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Survey Indicates Need for New Approaches to Measuring Automotive Quality

SOUTHFIELD, Mich. – The methods for measuring quality in the automotive industry are viewed as outdated and in need of replacement, according to the results of a new study detailed today by AIAG, a not-for-profit, member-supported organization that works with a wide range of global manufacturing companies and service providers to help them operate at peak performance. The analysis of the first-of-its-kind global quality survey, commissioned through J.D. Power and Associates and announced at AIAG’s inaugural Quality Summit in Livonia, Mich., recommends significant changes to how the automotive industry measures, structures and improves quality.

“The automotive industry has made significant strides in improving quality over the past decade, as evidenced in the upward trends in published product quality and customer satisfaction surveys,” said J. Scot Sharland, executive director of AIAG. “However, continuous improvement is key to any manufacturing strategy, and AIAG is driving that discussion, using this study as a road map to identify likely trends as we reshape our vision of quality in the future.”

The Global Quality Survey conducted in-depth interviews with key leaders at automotive manufacturers and suppliers in China and the NAFTA region, along with supply chain quality experts, to evaluate the current state of quality and explore how quality should be measured and improved in the future. Participants believe that there are currently too many external quality metrics with misaligned targets and objectives, so companies tend to get focused on the quality problem of the moment.

The respondents believe the current measurement system favors tracking lagging quality issues, which can skew data and incorrectly guide decisions. They suggest replacing current quality tracking metrics with ones that identify leading indicators of quality, such as design and process. In the future, the most successful organizations will use the right quality measurement tools, effectively mitigate risk and have a culture that drives out fear.

To get to the next generation of quality, the respondents advocate an industry culture shift toward emphasizing the opportunities of good quality in place of today’s hyper-focus on avoiding poor quality. They suggest replacing current programs that punish for bad quality with new programs that recognize and reward good quality. The survey also points to the need for an internal culture shift at companies, whereby quality and purchasing departments are aligned so that the goal is to reduce total cost, not just purchase order costs. Many factors will drive the future of quality improvement, but sourcing strategies, reward and recognition, warranty and vehicle reliability will continue to play dominant roles.

The study also suggests that automotive companies need to align business objectives around their quality philosophy in order to deliver continuous improvement, a concept that conflicts with traditional approaches to quality management. Additionally, the study recommends that the automotive industry collaborate with other manufacturing sectors to benchmark and generate new solutions for improving quality. Automotive quality methods have been adopted by the pharmaceutical, aerospace and defense industries, and additional collaboration will help identify where other harmonized processes can be adopted.

“As a result of ongoing industry improvements in product quality, shifting consumer perceptions of quality are driving a focus toward more predictive tools,” said Dave Lalain, vice president of commercial development at AIAG. “The survey we conducted establishes quality benchmarks for the automotive industry, which will help identify initiatives for us to continue to drive our members’ success.”

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Jaguar, Land Rover Named Top Brands According to Consumer Satisfaction Survey

LONDON – According to the US J.D. Power and Associates 2012 Automotive Performance, Execution and Layout (APEAL) Study, Jaguar ranks second industry wide among nameplates in vehicle appeal and the Range Rover Evoque is most appealing in the Entry Premium Crossover SUV segment.

For the second year in a row, Jaguar ranks second out of 34 brands measured in the industry – with the Jaguar XJ scoring as second highest large premium car. Land Rover placed sixth (in a tie) among 34 brands, and the new Range Rover Evoque receives the award for Most Appealing Entry Premium Crossover SUV.

“The J.D. Power and Associates APEAL study simply indicates how much your customers like their vehicles’ design, performance and features, and clearly our customers are quite smitten,” said Andy Goss, President of Jaguar Land Rover North America LLC. “Jaguar Land Rover is dedicated, as a premium automotive company, to providing the customers of both our brands with quality vehicles that deliver extraordinary performance, innovative technology, and desirable styling.”

