Changing minds: What Detroit can do to win back car buyers

[nadepalma]

SOURCE: http://www.detnews.com/apps/pbcs.dll...01030382/1148/

Changing minds: What Detroit can do to win back car buyers
Bill Vlasic / The Detroit News


"Quality-wise, I have no problem with GM cars or Fords. But we just bought a new Suzuki XL-7 midsize SUV, instead of a Chevrolet Equinox, because of its really attractive styling," says Gene Wingo, next to the vehicle at his home in Keller, Texas. His 2005 Acura TL is in the garage.




They are dramatically changing the way they do business by cutting costs, restructuring operations and pouring resources into new products.

But Detroit's troubled Big Three automakers have an equally tough task ahead in changing the minds and attitudes of American consumers.

Concerns about quality and reliability are the prime reasons that consumers avoid vehicles built by General Motors Corp., Ford Motor Co. and the Chrysler Group of DaimlerChrysler AG, according to an exclusive study conducted for The Detroit News by J.D. Power and Associates.

The News study found that despite making significant improvements in quality, the Big Three still suffer from the perception that their products are inferior to those made by Asian competitors.

While 83 percent of the 500 consumers polled said they will consider buying or leasing an American-branded car or truck in the next 24 months, only 49 percent said they would "most likely" purchase a vehicle built by GM, Ford or Chrysler.

And of the 18 percent polled who avoid American brands entirely, the most influential concerns were about reliability, poor quality, resale value and fuel economy.

"People are just so many times more likely to avoid a domestic brand vehicle because of these issues than they are to avoid an Asian brand," said Todd Wilson, director of automotive research for J.D. Power in Westlake Village, Calif.

Despite the fact that the quality gap between Japanese rivals Toyota Motor Corp. and Honda Motor Co. has narrowed considerably, the Big Three U.S. automakers still suffer from a legacy of shoddy workmanship in the past.

"I just stay away from American cars," said Leona Drolet, an Ocala, Fla., resident and owner of a Korean-made Kia Sephia sedan. "I've had nothing but problems with them."

With GM, Ford and Chrysler gearing up for new-model introductions at the 2007 North American International Auto Show in Detroit, company executives are acutely aware that consumers demand superior quality in every segment of the market.

"There was a point in our history when the domestics could put an average product on the market and be very successful," said Mark LaNeve, head of GM's North American sales and marketing. "If you're not world class today, you get crushed."

Twenty years ago, GM, Ford and Chrysler collectively had 70 percent of the U.S. market for new vehicles. But in 2006, their combined share had fallen to 54 percent through November.

The downward spiral spurred huge restructurings at GM and Ford as both struggled to bring their manufacturing capacities in line with shrinking volumes.

A similar downsizing is expected to be announced soon at Chrysler.

But slashing blue-collar jobs and closing factories won't win back the hearts and minds of some American consumers who increasingly see Japanese, European and even Korean automakers as more capable manufacturers.

According to the Detroit News study by J.D. Power, 70 percent of consumers who avoid American brands cite "concerned about reliability" as their chief reason.

By comparison, only 20 percent of those who avoid Asian brands say reliability is a concern, and just 19 percent of European brand avoiders express concerns about vehicle reliability.

The perception, however, does not match the reality.

In J.D. Power's 2006 benchmark study of vehicle dependability, American vehicles registered 234 problems per 100 vehicles after three years of ownership. European vehicles had 270 reported problems, and Asian brands had 208.

In its study for The News, J.D. Power concluded that the perception gap is definitely dragging the Big Three down in the marketplace.

"American vehicles are avoided due to perceived quality concerns much more frequently than imported vehicles," the study said. "Actual quality of American vehicles shows a much more competitive outlook."

GM takes action

GM, in particular, has moved aggressively to improve the perception of its quality. The automaker's introduction last year of a 100,000-mile warranty on its engines and transmissions was a direct response to consumer concerns about dependability.

"Marketing-wise, we've taken it head-on," said Paul Ballew, GM's head of Global Marketing and Industry Analysis. "We have the best (warranty) coverage program in America to take the concerns out of buyers' minds."

But improving quality and backing it with extended warranties only goes so far, said Mark Fields, president of Ford's Americas division.

"It is frustrating, but we can't go out there and say, 'Look at us, aren't we great?' " Fields said. "We have to doggedly improve quality and get the message out."

