS: F) , which ranked a disturbing 27th in this latest quality survey?

A high-tech problem for the Blue Oval ...
Ford came in an impressive fifth in the survey in 2010 -- but it fell sharply to 23rd last year, amplifying concerns about the Blue Oval's quality that were raised by sharp criticism from Consumer Reports early last year.

Much of the problem -- and Consumer Reports' main beef -- stems from MyFord Touch, a touchscreen control unit built on the automaker's acclaimed SYNC "infotainment" system, which has a Microsoft operating system at its core. MyFord Touch, offered as an option on nearly every Ford and Lincoln model, has been a centerpiece of Ford's high-tech product renaissance -- but it has also driven quite a few of Ford's customers up the wall.

The problem? A balky screen and poorly laid-out, unintuitive controls have challenged many users. That's a big deal, because some of those controls are essential to controlling key functions of the car. That has led to warranty claims and a lot of complaints -- some of which found their way to J.D. Power's ears.

... but there's some good news, too
J.D. Power surveyed customers who bought their vehicles between November 2011 and February of this year. That's unfortunate for Ford, because the company released a major update of MyFord Touch in March -- one that many reviewers think addresses key problems with the unit.

J.D. Power Vice President David Sargent said this week that the upgrade is likely to help Ford significantly in next year's rankings. And it will help frustrated Ford owners, too -- the upgrade is a software update that can be installed on any car with the system. Ford has already sent it to several hundred thousand owners.

Another update is on the way, Ford says, with additional enhancements to the system. That's good, because this system is a key part of Ford's strategy: Options like MyFord Touch can represent significant added profit on a vehicle sale, and making them attractive to a wide range of buyers is a key part of Ford's plan to increase its overall margins.

Ford's quality is better than it looks
Ford's overall quality is in fact up sharply, at least in terms of old-fashioned mechanical failures. Bennie Fowler, Ford's group vice president of global quality, said this week that Ford's warranty repair rate had improved by about 40% over year-ago numbers. And Ford did very well -- beating out Honda -- in the latest edition of J.D. Power's longer-term reliability study, released in February.

Fowler also said that warranty claims on MyFord Touch had declined since Ford rolled out the upgrade. That's good news, but problems could continue for a while: As Edmunds analyst Jessica Caldwell pointed out earlier this week, her company's data shows that "the age of vehicle trade-ins is older than ever before, which means that new car buyers are now being exposed to in-cabin technology that's far more advanced than what they used in their previous vehicles."

Better user-interface design and some point-of-sale education might be key to overcoming the complaints -- for Ford and for other automakers, which are rolling out similar systems. Ford's recent upgrade seems to have helped with the interface design. For Ford shareholders -- and Ford customers -- a solid improvement on this front would be good news indeed.

Despite this latest blip, Ford has been performing incredibly well over the past few years -- it's making good vehicles, is consistently profitable, has recently reinstated its dividend, and has done a remarkable job paying down its debt. But despite this, Ford's stock price is down 19% over the past year. Does this create an incredible buying opportunity, or are there hidden risks with the stock that investors need to know about? To answer that, one of our top equity analysts has compiled a premium research report with in-depth analysis on whether Ford is a buy right now, and why. Get instant access to this premium report. Or if you'd rather take a look at a high-growth company outside the cyclical manufacturing sector, check out our special free report, "The Motley Fool's Top Stock for 2012," which features a company our chief investment officer uncovered that's revolutionizing commerce in Latin America.

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Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at@jrosevear. The Motley Fool owns shares of Ford.Motley Fool newsletter serviceshave recommended buying shares of Ford and General Motors and creating a synthetic long position in Ford. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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