Jaguar is the second most improved nameplate. The gain is primarily driven by the Jaguar XJ with 901 points – one of only three models in the industry to score above 900. The Jaguar brand was also the most improved, tying for second highest in the industry in the J.D. Power and Associates 2012 Initial Quality Study (IQS).

Land Rover placed sixth overall in the industry in a tie, showing that its lineup of luxury SUVs is well regarded by its customers. Leading the Land Rover lineup is the Range Rover Evoque, which in its first year in the survey scored higher than all other Entry Premium Crossover SUVs. According to the survey, customers of the award-receiving Range Rover Evoque most appreciate its design and fuel economy, compared to its segment.

The J.D. Power and Associates APEAL study examines how gratifying a new vehicle is to own and drive based on owner evaluations of more than 80 vehicle attributes. The study’s approach to measuring owner satisfaction and how much a customer likes or dislikes virtually every aspect of their new vehicle provides a tool for manufacturers to influence future product development. The 2012 APEAL study is based on responses gathered between February 2012 and May 2012 from more than 74,000 purchasers and lessees of new 2012 model-year cars and trucks who were surveyed after the first 90 days of ownership.

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August New-Car Sales Expected To Be Highest Since 2008

WESTLAKE VILLAGE, Calif. – The August new-vehicle retail-selling rate is expected to be the highest monthly rate since early 2008, according to a monthly sales forecast developed by J.D. Power and Associates and LMC Automotive. The sales rate reflects a continued consumer need to replace aging vehicles, combined with increased availability of credit. Both companies, however, remain cautious about future sales trends, citing “weak economic growth and consumer uncertainty.”

August new-vehicle retail sales are forecast to reach 1,066,200 vehicles, continuing a 4-month trend of double-digit year-over-year growth. Sales in August reached their highest monthly level since 2008 despite the fact that available incentives were, on average, $106 less per vehicle during the month, and available inventory shrank, compared with July.

John Humphrey, senior vice president of global automotive operations at J.D. Power and Associates, said, “To date, automakers have been diligent in better balancing production with demand, which has been critical to the improved financial performance for many brands. Going forward, this discipline will be tested as demand looks to cool somewhat through the balance of the year.”

Despite strong August sales, data from LMC Automotive suggests reason for caution with regard to sales projections for the remainder of 2012 and into 2013. In addition to weak economic growth in the United States, the European economic crisis could negatively impact economic factors on this side of the Atlantic.

“The strength in August light-vehicle sales takes some of the pressure off expectations for the balance of the year, but a high level of risk lingers,” said Jeff Schuster, senior vice president of forecasting at LMC Automotive. “Given that inventory has normalized and growth in demand is expected to slow, LMC Automotive is holding the forecast for 2012 at 14.9 million units for the year.”

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GM Offers Interest-Free Financing As Sales Pace Accelerates

General Motors Co. is offering buyers interest-free financing on some 2011 models after the company increased discounts and incentives to lead all major automakers’ U.S. sales gains last month.

The loans became available yesterday for 72 months on the Chevrolet Impala sedan, as well as for 60 months on the Malibu sedan, HHR wagon, Traverse sport-utility vehicle, and Silverado, Colorado and Avalanche pickups, according to AIS Rebates in Ann Arbor, Michigan. The 60-month deal also applies to the Buick Enclave and GMC Acadia SUVs and Sierra pickups, reported Bloomberg.

GM raised discounts 12 percent from a year earlier to an estimated $3,732 per vehicle last month, the most among major automakers and 45 percent more than the average, according to researcher Autodata Corp. The company’s spending on incentives will “moderate” this month, Don Johnson, GM’s vice president for U.S. sales, said earlier this week.

“GM’s rhetoric has been saying one thing – discipline, discipline, discipline – and then their actions have been going completely in another direction,” Jeremy Anwyl, chief executive officer of Santa Monica, California-based Edmunds.com, said in a telephone interview.

GM doesn’t comment on specific incentive programs, Tom Henderson, a spokesman, said today in a telephone interview. GM still has the highest average transaction prices among mainstream automakers according to J.D. Power & Associates and GM data, he said, without giving specifics.

