When Marc Trahan began setting up a new services group responsible for tracking product quality for Audi North America in June 2002, he had no idea what awaited him. Although a controversial safety issue had plagued the model 5000 series in the United States back in the early '80s, Audi North America had since done well, with rising sales and an improved reputation for quality and technological sophistication.

But just a few months after the North American unit took over its own quality monitoring from the parent group, Audi owners began experiencing stalling problems en masse. "In September and October 2002, we had a fairly high rate of failures, particularly on the 4-cylinder engine," says Trahan, director of product quality and technical service at Audi North America. Auburn Hills, Mich.

Trahan says the failure rate "exceeded 50%," affecting a total of 101,000 cars from the 2001, 2002, and 2003 model years. In most cases, he says, the cars had to be towed in. "It was an issue with our ignition coil that manifested itself in cold weather," he adds.

Audi traced the root cause to a process issue at its supplier of circuit boards. "Cold weather would cause a problem so that there would be no spark for the spark plugs," Trahan explains.

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How Companies Are Responding

To mollify customers, Audi sent a letter to owners suggesting they bring the car in and have the faulty ignition system replaced. Things got worse, though, when Audi discovered that because it had only one supplier for the circuit board, there suddenly was an acute shortage of replacement units. Owners had their cars towed in, only to learn that they faced an inordinate wait to have them repaired.

"We sent teams of people to the supplier and fixed the development issues," Trahan adds. "We weren't providing sufficient quality supervision for this supplier.

"It also taught us not to rely on one supplier. Today we have a second supplier. It's like an insurance policy."

Trahan believes the automaker benefited from the setback. "The fact that this ignition coil problem arose sort of helped us. Today the reliability rate for all our cars, in terms of warranty costs and failure rates, is up."

Defects Costing Billions

Audi's quality failure is not unusual. Despite thousands of manufacturers having adopted the quality mantra -- most often in the form of continuous improvement methodologies such as Six Sigma and derivatives of the Toyota Production System -- many products are defective or fail early.

Anyone who doubts that quality is still a big pain for manufacturers need only follow the blood trail left by the numbers. The auto industry alone coughed up $14.5 billion to cover the cost of warranty and recall work in 2004.

Other industries incurring product quality woes include heavy equipment, biotech, firearms, consumer electronics, and appliances. Few industries, in fact, have escaped the stigma of defective products.

What's causing this killer wave of defects and failures? Not surprisingly, most manufacturers aren't eager to divulge the causes. "Almost all processes have people, and people make mistakes," says Jerry Mairani, president of the American Society for Quality (ASQ).

Quality experts say most defects are caused by:

  • new products rushed to market;
  • insufficient testing;
  • complex electronics with buggy software;
  • poor supplier quality;
  • design errors;
  • sloppy production.

New products are especially likely to cause trouble. "Whenever you introduce a new product, you introduce risk," says Michael Burkett, vice president of the product lifecycle management practice at AMR Research in Boston.

There's also management pressure to launch new products. "Often there is too much concern within a company to make a launch window, so the company will take short cuts," Mairani says. "Shipping something early and knowing it was not tested properly is wrong, but from a financial perspective, being late to market will cost you money."

Cost cutting in design is another reason. In the Audi case, cost cutting clearly was a factor. "There was too much emphasis on cost and not enough on quality at the supplier," Trahan says.

A growing cause of product failures is complex electronics. From washing machines to lawnmowers to automobiles, more goods depend on computer chips and complex software code to function properly.

"The relatively untested functionality in automotive electronics is the cause of 70% of all vehicles returned to the dealer under warranty," reports Martin Piszczalski, a research director specializing in the automotive industry at Gartner Group.

A software logic glitch was the reason that some Toyota Prius 2004 and 2005 models stalled out. Out of 150,000 Priuses sold in 2004 and 2005, Toyota reports only 68 cases of cars stalling.

"As things get more complicated with more sensors on cars and more electronic codes, we can't foresee or prevent every possible problem," says a Toyota North America spokesman. Toyota directed owners to come in for an hour-long software upgrade.

Electronics contributed to a mess at Maytag. For a company that had built its reputation on dependability, the launch of the Neptune front-load washing machine in March 1997 was a quality nightmare. Rubber seals on doors got moldy. Door latches failed. Computer circuit boards that controlled the machines were buggy. Electric motors conked out. Drainage problems led some customers to complain that their clothes stank, so much that some customers took to calling it the "Stinkomatic."

Maytag won't discuss what caused the failure, but one plaintiff alleged design shortcomings, claiming that the Neptune "contained a number of common design defects that may lead to cessation of operations and mold or mildew accumulation."

Maytag has sold more than 1.4 million Neptune washers in the U.S., and more than 100,000 claims were filed by owners of the defective early models. Maytag settled a class-action lawsuit, making claimants eligible for free repairs, cash, product certifications good for new appliances, or -- in some cases where machines resisted the best efforts of the Maytag man to repair them -- replacement washers.

Maytag reported a loss of $9 million in 2004, partly as a result of $33.5 million in litigation costs stemming from the early Neptune's defects.

High-tech is another industry that often experiences quality flubs. "Consumer electronics is an area that is notorious for quality problems," says Gartner's Piszczalski. Adds AMR's Burkett, "It's quite common in the high-tech industry to see a higher failure rate."

Apple Computer, which has had a runaway success since the iPod's launch in 2001, disappointed buyers of the first three iterations of the handheld music player/downloader when the batteries died after four hours, instead of up to the 12 hours that buyers expected.

In a proposal to settle a class-action suit over the weak batteries, Apple offered buyers up to $50 in cash or credit. By one estimate, the settlement, which covers up to 2 million iPods purchased before May 31, 2004, could cost Apple as much as $100 million.

Tracing Problem To Suppliers

Guidant, a manufacturer of heart implant devices, last year notified physicians that certain models of its defibrillators and pacemakers could, on rare occasions, fail unexpectedly. The company reported 28 instances out of 26,000 devices built of its Ventak Prizm 2 defibrillators failing due to deterioration of a wire insulator that in turn, caused a short in the device.

In one instance, a 21-year old college student died of cardiac arrest when the device failed to provide electrical therapy to restart his heart. The company is offering reimbursement for surgery for patients who have the device implanted to have it swapped out. The Prizm 2 now is the focus of litigation claiming that patients suffered mental anguish when they decided to have their potentially problematic devices surgically removed and replaced.

Guidant also notified physicians of two failure modes for its Insignia and Nexus families of implantable pacemakers. A total of 36 failures were reported out of 49,500 devices implanted for the first failure mode, and 16 failures arose among 341,000 devices for the second failure mode. No deaths were reported due to the failure of the devices.

Guidant traced the cause of the first failure condition to a quality issue at a supplier. "Root cause has been identified as foreign material within a crystal timing component," Guidant told physicians in a notice on Sept. 22. "The supplier of the crystal timing component used in this subset has eliminated foreign material within the crystal chamber, and no such failures have been observed in any devices shipped after March 12, 2004."

The defibrillator and pacemaker problems have been costly for Guidant, which revised its expectations for fourth quarter results. It reported in December that its fourth-quarter sales and profit would fall well below expectations, projecting quarterly sales of $790 million to $820 million, versus analysts' expectations of $928 million.