The automotive industry is one of the biggest manufacturing sectors and represents an increasingly important strategic and catalytic role in the overall economy. It impacts directly on many important aspects, such as contribution to gross domestic product (GDP), employment, skills development, economic linkages, technology and innovation, and making significant contributions through taxes, and substantial foreign direct investment. Yet, defects are a manufacturing reality influencing this industry. The purpose of this paper is to show how the system dynamics methodology can be applied to reduce defects in the automotive manufacturing industry. System dynamics may improve understanding of manufacturing processes, as quality tools do not always allow the user to study and understand feedback from other factors, such as soft human issues, in the improvement of processes. Systems dynamics models are created from five stages: problem articulation, formulation of a dynamic hypothesis, formulation of a simulation model, testing of the model, and policy design and evaluation. The five steps of system dynamics modeling process are discussed into details and a causal loop diagram was developed using Stella software version 9.1.4. The study showed that system dynamics tools can be useful in capturing and understanding the dynamic complexity of defect creation and reduction process in automotive manufacturing industry.