Rating J.D. Power's Grand Plan

These days, his seal of approval is turning up everywhere

After J.D. Power & Associates Inc. had to evacuate its Agoura Hills (Calif.) headquarters a half-dozen times over the past two months because of bomb threats, the county sheriff finally asked if the company had any disgruntled clients. "I had to say `Yes,"' laughs J. David Power III. "But I told him that I doubted that they'd resort to this."

In time, the sheriff traced the threats to an angry temporary worker. But Power has long been controversial. J.D. Power & Associates, the market-research firm he founded 28 years ago, became a household name on the strength of consumer surveys that gave drivers independent ratings of car quality. The surveys infuriated U.S. auto makers, whose cars fared poorly in comparison to Japanese rivals. And Power irked even the winners of his rankings by charging them fees--sometimes topping $100,000--for the privilege of using his name to advertise their standings.

If the affable, soft-spoken Power became a lightning rod for industry ire, he also gained credibility--and created a brand name in the independent evaluation game. In the early 1990s, his company began ranking other industries, such as airlines, rental cars, and phone service. And it will start rating hotel chains next year. But results have been mixed: Nonautomotive surveys account for only 15% of revenues, and computer ratings were recently dropped. Now, Power is about to add two services that he hopes will make his $42 million company soar.

SCANNER YEAR. Next year, Power will offer the country's 21,000 new-car dealerships the opportunity to compete for their own J.D. Power awards. The company will also start a national rollout of its Power Information Network (PIN), a computerized program that collects the details of every transaction made by participating dealers. As with supermarket scanner data, that information would give carmakers and dealers a timely and detailed picture of what's selling where, and at what price. PIN is being tested in California.

For a man who is bidding to enter his fourth decade of shaking up the auto industry, Power, 65, is no car guy. In a recent three-mile jaunt in his 1993 Lincoln Continental, he mostly looked at his passenger instead of the road, drifted in and out of his lane, and ran over a curb. But cars have dominated his professional life since he left Wharton School armed with an MBA in 1959 and landed a job as a financial analyst at Ford Motor Co.

Power eventually struck out on his own, and after some lean early years, he hit on the idea that was to make him a powerhouse. He would pay for his own surveys and only later sell the results. Says J. Ferron, a former Power executive and now partner-in-charge of Coopers & Lybrand's auto practice: "Dave's genius was not to depend on companies to finance proprietary studies, but to do independent studies and publish the results," catching the eye of carmakers' top brass.

While Power was drumming up business, his wife, Julie, was stuffing questionnaires into envelopes--taping a quarter to each to prompt its return--and tabulating results on the kitchen table. The early surveys are credited with spotting the preference for front-wheel drive. Power also detected the woes that caused carmakers to lose interest in Mazda Motor Corp.'s rotary engine. As Julie tabulated surveys of Mazda owners in 1972, she noticed reports of breakdowns caused by O rings. Neither of them, Power laughs, knew what an O ring was. "But we knew it was causing the engine to fail."

TOO NEGATIVE? It wasn't until the 1980s, when the company launched its Customer Satisfaction Index, a ranking of carmakers based on overall quality, that Power became the target of Detroit's wrath. "The rap on him then was that he must be in the pocket of the Japanese," recalls David E. Cole, director of the University of Michigan's Office for the Study of Automotive Transportation.

Today, the Big Three acknowledge Power's contribution, though grudgingly. "He created a measurable standard. For that, he deserves our utmost respect," says Robert A. Lutz, president of Chrysler Corp., which has received some of Power's worst ratings. Yet Lutz questions the usefulness of one Power survey, which counts defects per car, now that the quality of most cars falls within a narrow range. Today's cars, he says, should be measured on positive factors, such as styling, price, and performance.

Both of Power's new launches are risky. The data network entails huge investment. Stephen C. Goodall, whom Power named president and chief operating officer on Aug. 19, puts it in the hundreds of millions. Even with the backing of partners that include GE Information Systems Co., some doubt Power can finance it, in part because he has embarked on an expansion into Great Britain, Japan, and Korea.

ARM'S LENGTH? Meanwhile, the new dealer-rating service is exposing Power to charges of conflict of interest: He signed on this year as an unpaid director of Driver's Mart Worldwide Inc., a chain of used-car superstores owned by big new-car dealers. "I think the public would see a third-party endorsement as more valuable if it comes from someone with an arm's-length relationship," says Ron Haas, GM's quality chief.

Power dismisses the notion of conflicts, as do associates. What drives him, they say, is not profit or recognition. "His motivation is to do good for the industry," says Christopher W. Cedergren, who worked for J.D. Power in the 1980s. "He's the consumer's advocate." Cedergren is an unlikely defender: When he jumped to a rival in 1991, the company sued him for more than $1 million for theft of trade secrets, a dispute later settled. Yet Cedergren speaks fondly of his old boss: "When I was a know-nothing research assistant making $6 an hour, Dave would come back to my cubicle and we'd talk about cars."

Power knows he won't be calling the shots forever. "I've got ambitious plans, but I know I have a limited time involvement," he says. Spurning some 40 offers of buyouts, mergers, or alliances, he wants the company--80% owned by a family trust and 20% by 10 partners--to be in shape for a public offering by 1998. Although three of Power's four children work for the business, Goodall's promotion suggests he will succeed Power.

Until then, Power will continue to run his company in the entrepreneurial fashion that has made it a success. "We still have so much to prove to the industry," Power says earnestly. And as long as it's Dave Power, the voice of the consumer, the industry is bound to keep listening.

Before it's here, it's on the Bloomberg Terminal.