Think Forever

In 1963 Chrysler Corp. surprised the industry by coming out with a revolutionary 5-year/50,000-mile (80,000 km) warranty. It covered all engine and transmission parts.

At the time, other carmakers had to scramble to duplicate Chrysler's warranty. Now all carmakers offer more or less the same deal. Today's warranty, however, now covers just about all parts of the car - including paint and corrosion.

Before the warranty was introduced there might have been a certain amount of planned obsolescence in the design thinking of Detroit. After all, if you design a car to last too long, who would buy new cars?

But because the warranty also covered second owners, if the car was sold within the time and mileage limits of the warranty, a secondary market developed that added more buyers of cars to the total market. This diluted the marketing justification for planned obsolescence. Consequently, engineers began to focus on longevity, at least to the degree it could reduce warranty costs.

But that created another problem. Most tests were designed to cover just the period of the warranty. At the time, I thought it might be a good idea to run the tests until a part failed, then fix it; run that part until another part failed and fix it and so on. Engineering looked at me like I was a few bricks shy of a load. They didn't like the idea.

This thinking, unfortunately, will not be changing because of the latest trend to sweep the industry: leasing.

It wasn't that long ago that when you talked leasing you were referring mostly to certain qualified employees who leased cars from the company. Now all dealers offer leasing plans on just about all models to everybody.

What people are finding out is that they often can lease a more expensive car for less than the monthly payments of a car they would normally purchase. You would think there's a gimmick somewhere, but there really isn't.

To oversimplify, the lease cost is mostly based on the original purchase price less the resale value after two years or whatever the lease period is. If it's a brand new vehicle and the resale value has actually not been established, it can be readily estimated with reasonable accuracy based on past experience. As it so happens, this difference is less on many of the more expensive cars than on the cheaper cars. Hence the affordable lease rates on luxury cars.

One would think this might open up a whole new way of thinking regarding warranties, testing and the design of cars.

If auto companies really want to participate in this market they must focus more on improving the resale value of their cars and not just the warranty. What's the difference? When you talk resale value you have to think beyond the warranty. Cars with a high resale value depreciate less over their life than other cars.

So when you are talking about maintaining a car's value you're not just talking about the engine and powertrain, but the total environment of the car: seats, paint and sheetmetal. Also, you are no longer thinking five years but six, seven, eight, maybe more - and for 100,000 miles instead of just 50,000 miles (80,000 km).

A typical lease is for two or three years. However, the cars with the highest resale value depreciate the least, even after five years or more.

So, as an automaker, if you want to compete in this new trend, then you must think differently about how you design and test your cars. You must focus on building resale value. You can no longer limit your testing to cover just the warranty time and mileage. You must keep expanding your horizons.

Think forever.

Keep on testing until you find the weak point in the system. Then fix it and keep testing until you find the next weak point. Fix that and keep testing. Think of it as an eternal process. Sure, at some point there will be an end, but I'm not sure where that will be.

Companies that ignore the leasing trend do so at their peril. People who lease your cars are potential customers to buy your cars outright.

Diamonds are forever. Cars aren't. No matter how well you design and build your cars, they won't last forever, but it's a good idea to think that way. Besides, there always will be people who want to drive only the latest cars. New technology and innovation will always create markets for new cars.

If I were a carmaker I wouldn't worry. Just think "forever."

Mr. Sharf is a retired Chrysler Corp. executive vice president of manufacturing.