The message, said J.D. Power's Wilson, is colored by past experiences that American consumers have had with less-than-reliable Big Three vehicles.

"The perception of quality is the point," Wilson said. "The Asians just have a better image of building a better product, that they're on the cutting edge of technology."

Consumers also have their pet reasons for avoiding Asian and European brands.

Of the poll respondents who said they avoid Asian vehicles, 61 percent simply don't want to own a brand that originates in the Far East. As far as European vehicle avoiders, 80 percent said the brands are too expensive.

But J.D. Power's study for The News indicates that American consumers are far more opinionated when it comes to vehicles designed and built by GM, Ford and Chrysler.

In the poll, respondents cited seven separate reasons, on average, to avoid American brands. That was double the number of avoidance reasons expressed for Asian and European vehicles.

"When someone comes up with seven different reasons, it's a much more active pattern of avoidance," Wilson said. "To have that many reasons shows a high correlation between perception and past experience."

Besides reliability, quality and vehicle depreciation, American brand avoiders had a high level of concern about maintenance costs, bland designs, inadequate gas mileage and lack of performance.

Sprucing up design

The issue of vehicle design is one that Big Three executives are taking seriously. Ford has vowed to spice up its designs after conservative styling helped sink sales of its Ford Five Hundred sedan and mainstream sport utility vehicles.

GM also has unleashed its designers after years of turning out cookie-cutter cars and styling gaffes such as the Pontiac Aztek SUV. Two of GM's sleekest new vehicle designs, the Chevrolet Malibu and Cadillac CTS passenger cars, will be unveiled at the upcoming auto show in Detroit.

Putting the sizzle back in styling could lure back consumers who have confidence in the improved quality of Big Three vehicles, but are put off by the appearance.

"Quality-wise, I have no problem with GM cars or Fords," said Gene Wingo of Keller, Texas. "But we just bought a new Suzuki XL-7 midsize SUV, instead of a Chevrolet Equinox, because of its really attractive styling."

Fuel economy is another area that American avoiders cite as a principle reason to buy Asian models. Even though GM boasts industry-leading fuel economy in some vehicle segments, consumers often perceive Toyota and Honda as more fuel-efficient brands.

"I'm an American and I certainly have nothing against American cars," said Larry Honig of Pasadena, Calif. "But I prefer to put my money into a foreign car because I get better value and better mileage."

Honig, who drives a Honda-built Acura Legend, said he grew up driving Fords and never imagined that Asian cars would one day dominate the market in his home state of California.

"When I first started driving, Japanese cars were a joke," said Honig, 55. "But in the last 20 years the roles have been reversed, and people here don't seem to have much confidence in American cars."

Financial woes dent image

That sagging confidence can also be attributed in part to the well-publicized financial problems plaguing GM, Ford and Chrysler.

GM's $10.6 billion loss in 2005, coupled with big losses last year at Ford and Chrysler, have cast a pall over Detroit's future. In the News study, 23 percent of the American avoiders said the Big Three's financial woes were a reason to stay away from their vehicles.

"I'm fearful of GM and Ford going out of business," said Howard Bauer of Dobbs Ferry, N.Y. "It just looks bad."

Bauer, owner of two Infiniti brand vehicles made by Nissan Motor Co., said the perception that GM and Ford are in dire financial straits underscores worries about the quality of their products.

"I think the quality has gone down simply because they're out of money," he said. "In a way, they've done it to themselves."

GM and Ford executives are quick to point out that both companies are sharply reducing labor costs and excess capacity to achieve better profits down the road.

But the steady drumbeat of bad financial news has taken a toll on consumer confidence, said GM's LaNeve.

"I don't think there's any question that was an issue," he said. "That's why it is so incumbent upon us to stabilize our business and start showing positive results."

Some consumers polled in the News study said that concern for the Big Three's health is a reason to avoid Asian autos. However, a spokesman for Honda said pro-Detroit sentiment does not appear to have much impact on the showroom.

"Various emotions certainly play a part in vehicle purchase decisions, but today's savvy customers place a much higher premium on value," said David Iida of Honda.

To boost the residual values of its cars and trucks, GM has tried to trim its heavy diet of rebates and sales incentives and cut back on bulk sales to daily rental fleets. But rebates have been a harder habit to kick at Ford and Chrysler.

