How General Motors Boosted Quality to Rival Japan

<b class="credit">General Motors</b>General Motors has done surprisingly well in recent quality surveys. Consumer Reports has had high praise for several new GM models, including the Buick Regal sedan.
General MotorsGeneral Motors has done surprisingly well in recent quality surveys. Consumer Reports has had high praise for several new GM models, including the Buick Regal sedan.

The latest auto reliability rankings from Consumer Reports and J. D. Power hold few surprises. Brands like Toyota (TM) and Honda (HMC) did well; others like Ford (F) and Fiat (FCAU) did less well. The Japanese automakers have dominated quality rankings for years. But lately, there has been a surprising newcomer near the top of the quality charts: General Motors (GM).

Strong Results for GM Brands in the Latest Quality Rankings

J.D. Power recently released its annual Vehicle Dependability Study. This study measures the number of problems that a brand's cars and trucks tend to have in their third year of ownership. It's a good way to gauge how well a company's cars will hold up over time.

There was a time when GM didn't do all that well in studies like these. But that time is past: GM's Buick brand was second in the 2015 rankings, trailing only Lexus. Cadillac was fourth, beating Honda (and all three German luxury brands), while Chevrolet and GMC finished 10th and 11th, with results for both well above the industry average.

GM also did well in Consumer Reports' latest auto brand Report Card, which ranks auto brands by a combination of road test results and reliability as reported by the magazine's subscribers. While Cadillac lost some points for iffy reliability in the magazine's results, the Buick brand shone -- again finishing ahead of Honda, and not far behind Toyota.

How did GM, of all companies, boost its quality to Japan-rivaling levels?

High Costs Made GM Uncompetitive for Years

It may seem hard to believe for those who have owned cars and trucks built by GM in the bad old days, but the company has always had the talent to produce great vehicles. But for years, there were two big factors standing in the way of that talent: cost and processes.

%VIRTUAL-WSSCourseInline-947%Cost was a big challenge. GM had too many factories that weren't building enough vehicles to generate good profits. That meant that GM had to spend more to build a given car or truck than its leaner Japanese rivals.

GM tried to overcome that disadvantage by designing cars that were cheaper to build. But customers weren't fooled: Those cars seemed more cheaply made than those from Toyota and Honda. GM had to resort to discounts to sell them.

The upshot: Profits got squeezed -- and when times turned hard, GM crashed into bankruptcy court. In a way, bankruptcy turned out to be great news for GM's product-development experts. The bankruptcy process allowed GM to shed a whole bunch of no-longer-needed factories. That, and a more favorable labor deal with the United Auto Workers, reduced GM's cost base.

GM's Own Internal Processes Were Part of the Problem

That solved part of the problem. But GM was still spending more than it should have been to develop new cars and trucks, in part because its product-development process wasn't working as well as it could have.

GM's process was cumbersome and bureaucratic. That was bad enough. But what was worse was that, too often, major changes were made to products late in their development cycles. That raised costs and delayed new products. GM's cars and trucks were getting better, but they were too often also-rans.

That's where Mary Barra came in. Barra is now GM's CEO, a job she earned by shining in her previous role, as GM's product-development chief.

Back in 2011, Barra announced a sweeping overhaul of GM's global product-development process. The changes were aimed at eliminating what Barra called "churn," GM's tendency to make major course changes to products that were well along in development.

The changes have saved GM $1 billion a year -- and they've helped GM get new products to market more quickly.

How Cutting Costs Led to Better Cars

GM now has more money to spend on every product it makes. It doesn't have to take the cheap way out anymore: It can (and does) build products that are good enough to sell at strong prices, without the steep discounts that squeezed its profits not long ago.

Some of GM's improvements are readily noticeable on test drives. Its new cars and trucks are quieter, with a more solid "feel." Interiors are a lot nicer, and not just on upscale models. And the cars' pieces seem to fit together better.

But some of the improvements have happened below the skin, where it's hard for customers to notice -- until they've lived with the cars for a while. Those are the changes that are now starting to show up in surveys like J.D. Power's.

Long story short: GM, and Detroit, have come a long way in the last few years.

Motley Fool contributor John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. Check out our free report onone great stock to buy for 2015 and beyond.