DETROIT - Freudenberg-NOK has won a $1 billion contract to provide engine seals to Ford Motor Co.
The contract, one of Freudenberg-NOK's largest ever, calls for the Plymouth, Mich., supplier to provide a complete engine sealing system for 2 million vehicles a year starting in 2001.
The contract will run for eight to 10 years. It is the first contract for total engine sealing awarded by Ford.
'They (Ford) wanted to hold one vendor accountable, and we told them, `That's us,' ' said Freudenberg-NOK CEO Joe Day. 'Now, if there is a leak, they have only one place to go, and we are standing up to take that risk.'
A complete engine seal can include more than 80 different parts from oil-pan gaskets and head gaskets to various seals. Automakers typically buy the parts from many different vendors, Day said.
Freudenberg-NOK is a partnership between Freudenberg & Co., a privately held family business in Germany, and NOK Corp., a publicly traded Japanese firm. The company will coordinate the work of other suppliers, said Ford spokesman Ron Iori.
FOR THE FOCUS
The contract applies to a four-cylinder engine to be used on the new Ford Focus, including its European version, Iori said.
Freudenberg-NOK expects 1999 sales of $900 million to $1 billion, so this contract alone may represent a 10 percent jump in sales. Day valued the contract at about $100 million a year.
'That's really a huge program. It's the first one I've heard of, but I know there will be other automakers quickly going this way with total engine sealing,' said Jim Nader, market-assessment manager for CSM Worldwide, an automotive consulting firm in Northville, Mich. CSM has consulted with Freudenberg-NOK in the past.
Nader said automakers like the idea of having just one company providing all the engine seals so they know who to blame for leaks.
'Typically when there is an engine leak, the suppliers blame one of the 17 other suppliers. Plus, the automakers know that when a car is leaking oil, it does deteriorate a consumer's interest in buying that car again,' Nader said.
Day said his company's internal target is to trim engine oil leaks to 0.5 failures per 1,000 vehicles. He said the standard industry failure rate is 10 leaks per 1,000 vehicles.
'Engine sealing is very complex,' Iori said. 'We are working with Freudenberg to save on warranty costs and in hopes of better customer satisfaction.'
Freudenberg-NOK has hammered away at the issue of warranty costs with an advertising campaign asking 'Want Warranty Reduction?' on Detroit-area billboards and radio stations.
The Ford contract is much like a smaller engine-sealing contract Freudenberg-NOK received from the former Chrysler Corp. in 1996 for that automaker's 2.7-liter V-6 engine.
HUGE WARRANTY TAB
Day estimates that Ford, DaimlerChrysler and General Motors spend $6 billion a year on warranty costs in North America, while Japanese automakers spend less than $400 million.
Even accounting for the fact that the domestic carmakers sell about 13 million vehicles in North America compared with 3.9 million by their Japanese counterparts, the difference in warranty spending is still substantial.
'We've been trying to prove to Ford and DaimlerChrysler that we could reduce warranty failures and help them retain more repeat customers,' Day said.