For decades, Honda (NYSE:HMC) has been known for cars that deliver top-notch quality and efficiency at a reasonable price. But lately, the "quality" part of that value proposition has been showing a few cracks.
Most owners will tell you Honda still builds good cars. But the competition has caught up to Honda's high standards -- and some unlikely brands are even beating Honda at the quality game.
How unlikely? Would you believe... Buick?
In two important measures of quality, GM brands beat Honda
General Motors (NYSE:GM) isn't exactly the first company that comes to mind (or the second, or even the fifth) when the average American thinks about automotive quality. But in the latest J.D. Power surveys, GM has posted shining results.
In the latest edition of J.D. Power's Initial Quality Survey, released last month, two GM brands -- Buick and Chevrolet -- outscored mighty Honda in problems per 100 vehicles.
The Initial Quality Study measures problems in the first 90 days of ownership of a new car, truck, or SUV. It's widely watched, but it's just one measure of quality. If that was GM's only victory, we could write it off as a fluke. But it isn't.
Earlier this year, GM's brands posted strong results in another important J.D. Power survey: the Vehicle Dependability Study. That one aims to capture quality as a car ages, looking at problems experienced during a vehicle's third year of ownership.
As you can see, Honda posted a great result in this one. But once again, GM's Buick brand beat the Japanese icon, as did its Cadillac luxury brand. And GM's Chevy and GMC brands weren't far behind. All were well above the industry average.
To add insult to injury, GM's Chevy Malibu beat Honda's flagship Accord in the midsize car rankings in both studies.
How did this happen? There are really two parts to this story.
GM has made big improvements...
First and foremost, GM has quietly put together an impressive story around improvements in product quality. GM has always had the talent and resources needed to produce top-tier products, but for years, it was undone by high costs and cumbersome internal processes. As a result, GM products were often late to market, and they were too often undone by GM's need to skimp on materials or details in order to keep costs (and thus prices) competitive.
The upshot was a slew of uncompetitive products that had to be sold at discounts. Those discounts eroded GM's already-thin margins further, leading to more cost cuts in the next product cycle, and eventually a downward spiral that ended in bankruptcy court.
But GM's post-bankruptcy management attacked that problem with zeal and insight. As GM's global product chief, Mary Barra instituted a huge reform of GM's product-development process that helped drive big leaps in quality while cutting development time (and saving billions of dollars to boot).
Barra was (rightly) rewarded with the CEO position, where she has continued to drive further improvements. Meanwhile, Honda has had a rough road.
...while Honda has struggled recently
After a tumultuous year and a half in the job, Barra is arguably a veteran CEO at this point. But Honda's CEO is brand-new: Takahiro Hachigo officially took over the top job on Monday.
In a speech to reporters in Tokyo, Hachigo laid out his plans for a "new Honda." Among his top priorities: improving quality.
Honda has been hit harder than any other automaker by the Takata airbag scandal, which has led to the recall of over 20 million Honda vehicles so far. More directly, it has also been rocked by outcries over defects in two Japanese-market Honda models, hybrid versions of the Fit subcompact and Vezel SUV (the Vezel is the Japan-market version of the HR-V).
After five separate recalls in a matter of months, Hachigo's predecessor, Takanobu Ito, as well as other senior executives took three-month pay cuts last fall as a sort of punishment. Ito also appointed longtime senior executive Koichi Fukuo as the company's first global quality chief, and began other measures to shore up Honda's flagging reputation for quality.
Hachigo said on Monday that he will build on those changes, making changes to Honda's product-development process and internal communications in an effort to forestall future quality lapses.
The upshot: The quality gap between Detroit and Japan has mostly faded
Once upon a time, surveys like these showed Honda and Toyota near the top -- with a big gap between them and the rest of the global pack.
No more. Like GM, Detroit rival Ford has also made big strides in quality -- as have the German luxury brands, as have Korea's Hyundai and Kia. Global competition has forced all of the major players to raise their games over the last few years, and nearly all have responded.
Honda has stumbled a bit, as rival Toyota did a few years ago. But Honda will recover, and its stumbles aren't really the big story. Instead, the takeaway here is that "quality" has ceased to have a lot of meaning as a differentiator -- except when a company stumbles.
John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.