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Ford's 'quality' push comes at busy time for automaker

A Ford logo is seen on the grill of a 2015 F-150 truck outside the New York Stock Exchange in the Manhattan borough of New York, January 13,
A Ford logo is seen on the grill of a 2015 F-150 truck outside the New York Stock Exchange in the Manhattan borough of New York, January 13,

By Deepa Seetharaman

DETROIT (Reuters) - Ford Motor Co is betting that the tight bond between two of its senior executives can help the automaker prevent quality missteps from derailing its busiest-ever year for launching new vehicles.

Joe Hinrichs, head of North and South American operations, and Raj Nair, Ford's global product development chief, are two of the key players in what has been an all-out push to stamp out problems that have dogged the automaker in the last few years.

At stake are Ford's credibility and profitability as it embarks on an ambitious plan to introduce 23 new vehicles - the most in one year in company history - around the world this year.

These include a radical revamp of its most profitable vehicle, the top-selling F-150 pickup truck, which was unveiled at the Detroit auto show last week. The new version uses less steel and more aluminum.

"We have a lot more new product and a lot more new launches than we used to have," Hinrichs said in interview on the sidelines of the auto show. "We know how important these launches are."

In the last few years, Ford has tumbled in key reliability surveys due to problems with its touch-screen dashboard system and some of its transmissions. It conducted seven recalls of its Escape crossover since its mid-2012 launch, which may have led to warranty costs of as much as $300 million in 2013.

As part of the redoubling of Ford's effort to prevent quality woes, Hinrichs and Nair are drawing on their experience working together in North America and Asia for the last dozen years.

Both helped shape Ford's restructuring in North America in 2005 and 2006, when Chief Executive Alan Mulally came on board to steer the automaker's turnaround. In late 2009, they went to Shanghai and spent the better part of a year away from their families to replicate Mulally's "One Ford" plan - which unified formerly disconnected business units to gain economies of scale - - in Asia and improve quality.

The two now conduct high-level reviews every month or so of all major programs to pinpoint potential problems, a practice that will continue throughout 2014.

Over the years, the two have developed an almost intuitive understanding of the other's perspective, Hinrichs and Nair said in a joint interview late last year.

Their strong rapport allows them to divvy up duties and work more effectively, they said. So when a scheduling conflict arises, they are comfortable if one of them has to miss a launch review as long as the other person is in the room.

"When we look at something, 99 times out of a 100, we're both seeing the same thing," Nair said. "A lot of times, we both don't have to be there because of that."

Then Hinrichs jumped in: "Which is important because there's only so much time in the day."

NOT POINTING FINGERS

The Escape recalls have also been a black eye for Ford and account for most of the $250 million to $300 million in warranty expenses that Ford expects to pay for 2013.

These costs could pinch its 2013 operating margin in North America, Ford said last month.

Ford's woes largely stem from the fact that it is launching more new vehicles at a faster clip than in years past, in keeping with a broader trend in the industry, analysts and executives said.

In some cases, that has led to unresolved glitches that make features like the MyFord Touch entertainment and navigation system tough to operate, according to Consumer Reports magazine and consultant J.D. Power & Associates.

"Maybe Ford went too far, too early," Morgan Stanley analyst Adam Jonas said. But "if you have a heart-to-heart with Ford management about the issues, they don't give you excuses. They're addressing it. They are not pointing fingers."

The faster pace evokes a broader trend. Since the 2009 economic downturn, major automakers have been launching new models with fewer factories and a smaller supply base, elevating the risk of quality problems in the future.

In the 1990s, the average automaker's lineup was between four and five years old in North America, Citi analysts said last month in a research note. That will shorten to between two and three years over the next couple years.

But as part of its effort, Ford is now spending more time conducting research before green-lighting a vehicle design. This has lengthened the time it takes Ford to develop a new product, but should ensure the product is top-notch.

"We reached the point where we took more time out than we could probably afford to, so we put time back in - based on data, based on learnings from the consumer," Hinrichs said.

STILL A WAR

Analysts added that quality issues are not insurmountable, pointing to Toyota Motor Corp's <7203.T> ability to bounce back from its recent crisis involving sudden unintended acceleration in some vehicles.

Despite the problems, Ford's U.S. market share actually grew almost half a percentage point to 15.9 percent last year.

But the U.S. auto market is expected to be more competitive this year as sales growth is expected to slow, analysts said.

If quality problems persist this year, it may raise questions about Ford's ability to execute the F-150 launch, Guggenheim Securities analyst Matthew Stover said.

Company executives are keenly aware of this risk and said that as a result, quality has been a key focus for Ford over the past year. These changes to Ford's quality process will continue throughout 2014.

Ford engineers and designers are coordinating efforts earlier in the product development process. They are using 3D technology and other tools that allow Ford to spot and avoid problems from showing up on the assembly line.

Each Wednesday, top executives pore over Ford's more than 60 global vehicle programs, focusing on the most troubled ones.

Such meetings bring problems to light more quickly and make "a big organization small," said Chief Operating Officer Mark Fields, who started the forum and who also leads it.

This year, Ford is launching revamped versions of the F-150 and Mustang sports car, two models that have an outsized effect on consumer perceptions of Ford worldwide.

The Mustang will be sold globally for the first time ever. The F-150 is an even bigger challenge because it features an aluminum-alloy body that has triggered changes to the way the trucks are built, repaired and sold.

New model launches are something of a specialty for Hinrichs and Nair. When they met around 2002, Hinrichs was in charge of material planning and logistics worldwide for Ford and Nair led new model launches in North America.

"Because both of us have been through a lot of launches, we have the emotional resilience that you need to have because every launch is difficult," Hinrichs said.

"It's like asking, is the war going well?" Nair added. "It's still a war."

(Additional reporting by Ben Klayman in Detroit; editing by Matthew Lewis)

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