An automobile manufacturer is conducting a product recall after it was discovered that a possible defect in the steering mechanism could cause loss of control in certain cars. The recall covers a span of three model years. The company sent out letters to car owners promising to repair the defect at no cost at any dealership. The company’s policy is to pay the dealer a fixed amount for each repair. The repair is somewhat complicated, and the company expected learning to be a factor. In order to set a reasonable rate for repairs, company engineers conducted a number of repairs themselves. It was then decided that a rate of $88 per repair would be appropriate, based on a flat hourly rate of $22 per hour and a 90 percent learning rate. Shortly after dealers began making repairs, the company received word that several dealers were encountering resistance from workers who felt the flat rate was much too low and who were threatening to refuse to work on those jobs. One of the dealers collected the following data on job times and sent that information to the company: Three mechanics each completed two repairs. Average time for the first unit was 9.6 hours, and average time for the second unit was 7.2 hours. Given these data, the dealer has suggested a rate of $110 per repair. You have been asked to investigate the situation and to prepare a report.
Questions and Tasks
Prepare a list of questions you will need answered in order to analyze this situation.
Prepare a list of observations regarding the information provided in the case.
What preliminary thoughts do you have on solutions or partial solutions to the points you have raised?