When Flawless Isn't Enough For Car Buyers
Quick: can you name the most reliable midsize sedan in America? Would you believe it's the Buick Regal, made by General Motors Corp.? That's what Consumer Reports' latest reliability rankings found. The overlooked Regal beat out the venerable Toyota Camry and Honda Accord. That's because GM, like its Detroit rivals, has been steadily improving its quality for years and is narrowing the gap with the best of the Japanese in both initial quality and long-term dependability surveys.
So you would expect that the Regal's sterling quality made it one of the consumer bible's 18 recommended family sedans, right? Not so. CR's assessment bluntly sums up the model's -- and Detroit's -- problem: "The aging Regal is an acceptable car, but nothing special compared with its newer, more advanced competition. Drawbacks include ungainly handling...and front seats that become less comfortable the longer you sit in them."
The Regal's plight says a lot about why Detroit's quality improvements aren't translating into stronger sales. Quality no longer means what it used to. Just as the Big Three are gaining in their effort to eliminate mysterious squeaks and transmissions that go kaput, the competition is upgrading even faster. In fact, the industry's overall success at building low-defect cars has trained consumers to take bulletproof quality for granted, says Aurobind Satpathy, head of McKinsey & Co.'s Detroit practice. "Consumers have changed their minds about what defines quality -- a shift that is making the uphill climb for U.S. auto makers even more steep," he concluded in a recent report.
Take J.D. Power & Associates Inc.'s initial quality survey, released each May. Every one of the Big Three has been steadily improving. Yet all three still rank below average. Part of the reason is that Power's influential initial rankings now go far beyond measuring plain old-fashioned faulty parts, such as a radio on the fritz, loose parts that rattle, and lemon engines. "Quality, previously, was freedom from defects," says Ford Motor Co. President Nicholas Scheele. "It has expanded to embrace a raft of subtleties."
Increasingly, today's complaints include things a carmaker builds flawlessly but that aren't quite what a consumer wants. Perhaps it's a sports car whose ride isn't cushy enough. Maybe it's a money-saving, but fault-free, plastic dashboard that consumers consider cheesy. Or a vehicle with so much wind noise it's hard to carry on a conversation. Defects can be things "that aren't broken but are just too hard to use," says Power's auto-quality guru Joe Ivers. Power's survey is now a poll of how well consumers like their new cars. "They don't reflect technical failures but failures to satisfy the consumer," Ivers says. "The term 'quality' has become a palette onto which people paint their own problems."
Still, whether you blame quality or not, dissatisfaction translates into sliding sales. Detroit loves to disparage the "imperceptible" statistical differences in quality that keep them from topping various outside surveys. But their protests aren't enough to convince consumers burned by past problems. Witness the Big Three's steadily shrinking market share: under 62% today, vs. just over 80% in 1975.
At least Detroit has a good idea of what to fix. For the past few years, domestic carmakers have been pouring resources into designing cars with sexier exteriors and more refined interiors. "Detroit is aware of it and has all hands on deck," says McKinsey's Satpathy.
As for actual flaws, CR studies show that domestic defect rates have fallen more than 80% since 1980. Ford chalked up 16 vehicles on the magazine's coveted "recommended" list, plus four more at affiliate Mazda. GM tallied 13 recommendations, and even Chrysler had three recommended vehicles, tying Hyundai. Reliability rankings are based on CR's annual survey of 675,000 consumers' experiences in the preceding 12 months with vehicles covering the past eight model years. Recommendations are based on reliability reports, crash-test results, and CR's own tests of vehicle performance.
Yet, since so many bug-ridden cars are still on the roads -- and still infuriating consumers -- it will take years of top-notch quality for Detroit to clean up its image. In terms of the reliability of models sold in the past three years, CR shows that 90% of Toyota models it rated have better-than-average reliability, vs. 35% for Chrysler, 25% for GM, and just 7% for Ford. That's crucial, because quality translates to a pricing premium, higher resale value, and customer loyalty, and it reduces a carmaker's warranty costs. Merrill Lynch & Co. analyst John A. Casesa says quality is Japan's main advantage as it enters new lucrative niches -- for minivans, SUVs, and pickups -- where domestic models are still fighting to attain top reliability ratings.
Impressions of rotten quality that have accumulated over decades will take years to alter. "It's like turning around an oil tanker," says Chrysler Group marketing chief Joseph Eberhard. "If you've had two bad [Chrysler] transmissions, you're not likely to give us another chance. I can't blame you." The only solutions, he says, may be dealers who publicize new quality data, good word of mouth from new owners, and realistic marketing.
