Ford's Lawsuit and Survey Woes

It's no secret that life is good in the auto industry right now: Transaction prices are up, incentives are down, and June's SAAR was at its highest level in years. That makes for more profitable earnings reports, which are due to be released tomorrow for Ford (NYSE: F  ) and Thursday for General Motors. Industry quality is also up much higher both for domestic automakers and the global auto industry in general. One problem is still plaguing many automakers -- designing a quality infotainment system. That's the reason behind a lawsuit against Ford and also why the company ranked so low in J.D. Power & Associates Initial Quality Study 2013.

Lawsuit
Last Monday, a proposed class action lawsuit was filed against Ford claiming the MyFord Touch and the Lincoln infotainment system are defective. The largest complaint being that the system freezes periodically and fails to respond to voice and touch commands.

Ford's attempted to fix the problem but has had little success; apparently, designing an effective infotainment system is like pulling teeth. "I've had companies tell me they would rather develop a new car from the ground up than a new entertainment system," said Tom Mutchler, program manager of vehicle interface at Consumer Reports, according to the CBS Boston affiliate.

After many updates, upgrades, and extended warranties people are still claiming Ford's infotainment system is the weakest point in the company's vehicles and the cause of its low rank in J.D. Power & Associates Initial Quality Study. "Automakers are investing billions of dollars into designing and building vehicles and adding technologies that consumers desire and demand, but the risk is that the vehicle design, or the technology within the vehicle, in some cases may not meet customer needs," said David Sargent, vice president of global automotive at J.D. Power, in a press release.

The MyFord Touch system that's brought on the lawsuit and the low rank in the J.D. Power study isn't good, but in reality its problems are minor in the grand scheme of owning a car. Proof of that can be found in recent brand loyalty studies. Ford dominated the BrandIndex survey with a score of 31; in second place is Honda, with a score of 19.5.

Information via BrandIndex mid-year survey.

BrandIndex runs the survey by asking respondents if they've heard anything positive or negative about the brand recently, including lawsuit headlines. Ford, even with all its MyFord Touch issues, is still dominating competitors with its positive brand image, evidence that many more positive comments are made than negative. All the positive buzz has helped Ford keep more of its customers coming back for additional vehicles. According to R.L. Polk & Co, Ford was the only brand in the first quarter this year to have a brand loyalty above 60%.

Bottom line
It's easy for lawsuit headlines and poor rankings from quality surveys to grab the attention of the masses, but we have to keep in perspective that, in the grand scheme of things, Ford is doing extremely well with its vehicles. Proof of that is found in the BrandIndex survey, R.L. Polk survey, and even in Ford's gain in market share this year -- the most of any full-line automaker. Ford investors shouldn't worry too much about the recent lawsuit and focus more on what should be a great second-quarter earnings report tomorrow morning.

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