Market Research for Auto Industry Drives Firm to Success
In 1972, a little-known Los Angeles consulting firm advised a Japanese car company named Toyota that American consumers soon would be ready for smaller, more fuel-efficient cars.
The company, J. D. Power & Associates, offered the same analysis to American car makers, but they scoffed. Before long, sales of Toyota’s compact cars boomed, and American car makers are still reeling from the impact.
“We just help manufacturers stay in touch with the common consumer,” explained J. David Power III, who founded the auto market research firm bearing his name 18 years ago.
Nevertheless, J. D. Power & Associates, based in Westlake Village, has become one of the most influential consulting firms in the auto industry. Its customer satisfaction and new-car quality rankings are trumpeted by some car makers and maligned by others.
“In Detroit, J. D. Power is viewed as part gadfly, part prophet,” said Arvid Jouppi, a Detroit auto industry analyst. “They’re the ones who’ve been telling car makers here if you don’t shape up, ship out. And people are listening.”
If car makers are listening now, it may be because Power’s predictions have been so deadly accurate in the past. Power, 54, also foresaw the popularity of front-wheel drive--with its handling and space-saving advantages--in the early 1970s. The Japanese began putting front-wheel drive in their cars, again leaving many of their American counterparts behind.
Although Power admits he was not the only one advising the Japanese of the potential of the small-car and front-wheel drive markets, his counsel was hardly standard wisdom at the time.
Power says his biggest mistake was predicting that the American consumer wanted cars with fuel-efficient diesel engines, a prediction he made after the energy crisis of 1979. General Motors, a frequent J. D. Power client, embraced the idea and offered diesel engines in many of its top-of-the-line models.
But diesels never captivated the American public, and GM discontinued them last year. Power had bought a diesel-powered Oldsmobile himself at the time, and the car wound up spending two of the 18 months he owned it in the repair shop.
Power now drives a metallic-blue Jaguar with “JDP III” on the license plate. He says he would own a Japanese car, but that he has trouble fitting his hefty 6-foot, 2-inch frame into most models. J. D. Power, however, consistently ranks Japanese cars ahead of European and American autos.
He said he established his business in California, and not Michigan, because trends in car sales tend to start on the West Coast and then move eastward. Power moved to the relative isolation of Westlake Village from Wilshire Boulevard four years ago because he lives in the area and didn’t like the commute to downtown Los Angeles.
Power, a Massachusetts native with an MBA from the University of Pennsylvania, came to California in the mid-196Os as a staffer for Marplan, an auto market researcher. He joined the firm after leaving Ford Motor Co., where he had failed to get a job he wanted in the auto maker’s marketing division.
Founded Firm in 1968
He started his own company in 1968. J. D. Power has grown to a staff of 60 full-time employees, most of them with backgrounds in marketing and economics. The company currently has another 50 part-time workers who conduct the surveys, by phone, by mail or at shopping malls.
Revenue for the privately held company is put at between $5 million and $10 million a year, and has been growing at an annual rate of 40% during the past three years, according to John F. Uhles, executive vice president.
J. D. Power is best known for auto studies such as its quality survey, which questioned 30,000 consumers in 1985, and its customer satisfaction poll, which reached another 20,000.
The quality survey asks car owners about problems such as loose carpeting and defective switches within the first three months of ownership. For 1985, Toyota’s Camry, Cressida, Tercel and Corolla were the top four models. The survey named Toyota, Honda, Mercedes-Benz, Nissan and Mazda as the manufacturers with the most trouble-free models.
According to Power, problems such as sloppy workmanship are perceived as minor annoyances by Detroit, but frequently are the cause of a customer’s dissatisfaction with a car. The related customer satisfaction study, therefore, uses a second questionnaire to find out how much people like their new cars.
That 1985 survey, which polled people who had owned their cars for one year, ranked Mercedes-Benz and Subaru the highest. American Motors and Peugeot were at the bottom. Subaru has cited the J. D. Power survey in its advertising and American Motors has vigorously protested Power’s methods.
“The implication of the Power survey is that what we have to offer is no good,” said Bruce Lipka, manager of market research for American Motors in Southfield, Mich. “It’s much like a beauty contest. Just because we’re not ranked on top doesn’t mean we’re dogs.”
Lipka said American Motors prefers car rankings by Consumer Reports, the monthly magazine, because it puts cars in quality categories without ranking them within the category. “Some cars are only negligibly different and don’t have to be ranked by some mysterious formula of Power’s.”
Consumer Reports’ ratings also differ in that they are based on staff-conducted tests rather than reader surveys. J. D. Power bases its findings on customer surveys exclusively.
Newsletter Costs $195
Some of the results from the studies J. D. Power prepares appear in a monthly newsletter, the widely quoted Power Report. The newsletter costs its 2,000 subscribers $195 a year.
The quarterly Power Forecast predicts sales volume and market share for auto manufacturers. Manufacturers pay for the information according to their size. The average price was $30,000 last year.
Nevertheless, about 75% of the firm’s revenue comes from proprietary work--confidential research that J. D. Power sells to individual manufacturers. A report for GM on the potential consumer reaction of a style change might cost several hundred thousand dollars.
Although many companies perform similar work for car makers, Power himself is the one with the reputation for having a crystal ball, and he obviously enjoys making his predictions.
He says that by 1991, imports will have a 41% share of the market. Their current share is around 26%. Power said lower labor costs overseas will spark the increase.
The firm is forecasting an “intensively competitive era” as a result of relaxed quotas on the import of Japanese cars and low-priced cars made in Third World countries.
Power said mini-cars, the smaller-than-subcompact-cars such as the Chevrolet Sprint, will capture more of the new-car market than many expect. He predicted that new mini-car arrivals to the United States, such as the Yugoslavian-made Yugo and the Korean-made Hyundai, will do very well. Other mini-cars that will be sold in the United States will be made in China, Taiwan, Brazil and Mexico, he said.
The relatively inexpensive cars will be bought by the kind of people who now buy used cars, Power predicted. As a result, he said, used-car prices will drop dramatically in the next several years.
The company had forecast a mini-car trend in 1972 that never materialized, but, Power said, new technology making the cars less expensive was not available until recently.
