Ford logo in their auto plant

Ford CEO tackles warranty costs in a bid to increase profit

Ford Motor’s CEO Jim Farley, is aiming to rein in increasing warranty repair costs that are a major reason why the automaker’s financial performance in North America has lagged that of its rival, General Motors.

As part of its latest effort to cut warranty costs, Ford has informed suppliers it will charge them upfront for half the cost of a warranty problem. Suppliers might get some of the money back if they fix issues more quickly.

The move concerning the charge of parts makers upfront has some supplier executives worried.

But for the automaker’s investors, action to shrink the U.S. automaker’s outlays for vehicle faults is overdue. Ford’s warranty costs for the first nine months of 2020 were over $2 billion higher than those of General Motors.

Industry officials blame the automaker’s higher costs on the introduction of several major automobile platforms and powertrains, and also the fallout from the Takata airbag recall that has now also hit GM.

Bad parts from suppliers represent about one-third of Ford’s warranty costs. The rest stem from design and manufacturing issues.

To attack internal quality concerns, Ford has reconstituted teams that track the quality of inbound parts at its factories. These teams were earlier disbanded as cost-cutting moves. Farley is pushing executives to resolve quality concerns that linger beyond 30 days.

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