No quick fix

Big Three supporters concede that the image of American cars and trucks won't change overnight -- even with tangible improvements in quality, reliability and styling.

"Their products are getting much better and more reliable," said Lewis Shinsky of Burt, Mich., owner of a Chrysler minivan. "My feeling is they still need to make some changes, figure out how to lower prices."

MORE HERE

About the survey

The Detroit News commissioned J.D. Power and Associates to gather consumer opinions about how likely they are to consider buying an American car or truck.

The results are based on the responses of 500 vehicle shoppers who plan to purchase or lease a vehicle in the next 24 months.

The survey sample was supplied by a research panel company, Opinion Outpost, and was balanced to U.S. census characteristics.

The survey was conducted online, Nov. 27-30, 2006.

[GM-Joe]

I think American manufacturers, meaning the Big 3 need to educate the public little by little about how competitive their products are on pricing, quality, and reliability, they need to market all their models (not just new releases), and must do this education not to humiliate or degrade the public but softly to empower them and make them feel proud to own one of their products.

Toyota does something like this, but at the same time they like to lie or stretch the truth about mileage and economic impact. Hey, they do a great job at marketing!

[VCDJ]

Fuel economy is another area that American avoiders cite as a principle reason to buy Asian models. Even though GM boasts industry-leading fuel economy in some vehicle segments, consumers often perceive Toyota and Honda as more fuel-efficient brands.

If GM keeps making 34 mpg aveo and honda keeps making civic and fit that get 40mpg, well gm will have this problem in the future then.

[Havasavana]

I don't see how GM can do commercials that show GM cars are almost as good as Toyota or Honda. What would be interesting to see is repair costs per year of ownership, especially given the 100k mile warranty. This MIGHT be fertile ground for advertising and I think would hit home if they beat the drum repeatedly. Sadly, the reason they're not already doing this is either because the facts wouldn't support it, or that the facts would support it and their marketers are asleep.

Edit: I see the info is available from the study (page 13 of the PDF). It shows the average annual maintenance cost at a dealer is $114 (e.g. oil change) plus $49 (repair) at US dealer, vs. $168 (e.g. oil change) plus $41 (repair) at Asian. Of course the costs are higher for European stuff. Actually I'd think the GM costs would be less than this given the oil life monitor and 100k warranty. Does GM trumpet this?

[Mikkoo]

This dude thinks a Suzuki XL-7 is more attractive than a Equinox?
A reality check here please.!! I'd also trust the reliabilty of the Chevrolet
over the Suzuki.

[jwrebholz]

In summation: They need to build good, reliable, attractive cars that are priced competitively with their foreign counterparts.

Thanks a lot, Captain Obvious! I never would have figured that out on my own!

[Randle2I]

A few intersting tidbits of information in this, but generally this isn't anything that we didn't already know. I find it fascinating that only 7% of the buying market wants more diesel engines, yet when you go to almost any car forum there is constant complaining about the lack of diesels. If less than 10% of the market wants it, why would GM build it?

[unkillsam]

Originally Posted by Mikkoo

This dude thinks a Suzuki XL-7 is more attractive than a Equinox?
A reality check here please.!! I'd also trust the reliabilty of the Chevrolet
over the Suzuki.

I wonder if the person writing the article realises that the XL-7 is powered by GM?

[camaro_freak]

Originally Posted by Mikkoo

This dude thinks a Suzuki XL-7 is more attractive than a Equinox?
A reality check here please.!! I'd also trust the reliabilty of the Chevrolet
over the Suzuki.

They are the same vehicle underneath. The Suzuki just has a BETTER ENGINE than the 'NOX

Much like the Vibe and the Matrix... different skin but the same underpinnings.

I think the Suzuki also might have more rear legroom too but I forget if they lengthened it or not.

It appears the lightbulb has finally turned on at the Gneral. Make top quality cars, give them a great warranty, and make them look good.

[SS3]

Toyota managed to recover from a disastrous introduction 20+ years ago. More recently Hyundai has bounced back from a terrible quality reputation and is now competing quite well with Asian brands. It CAN be done.

How does GM get there?

