DETROIT - Stung by a major quality problem, Ford Motor Co. is spending at least $200 million to appease owners of about 700,000 aging cars and minivans.
In an unusual concession, Ford in some cases is willing to buy back 6-year-old vehicles and give their owners $3,000 toward the purchase of another Ford vehicle.
The problem is failure of head gaskets on a 3.8-liter V-6 engine on 717,680 vehicles: the Ford Taurus and Mercury Sable (1994 and 1995 models), Ford Windstar (1995) and Lincoln Continental (1994).
Ford is spending lavishly to correct the problem, but it may be too late to get the maximum benefit. Some owners have given up on Ford products, say dealers who have dealt with disgruntled customers. Two lawsuits have been filed seeking class-action status.
'Industrywide, this ranks in the top five warranty campaigns in the last decade,' said Joe Grant, president of J & L Warranty Pros in Auburn, Mich., and a warranty consultant to dealers. 'It is the second-largest at Ford. They are going way beyond just fixing the head gasket.'
BUYBACKS UP TO $8,375
The offer to buy back customers' aging cars with known defects distinguishes Ford's campaign from other warranty actions.
The company will reimburse owners for past repairs or offer $4,000 toward the purchase of a new Ford, Lincoln or Mercury. The company also will replace the head gasket and the engine if necessary.
According to documents obtained by Automotive News, if a replacement engine is not available, Ford will buy damaged vehicles and give customers $3,000 toward the purchase of a new vehicle. It is not clear how many buybacks will be necessary.
The repurchase amount ranges from $3,175 for a 1994 Taurus GL to $8,375 for a 1995 Windstar LX, excluding the $3,000 new-purchase certificates. Ford will adjust the amounts quarterly based on the NADA Auction Guide, the documents said.
In the past, automakers have replaced cars one at a time under lemon laws or as goodwill gestures. More rarely, a company has replaced a pool of new models with a defect.
Ford will salvage the vehicles through the company's new recycling and used-parts unit called Greenleaf, the documents said.
'We are doing our very best to meet the needs of our dealers as they fix these vehicles and that includes finding available engines, should engine replacement be necessary,' said Mike Vaughn, Ford spokesman.
Ford will not say how much it will spend on the warranty campaign. A letter will be sent to owners in March summarizing the repair offers.
Beyond the buybacks and engine replacements, the company will spend an estimated $210 million just to fix defective head gaskets and reimburse owners who have paid for the repair, Grant estimated. Ford is reimbursing owners for repairs at independent shops as well as dealerships.
The 3.8-liter V-6 may fail altogether following undetected leakage of engine coolant, according to a sample letter obtained by Automotive News that will be mailed to affected vehicle owners this month.
'Premature failure of the head gasket may occur. This condition may result in engine coolant leakage, which if not detected, can cause engine overheating,' the letter states. 'In extreme cases, this condition may result in engine failure.'
Ford revised its 3.8-liter V-6 in the 1996 and 1997 model years, improving its quality and durability, Vaughn said.
Ford will not say how many of the 717,680 vehicles are expected to require head gasket or engine replacement. Industry expert Grant estimated that 350,000 of the units require head gasket repair.
Spokesman Vaughn said Ford is acting to please its owners, not in response to lawsuits. Two lawsuits seeking class-action status relating to the head gasket defect have been filed in Ohio and Illinois. Ford said the lawsuits are without basis and should be dismissed.
The extensive warranty program 'is a decision based solely on the data and an effort to respond to our customers,' Vaughn said.
Offering a $4,000 purchase incentive to affected customers is 'unprecedented,' Vaughn said. 'The size of the check is what makes this special.'
But some customers may not be swayed.
'Families make decisions based on quality, reliability and durability,' said a company dealer who declined to be identified. 'If your old car was reliable, you thought it was a good value, and you buy another one. If not, you go elsewhere.'
The Ford Division National Dealer Council applauded Ford's action.
'This initiative goes above and beyond what we expected and should solidify the relationship with these customers and show them that Ford and its dealer partners are serious about long-term customer satisfaction and owner loyalty,' said Jerry Reynolds, council chairman and owner of Prestige Ford in Garland, Texas.
Ford dealers have sought improved vehicle quality to boost owner loyalty. In an interview at the end of 1999 with Automotive News, Reynolds said customer satisfaction and product quality improvements were dealers' top concerns.
Some dealers sought a faster response from Ford to appease owners with defective head gaskets. Critics claim Ford was too intent on saving money. Today, however, Ford is trying to lead the industry in customer handling.
Ford maintains it has responded as new data on the head gasket failures emerged.
The warranty campaign is Ford's second attempt to rectify customer problems with the 3.8-liter V-6. In May 1998, Ford extended the original warranty to five years/60,000 miles on affected Taurus, Sable and Windstar units and to six years/75,000 miles on affected Continentals. Ford now is extending the warranty further, to seven years/100,000 miles.
Said Vaughn: 'As these vehicles have aged, we have received new data that indicate some owners are having failures outside of the original warranty extension.'