GM report shows it loses 25% of shoppers

May 28, 2002 BLOOMBERG NEWS has reported that an internal General Motors Corp. report shows a quarter of U.S. consumers avoid the largest automaker's vehicles because of reliability concerns, even though complaints by new-car owners fell 10 percent in the past year.

The review, presented by some division heads to other managers last month, touched on several quality measures, including a last-place finish in April's Consumer Reports magazine ranking on reliability.

The automaker is taking steps to improve quality and shoppers' perceptions as it prepares to replace 43 percent of its models next year -- its busiest ever for new or redesigned vehicles. General Motors' market share has slipped to less than 30 percent from 50 percent four decades ago as rivals including Toyota Motor Corp. build sales on a reputation for quality.

"GM is getting fairly competitive in initial quality, but in terms of long-term reliability, they've still got some catching up to do with Toyota," said Richard Shainin of Shainin LLC, a Livonia, Michigan-based quality consultant for General Motors and other manufacturers. "Their market share may go up with all the exciting new vehicles they're introducing, but it will drop back again if they're not delivering reliability over the long haul."

Spokesman Tom Wickham declined to comment on the company's review, a copy of which was obtained by Bloomberg News.

General Motors' shares slipped 1 cent to $64.99 and have gained 34 percent this year. Closest rival Ford Motor Co. slid 34 cents to $17.74, and has climbed 13 percent in 2002, while U.S. shares of DaimlerChrysler AG fell 52 cents to $49.35, for an 18 percent rise this year.

Quality Affects Profit

General Motors expects to spend $2.9 billion for warranty costs on vehicles it sold in North America last year, or about twice its 2001 net income in the region of $1.48 billion, the report said. The company expects to spend $563 on warranty costs for every car and truck it sold in North America last year, down from $614 in 1996.

The amount of cash set aside for warranties is based on estimates and General Motors may spend less if its vehicles hold up better than expected, spokesman Wickham said.

General Motors' Consumer Reports ranking is unacceptable, executives said in the analysis. Only eight of 46 GM cars and trucks from this model year are expected to provide above-average reliability, compared with 17 of 17 vehicles from Toyota, according to the magazine, which surveyed its readers on the performance of 512,000 vehicles.

To boost future rankings, the automaker identified 15 new or redesigned vehicles the magazine might recommend in the next few years, according to the report. Executives get regular updates on what engineers are doing to improve the models, the report said.

J.D. Power

The magazine's readers said they were concerned about quality issues such as faulty ignition systems, defective brakes, leaky windows, and misplaced interior trim parts.

"I don't think Consumer Reports reflects all the good things you're seeing in a lot of the other reports," Tom Stephens, group vice president for powertrain operations, said in an interview.

The automaker's review also said it expects the number of complaints in a key J.D. Power & Associates quality survey next week to improve by 10 percent to 131 per 100 vehicles. Toyota led last year's "initial-quality" survey, which surveys owners 90 days after they buy a car, with 115 complaints per 100 vehicles

The review said the Detroit automaker may move ahead of smaller rival Nissan Motor Co. in this year's J.D. Power survey. General Motors expects Nissan to improve by 8.3 percent to 133 complaints per 100 vehicles.

Nissan doesn't expect to be passed by the larger rival, said Dan Gaudette, senior vice president for manufacturing at the Japanese automaker's U.S. unit. He declined to specify how many complaints he expects for Nissan.

Agoura Hills, California-based J.D. Power won't comment on this year's survey, which serves as a key industrywide benchmark, before it's announced on May 30, spokesman Michael Greywitt said.

Quality Issues

Honda Motor Co. ranked second behind Toyota in last year's survey with 133 compaints per 100 vehicles and Nissan was third with 145. They were followed by General Motors with 146, Chrysler at 154, Volkswagen AG at 159 and Ford with 162.

Studies show that about 1 in 4 U.S. car-buyers won't consider General Motors products, citing quality and reliability, the automaker's report said.

General Motors is taking steps to maintain quality as it rolls out redesigned midsize cars and compact pickups through next year. Quality slumped in previous years when the automaker started building new or redesigned vehicles, according to the report.

"Any time there is change, there's an opportunity for having an issue," powertrain executive Stephens said.

During the past decade, GM developed strict guidelines for introducing new vehicles, said Kent Sears, vice president for North American quality.

In one example called "bill of material," engineers are required to use only the parts or manufacturing methods that General Motors' central design staff has certified as world-class. Engineers in different parts of the company once may have taken completely different approaches, Sears said.