- Continue to improve interior and other "visible" quality indicators.
- Support their new warranty with very customer friendly warranty administration.
- Stay the course on value pricing, don't resort to fire sale pricing models.
- Stablize model lines. Stop changing product names (eg Grand Am to G6). Follow the Accord or Civic example - continual improvement while protecting the buyers resale value.
- Modify marketing efforts to get the quality image out - including curtailing the typical "huckster" type advertising done by local dealers.
- Design decisions should always be made based on what's best for the customer. The shareholders will eventually be taken care of if the customer is first satisfied.

This will take time to work, so in the meantime they need to get back to what they used to do so well - great, emotional, American styling combined with good driving dynamics and good value for dollar spent. Product, product, product. (GM also needs to get help with legacy costs - from government AND unions. If this isnt fixed the task will be much harder to accomplish.)

[cfch3399]

Domestics, need to stop worrying about how to market their "significant improvements" in quality and work on radically improving quality. They are still asking for people to settle for second best (out of three). Match and beat the Japanese in quality already! Then complain about not receiving recognition. Not being the worst anymore is not enough. Redirect money from marketing to quality improvement and make indestructible cars, period. People will find it much easier to buy American once American cars top all quality/dependability surveys.

----
"American vehicles registered 234 problems per 100 vehicles after three years of ownership. European vehicles had 270 reported problems, and Asian brands had 208."

[mkaresh]

The first thing Detroit needs to do to win people back is stop upsetting the customers it still has by taking proper care of them. But based on personal experience I can say Ford and Chrysler haven't a clue about proper customer care, and GM may be no different.

The differences in reliability are smaller than people think, but they're not as small as the above JD Power results suggest. Notice that they don't compare the domestic score to Toyota or Honda, but to all Asian brands.

What I'm seeing so far is that in their first year of ownership domestic products tend to have 1.0-1.2 trips/year, while Hondas and Toyotas tend to be in the 0.3 to 0.5 range. Initial results:

TrueDelta Vehicle Reliability Survey results

The way I'm reporting results can potentially change perceptions much more quickly than CR's or JD Power's studies. I'm reporting absolute numbers, not just relative scores, and will update every three months. But I continue to have trouble getting enough domestic cars in the panel. So for many domestic models I won't be reporting anything for some time.

Not that most car buyers will care.

[throwback]

Great article. I especially liked the comment from the women who bought a Kia because she had nothing but problems with her American car. She obviously did not check Kia's quality record. The best way to turn around perception is to build great looking and driving cars consistently in every segment. Look at Chrysler, before they built the original Ram truck with the Semi truck styling they owned less than 5% of the truck market. That one product doubled their share in 1 year. The 300C, before that car nobody HAD to have a Chrysler sedan. In the automotive industry it is all about the product. Gm's problem is they lost sight of that back when Ron Zarella and his crew of "Brand Managers" figured they could "Market' their way to success. Yes you need good advertising, but if the product is not compelling it will fail. When you are behind you have to continuously exceed expectations to get people to look at you. Cadillac is a good example of that. Saturn will be another example of that. Compare Saturn's cars from 2005 with what is expected in 2007. Every car is light years ahead of their replacements, who would of thought that was possible on Jan 1, 2005?

[Ming]

Originally Posted by camaro_freak

They are the same vehicle underneath. The Suzuki just has a BETTER ENGINE than the 'NOX

Don't talk sense here. You'll get someone who regularly dumps on those "cheap Chinese manufacturing and terrible quality (Chery cars)" telling you how awesome and torquey the (imported Chinese) 3400 is.

But back to the main story. The sad truth is that I agree with that guy in the photo. Though its hard to explain, and I couldn't convince people of the same with the new Malibu, these Suzuki and even friggin' Hyundai designs often look more appealing to me than GM's efforts -- excluding the awesome Solstice and Sky, of course. It's like if you want Mazda styling you need to pay Cadillac prices. And the design cycles simply seem shorter - not sure if its true or its just that I'm always looking at GM cars, but every time I hit the road I see some fancy new Korean or Japanese car with styling that just keeps pushing forward while GM's cars like the LaCrosse look like something from 10 years ago.

Heck, the now a couple of years old $13,000 Suzuki Reno has better styled and richer-looking headlights than most 20+ thousand dollar GM cars - and I don't even really like the whole teardrop look. Good thing its a GM. Too bad GM doesn't employ those GMDAT designers when doing their Pontiac & Chevy headlights.

[FStephenMasek]

GM and Ford could and should go at the Asian week spots with ads and commercials targeting the high cost of parts for the Asian vehicles.