Carmakers Narrow Quality Gap

SHOWING off his auto-parts company in suburban Detroit, Jim Lozelle holds up a hood hinge.

"We have figured out the quality end of it," says Mr. Lozelle, president of Edgewood Tool and Manufacturing Company. The hinge, made for Chrysler, equals the quality of hinges the firm produces for Japanese customers.

But having almost closed the quality gap on the factory floor, US carmakers now face their Japanese competitors on an entirely new playing field: customer service. The new contest involves a much broader definition of a quality car.

The factory revolution "is really the story of the 1980s," says J. Ferron, senior partner with J.D. Power and Assoc., a marketing information firm. "The story of the 1990s ... is that as the quality improves, customers are demanding a higher level of satisfaction."

Car buyers, in other words, are getting pickier.

In 1987, 14 percent of customer complaints were engine-related, according to J.D. Power surveys. Only 8 percent of complaints are engine-related today because cars have higher-quality engines. But other details, such as how a dealer handles a customer's complaint, are becoming increasingly important. Customer-service focus

When J.D. Power surveyed buyers who had no problems with their car, 94 percent were totally satisfied. If their car had a problem but it was fixed entirely, satisfaction dropped to a still high 82 percent. But if the problem was only partially fixed, satisfaction dropped to 61 percent.

"If not handled right ... you lose satisfaction pretty quickly," Mr. Ferron says. "As everybody gets higher quality, the small problems stand out more."

"The significance of the quality difference has declined dramatically," says David Cole, director of the Office for the Study of Automotive Transportation at the University of Michigan. During the early 1980s, the average US car had six to eight defects per car; the average Japanese had only two. Today, the US averages 1.5 defects; the Japanese, 1.3.

The gap "is perceptibly insignificant," adds Jim Harbour, president of Harbour Associates. His Troy, Mich., research firm recently completed a study of the North American auto industry.

"There's not going to be a gap between the Japanese and the Americans," says John Vergoz, vice president for quality and technology at Budd Company in Troy, Mich. In the future, "quality won't be the differentiator. But cost will be."

While some US auto manufacturers are moving forward in cutting costs, others have stalled. The well-publicized struggles at General Motors have overshadowed the steady progress at Ford and dramatic improvements at Chrysler. Harbour found that Ford can build a car for $800 less in labor costs than GM.

A similar split appears to be taking place in Japan. While Toyota and, to a lesser extent, Honda, are making progress, other Japanese auto makers show signs of dropping behind.

US auto companies may catch up and surpass these smaller Japanese companies, auto analysts say. But Toyota looks firmly entrenched at the top spot.

"There are two industries - Toyota and then the rest of the Japanese manufacturers," Mr. Cole says. These other companies "are having a lot of difficulty."

"I'm not sure how you stop Toyota," Mr. Harbour says. "They are superb developers of products. They are superb marketers."

To be quality companies of the future, automakers will have to strive for excellence in new areas, Cole says. They will have to reduce the time it takes to get new car designs into showrooms. They have to improve their selling and service relationships. If quality differentiated car companies before, technology will differentiate them in the '90s, especially safety technology.

If US car companies have learned anything from the last decade, it is that they can compete on quality. The highest-rated car plant in North America is not run by a Japanese company, it's a General Motors facility in Oklahoma, according to J.D. Power.

Still, according to David McCammon, vice president and treasurer at Ford, "the company's No. 1 challenge is the Japanese competitive threat worldwide."