Wall Street Journal April 8, 1999 by Gregory L. White
What do strawberries and automobile air-conditioning compressors have in common? Just enough, General Motors Corp. hopes, to help it save $1.6 billion.
General Motors executives were impressed in 1997 when doctors from the federal Centers for Disease Control and Prevention took just days to trace a hepatitis outbreak among Michigan schoolchildren to a load of bad strawberries from Mexico.
The auto executives, under orders to slash more than $1 billion from GM's annual repair bill for cars under warranty, figured the CDC's methods for tracking down disease-carrying fruit might offer some useful lessons. They adapted the CDC's epidemiological system to the industrial task of debugging cars and trucks.
Working with consultants, GM officials first approached the CDC as part of a search for ideas from other sectors, including aerospace and pharmaceuticals, where reliability is paramount. When CDC specialists explained to a roomful of GM executives how they had cracked the strawberry case, "it was one of those a-ha! moments," says Don Mitchell, warranty chief for the world's largest auto maker. The CDC's approach, he adds, is an "incredible, profound breakthrough in the way we manage this business."
GM could use a breakthrough. The Detroit company spends about $3.5 billion a year paying dealers to fix things that break on GM vehicles under warranty in North America, where the company's typical warranty lasts three years. Those repair costs alone are almost $1 billion more than all the revenue America Online Inc. generated for its most recent fiscal year. Despite dramatic improvements in new-vehicle quality at most major car makers over the past decade, industry executives say warranty costs may be the single largest area left for potential cost reductions.
GM's willingness to reveal its warranty-repair bill and to discuss strategies for reducing it is highly unusual and a measure of how excited it is about the new CDC-inspired techniques. Rivals Ford Motor Co. and DaimlerChrysler AG declined to provide figures for their warranty costs.
GM manufactures about 25,000 cars and trucks a day, which means little glitches can rapidly become epidemics. And behind every sick car is an unhappy customer. GM handles 22.5 million warranty claims a year, ranging from minor tweaks most customers barely notice to catastrophes such as engine failure.
GM has made it a top priority for the entire company, from designers to dealers, to reduce warranty repairs with improved design and quality and early detection of problems. The goal is to eliminate some nine million claims and to save $1.6 billion in costs by 2001. Detecting problems early also is critical to avoiding costly recalls like the one of about a million trucks that GM announced last month, in which it will foot the bill to fix a switch miswired during manufacturing.
Under GM's old way of handling warranty problems, word of breakdowns would filter up, with no consistent reporting rules, as dealers billed the manufacturer. It might take months for GM to find the source of a problem and correct it.
Enter the CDC. Since early in the century, the agency has been refining techniques for tracking disease, spotting outbreaks and homing in on the cause. Working from disease-incidence reports that doctors make to state health departments, the CDC watches the statistics for signs that an illness is spiking above its traditional trend line. When one does, the agency quickly investigates, searching for links between cases to find the cause.
'A Little Surprised'
Standardized diagnoses and quick, simple response systems are critical. "We have a very tried-and-true approach to dealing with disease outbreaks," says Scott Wetterhall, an epidemiologist at the CDC who worked with GM. "To be honest, I was a little surprised at how well this took" at GM. DaimlerChrysler also uses statistical-tracking methods to control warranty problems, but Dr. Wetterhall says GM is the only auto manufacturer to have worked with the CDC on the issue.
Adapting the CDC's approach to its own needs, GM standardized reporting of breakdowns across its dealer network and began tracking warranty repairs using samples of a few thousand vehicles for each vehicle model. Sophisticated computerized statistical models inspired by the CDC highlight emerging trends.
Mr. Mitchell, the warranty chief, calls a windowless converted conference room at GM's Tech Center in Warren, Mich., the "warranty war room." At the front, a chart listing the elements in the warranty-cost-reduction program hangs on the wall under the headline "Where's the beef?" Using computer printouts in plastic trays lined up along the walls, Mr. Mitchell and his team track warranty problems for each of the 77 car and truck models GM sells in North America.
Newly discovered outbreaks are tagged with red dots and then, when a solution is put in place, with yellow dots. After 60 days of trouble-free production, they get green dots. "If we can get it while the trail is still warm ... we can usually get to the root cause within 24 hours," Mr. Mitchell says. The "first-time kill rate," or share of problems solved the first time, is 96%, he says.
Last October, the system revealed a surge in complaints that air conditioners on a range of brand-new cars and minivans were blowing hot air. Within three days, GM engineers had isolated the problem in the compressors and shipped samples of the defective parts to the supplier that made them. There, engineers traced the problem to a drilling machine that periodically clogged with metal shavings and made holes that were too big. Though the problem affected only about six of every 10,000 compressors, the equipment was retooled to prevent it from recurring. Problem-free output began within 10 days of GM's initial detection of the problem.
"Without that kind of system, it would have been at least two months before we would have picked up the signal," says Dale Stelmach, an executive at Delphi Automotive Systems, the GM unit that supplied the part.
Then there are what GM calls "hardy perennials," defects that have defied solution in some cases for years. A team Mr. Mitchell heads worked with an outside supplier to find the source of a nagging noise in truck axles, which GM has suffered, he says, "as long as we've had axles on vehicles." In the past, GM simply absorbed the $924 repair cost for each one still under warranty, running up an annual bill in the tens of millions. GM says it has fixed the problem using the new procedures but won't say how, for fear of tipping off rivals.
Copyright © 1999 Dow Jones & Company, Inc.
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