Yet it's harder than ever to get the word out, as expectations today start with nearly fault-free vehicles. Then there's customer goofiness to deal with. Did Hummer H2 buyers really not know that the jumbo SUV is a gas hog? The 6,400-lb. hulk gets an estimated 10-13 mpg, but it's so heavy that it's exempt from mileage reporting requirements. Even so, in Power's 2003 initial quality survey, Hummer owners, annoyed by having to constantly refill its relatively small 32-gallon tank, downgraded the SUV for "excessive fuel consumption," Ivers says.
Detroit feels especially helpless when new-car owners complain about any factor that the buyer easily could have detected before driving off the lot. People will buy the car, drive it home, and then "complain about the amount of trunk space," Ford's Scheele recounts in amazement.
The Big Three aren't the only ones struggling with these heightened expectations. European carmakers led the pack in Power's initial quality rankings five years ago but today are tied with Detroit, behind Japan. CR recommends just one Volkswagen and not a single Mercedes. German auto makers take their lumps for high-tech innovations, such as hard-to-work navigation systems. For example, owners of BMW's $70,000-plus 7-series sedans, introduced last year, were decidedly unhappy with its mind-boggling iDrive system that used a video screen and control knob to manage many of the car's features. BMW modified iDrive for this year's new 5-series and the 2004 7-series.
Even the peerless Japanese have some problems satisfying the new quality ideals. Toyota Motor Corp.'s quality is close to perfection, but its styling often elicits yawns. The stodgy image turns off many younger car buyers. The industry joke: Toyota wakes up to discover it has turned into Buick.
As for Korean cars, they're vastly better than a decade ago. But they're still haunted by their old rattletrap image. To counter that, Hyundai in 1998 turned to an unprecedented 10-year, 100,000-mile warranty to reassure customers. Chrysler, dogged by its own past quality problems, took a similar tack, adopting a seven-year, 70,000-mile warranty in July, 2002.
In the short term, Detroit has helped its image by "manufacturing to the test." Like schools structuring their sixth-grade curriculum to prepare for the questions on an upcoming regional test, carmakers can try to fix problems that they know Power will ask buyers about. Of late, Detroit has renewed the emphasis on flawless paint jobs and narrow, even gaps between body panels.
Saturn's hallmark dent-resistant plastic body panels, for instance, fall short on the "gap test." Because the plastic expands in hot weather, the carmaker must allow wider spaces between panels, making Saturns look somewhat shoddy in cooler weather. GM Vice-Chairman Robert A. Lutz is close to switching Saturn to traditional steel panels, partly for manufacturing reasons but also to end the quality complaints, even at the risk of offending some Saturn loyalists.
One way the Big Three can game the initial quality surveys, and also win long-term fans, is by designing vehicles with high-class looks and a luxurious feel. Chrysler is cracking down on the intangibles -- what it calls "consumer touchpoints" -- where design chief Trevor Creed admits the company had been "sloppy." Creed says he insists on interiors that match the "flawless execution" of Audi's A6 sedan, even when manufacturing managers and outside suppliers have told him: "You can't do that." That means demanding well-stitched leather seats, with fewer wrinkles and denser foam padding, for the 2005 Jeep Grand Cherokee Limited luxury SUV that will arrive next fall. Chrysler even takes pains to tidy up the engine compartment of new cars with fancy engine covers and fewer visible tangles of tubing and wires. Says Chrysler Chief Executive Dieter Zetsche: "We've changed the mind-set of our employees to recognize that 'relatively good' is not good enough."
Best of all, Motown is learning how to serve up new models that will please the pickiest of consumers. Each of the Big Three has recruited European designers to spiff up interior amenities and create more exciting exterior styling. "Wait until you see the Chevy Cobalt at the Detroit auto show" in January, says GM's Lutz. "You'll think it was made by Volkswagen or Audi. All of the problems will be eradicated."
Ford designers began focusing heavily on interiors a few years back, and now the inside of the new F-150 full-size pickup is drawing reviewers' accolades. And at a time when wowing consumers with stylish steel skins helps create a high-class image, outsiders are praising the crisp lines of Cadillac's CTS entry-luxury sedan and Chevrolet's sleek, muscular SSR roadster-cum-pickup.
Recapturing a distinctive sense of auto style could prove to be a competitive advantage. Still, it's going to take a lot more where that came from. To get out in front in the quality race, the Big Three will have to beat the imports at their own game.
By Kathleen Kerwin in Detroit