GM fell 7 cents to $32.88 at 4:15 p.m. in New York Stock Exchange composite trading. The Detroit-based company’s shares have dropped 0.4 percent from their $33 initial offering price in November.

Reduced-rate financing also is being offered on other models, such as 2.9 percent, 60-month loans on the Chevy Cruze compact and 3.9 percent, 60-month loans on the Cadillac SRX, according to AIS.

The automaker’s discounts may force rival Ford Motor Co. to increase its sales incentives, Anwyl said. GM’s U.S. sales in February climbed 46 percent, giving it a 20.8 percent share of the market last month, topping Ford’s 15.7 percent and Toyota Motor Corp.’s 14.3 percent, according to in Woodcliff Lake, New Jersey-based Autodata.

Ford Chief Executive Officer Alan Mulally has emphasized profitability over market share, with Ford boosting prices in February by $700 to $800 a vehicle from January, George Pipas, the automaker’s sales analyst, told reporters on Feb. 28.

“Up until three months ago, Ford was the one everybody was talking about,” Anwyl said. “The question is, ‘How long are they going to want to be the disciplined car company and allow GM to pick up their share?’”

Ford reduced average incentive spending 9.7 percent to $2,542 last month. The Dearborn, Michigan-based company’s 10 percent increase in February sales trailed GM and Toyota, which had a 42 percent gain after it raised spending 11 percent to $2,003. Chrysler Group LLC’s average discounts fell 14 percent to $3,052, while sales climbed 13 percent.

Chrysler, the U.S. automaker operated by Fiat SpA, said its March incentives include offering financing as low as zero percent on some vehicles, including the Ram 1500, according to its website.

GM needs steeper incentives to clear out older models such as the Impala and Malibu, said Maryann Keller, principal of a self-titled consulting firm in Stamford, Connecticut. The automaker also can afford discounted lease deals because vehicles’ resale values are now at high levels, she said.

“You use incentives on stuff that’s old,” Keller said in an interview yesterday. “Leasing can be done today very affordably because interest rates are low and residual values on the cars are high.”

GM’s sales gains were “far stronger than the magnitude of the incentive spend,” Itay Michaeli, an analyst at Citigroup Inc. in New York, wrote today in a research note.

“This may remain a subject of debate until GM demonstrates solid share on lower incentives,” Michaeli said. “The industry did not appear to plunge into a price war in February as some feared.”

The discounts by GM and Toyota City, Japan-based Toyota may be artificially inflating the U.S. auto market, said Ernst Lieb, chief executive officer of Daimler AG’s Mercedes-Benz USA.

Light-vehicle sales in February ran at a seasonally adjusted 13.4 million annual rate, according to Autodata. The pace topped the 12.5 million average estimate of 10 analysts surveyed by Bloomberg and exceeded 13 million for the first time since the U.S. government’s “cash for clunkers” program in August 2009.

“I wonder if you’d see such a strong market, month after month” without the incentives from GM and Toyota, Lieb said in an interview yesterday. “Things are still extremely unpredictable. Look at fuel prices and the uncertainty and unrest in the Middle East.”

Auto incentive spending throughout the U.S. industry in February fell 4.6 percent to $2,578 per vehicle, according to Autodata. GM plans to reduce incentives to get back in line with the industry average, Johnson said yesterday on a conference call with reporters and analysts.

The reluctance on the part of the entire industry to raise incentives has probably constrained the market prior to last month, Edmunds’ Anwyl said. Incentives helped propel the U.S. to its all-time fastest auto sales pace in 2001 when GM introduced its no-interest campaign dubbed “Keep America Rolling,” after the September 11 terrorist attacks.

“If GM plans to make good on its promise to keep incentives in line with the industry average over the course of the year, it will have to post below-average incentives at some point,” Chris Ceraso, a New York-based analyst with Credit Suisse Group AG, wrote in a research report today. “This may get difficult, as its key competitors are showing a willingness to increase incentive levels in order to stay competitive.”

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