New Quality Concerns for Ford?

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After decades of mismanagement, Ford (NYSE: F  ) has done almost everything right in the past few years. New models are at or near the top of the charts. Profits are solid, and management is investing wisely for long-term growth overseas. There's cash in the bank, an investment-grade credit rating, and even a quarterly dividend.

It's a remarkable story that makes the occasional misstep by Ford seems all the more jarring. And the latest one is an eyebrow-raiser: For the second time in two years, an important new-model launch has been marred by quality glitches -- this time, leading to two safety recalls in the same week.

The second-worst kind of vehicle recall
Ford's new Escape SUV has been a big hit with consumers since its launch in June, but Ford has to be hoping that the two recalls announced this week don't put a damper on buyers' enthusiasm. The first was a relatively minor issue -- a carpet piece that could come lose and interfere with the brake pedal. But the latest was more dramatic. It came on Thursday morning, and it came with a rare plea: Ford asked owners of affected vehicles to stop driving them immediately.

Ford's erring on the side of caution, but that's hard to criticize, with memories of Toyota's (NYSE: TM  ) unintended-acceleration drama still fresh. Still, a recall that comes with a stop-driving-now request is extremely unusual, and probably the second-worst kind from a public-relations perspective. Fortunately for Ford, no injuries have resulted from the defect (a recall following injuries or deaths would be the worst, of course) -- and Ford's quick action makes it likely that none will.

So what's the problem? Ford says that, in Escapes equipped with the 1.6-liter four-cylinder engine, a faulty engine-compartment fuel line could split and lead to fires. This isn't theoretical. There have been three fires so far -- two at the factory and one in a privately owned vehicle in Canada. All happened while the vehicles in question were running -- Escapes that are turned off and parked in a garage should be safe.

Ford halted shipments of Escapes with the problematic engine on July 11, after the third fire, and began an extensive investigation. That was the right thing to do. Indeed, it's hard to fault Ford's approach to this problem.

But the fact that it happened in the first place is a bit of concern -- not least because one of last year's big rollouts also had problems.

Not a big deal, but a note of concern
Rolling out a new vehicle around the world is an immensely complicated process, and something like this problem with a fuel hose could be as simple as one misunderstood communication with one supplier. Every automaker, from little ones like Tesla Motors to huge ones like General Motors, has recalls from time to time. When handled properly -- and as long as nobody has been injured -- they're really no big deal.

But this is the second year in a row where the launch of a critical new Ford product has been marred by parts issues. Last year's launch of the Focus compact was hampered by supply problems early on; no recalls were involved, and Ford never did an official explanation, but rumors suggested that early batches of key parts from suppliers weren't up to snuff.

Should shareholders worry? Probably not too much: Ford appears to be taking exactly the right action here, and with luck it'll be forgotten a month from now. But it's worth keeping an eye on: The Escape is an important new model for Ford that is destined for markets around the world. Any lingering suggestion that its quality is less than top-notch could turn into a major headache for the Blue Oval.

Thanks in part to concerns about Europe, Ford's stock has been under pressure lately, with its stock dropping below $10 a share. But the company is still performing very well at home and is investing heavily for growth abroad. Have these short-term pressures created an incredible buying opportunity, or are there hidden risks with the stock that investors need to know about? To answer that, one of our top equity analysts has compiled a premium research report with in-depth analysis on whether Ford is a buy right now, and why. Get instant access to this premium report.

Fool contributor John Rosevear owns shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of General Motors, Ford, and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy

Read/Post Comments (4) | Recommend This Article (4)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 22, 2012, at 7:45 PM, marcagain wrote:

    Why is Ford so quickly they got a recall,so what.Toyota has had several recalls along with Honda and others but its just passed off as no big deal.Hey,Ford is producing so fine cars,back off....

  • Report this Comment On July 23, 2012, at 9:51 AM, TMFMarlowe wrote:

    @marcagain, you sound like a GM executive circa 2003... "hey, we're producing some fine cars, back off." You know how that story worked out, right?

    Seriously, Ford is indeed producing excellent cars, as I say here all the time. And I put my family's money where my mouth is: There's a 2012 Focus in my garage.

    The issue isn't the recalls. Everybody has recalls, as I said above. The issue is that this is the second year in a row where some little supplier thing has glitched-up the launch of an important new global model. Is it a big deal? Not in and of itself. But it's jarring, and something to watch skeptically, because Ford's execution has mostly been so good in the last few years.

    John Rosevear

  • Report this Comment On July 23, 2012, at 10:49 AM, CluckChicken wrote:

    This is not a new thing for Ford with new models, especially highly hyped models. The first version of the Focus had 2 in the first month, the T-bird had 2 as they were being delieved to dealers and even the last Mustang had a recall in the first month.

    Since nobody has gotten hurt (thankfully) and Ford has had a quick response this will blow over shortly. And of course none of this is taken into consideration for the JD Power or Consumer Reports number both of which are pretty silly once you break them down.

  • Report this Comment On July 23, 2012, at 12:59 PM, kmacattack wrote:

    The way that Ford is handling these recalls is very impressive, and totally opposite of how things were done in the past. There are probably 15,000 different parts in a new car which could fail and no one has ever built a PERFECT car which never had a defect. But Ford is building world class cars and trucks from top to bottom these days. With car models like the Focus, Fusion, Taurus, Escape, etc. they have the bases covered.

    One of my best friends drove up Friday in a new 2013 Edge, which is now a beautifully styled SUV which gets about 28 mpg. The idea that Ford can build a 300 HP SIX Cylinder Mustang that achieves 30 mpg is mind boggling. I sold Fords about 12 years ago, and the "Six Bangers" had 205 HP and got 20 mpg highway.

    There is some great engineering these days at Ford. And of course, the Truck line is THE envy of the world, with the F150 having been the best selling truck in the USA for 28 years straight.

    If you happen to notice the trucks pulling huge horse trailers at rodeo's and horse shows, a huge number of them are Ford Power Stroke Diesels. I don't know if they even make the "power Stroke" engine anymore, but they are still dominating the Work Truck market, and with good reason. They are simply the finest trucks you can buy, and it makes my blood boil to think of the politicians who wanted to let the American auto industry die, and let Toyota, Honda and other import makers move in and take over the American market.

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