This statement makes absolutely no sense. It essentially says they want to produce a quality product, but have chosen not to do so. Can't have it both ways.
I disagree, because similar decisions probably occur regularly in many companies. Along the way there is some engineer, accountant, risk management lawyer, senior executive, and major investor that have "run the numbers" and made an informed decision. Based upon their sales/inventory/service/warranty data companies can accurately estimate how many of a particular item/SKU will fail or require service. For example, a company estimates a 15% problem rate for item "A". Historical data also indicates that only 40% of affected customers will file a warranty/service claim. While the remaining 60% either fix the problem themselves or do nothing. With 40% of product "A" customers filing warranty/services claims the company effective failure rate drops from 15% to 6% (40% x 15%). The company budgets for the anticipated 6% in related item warranty costs.
The company also knows the cost required in the supply/production/QC/shipping chain to obtain an initial product failure rate less than or equal to the net 6% claim they currently see. That cost related to improving the quality control within supply/production etc. is greater than the company's current business model with a 15% estimated failure rate. Because it is less costly and often at the risk of losing existing customers, a company will accept a higher initial product failure rate rather than spend the time and money to improve their product at the point of manufacturing. A company following this QC/cost pattern will not change until either the warranty claims consistently exceed estimates and/or as Eliot and others posted, customers take their business elsewhere. Obviously, a model train company would be greatly weakened financially if they experienced increased warranty/service claims AND subsequent decrease in sales. Hopefully senior mgmt. can timely recognize these shifts and the opportunity costs associated with an alienated customer base before the related financial strain can no longer be tolerated.