Second Quarter 2009

Manufacturing/Durable Goods; E-Business

Detroit Responds: Customer Satisfaction for Domestic Autos Surges

Strong Showings for Ford and General Motors

The American Customer Satisfaction Index—ACSI—continues its upward trend during the second quarter with an overall score of 76.1. Customer satisfaction with durable products improves by 1.1% compared with a year ago and the total ACSI gains 0.1% on a quarterly basis.

This is in sharp contrast to a year ago, when the trend was weaker and in a negative direction. At that time, the ACSI for the domestic car industry was falling and the gap to Asian manufacturers widened. Also a year ago, the scores for a couple of other US firms in different industries—Apple and Google—soared. Since then, the stock price of Chrysler and General Motors has gone to zero whereas share price increases for Apple and Google have outpaced the market. But now it may be Detroit's turn. Its customers are much more contented than they were a year ago. That should lead to higher levels of repeat purchase and fewer customer defections. Customer satisfaction with domestic cars has improved on almost all fronts to now equal the ACSI score of Asian vehicles. Apple and Google on the other hand, even though both firms remain leaders in customer satisfaction, have stalled.

In addition to durable products, customer satisfaction with e-business improved as usual. Since its debut in ACSI a decade ago, e-business has improved 9 years out of 10. This year, it jumps by 2.8% to a score of 81.5. A majority of companies covered in the second quarter ACSI also improved: 56% saw increasing ACSI scores, 26% declined and the rest was unchanged. Portals and search engines gained the most (+3.8%), followed by automobiles (+2.4%).

If the historical relationship between ACSI and consumer spending, GDP, and stock prices holds, the economy should be poised for a rebound fairly soon. Consistent with the ACSI increase during the first quarter, stock prices have increased and the pace of GDP loss has slowed. But consumer spending has yet to rebound. Households continue to be cautious. They save and pay down debt at a rate not seen in a long time. Despite the most recent report from the Labor Department, unemployment remains very high and is still increasing. Until labor markets improve substantially, it will be difficult for consumer spending to strengthen much. Yet, there are forces that do suggest that a short-term boost is possible. Customer satisfaction is high and increasing, which should have an effect on consumer repurchasing; there is pent-up demand from the consumption slowdown, and the means to spend (cash and credit) are more available now than they were 6 months ago. The Stimulus Package is also about to enter a period in which the flow of money will reach more households, offsetting the hitherto strong reliance on government transfer payments.

Consumer Durables

Autos: Detroit and Asia Neck and Neck

Amid a severe drop in sales, customer satisfaction with automobiles did not follow suit. Instead, the opposite happened. Auto companies are providing better value for money, higher quality and better service than before. Customer satisfaction is the beneficiary as reflected in the sharply improved ACSI score of 84. Detroit was responsible for some of the biggest gains. Ford (+5%) led the way, followed closely by Chrysler (+4%), and GM (+2%). Even though Chrysler showed a healthy improvement, it still lags Ford and GM where the former has a slight edge over the latter (if the discontinued Saturn and Pontiac divisions are excluded, GM and Ford are tied).

European cars have also made strides with Volkswagen posting the largest improvement of any company in the second quarter, up 6% to 86, the first time VW has bested the industry average since 2004. In contrast, ACSI for Japanese cars did not change much with Honda alone having a modest gain (+2%).

As usual, luxury brands dominate the top of the list. Cadillac (up 5%) and Lexus (up 2%) share the lead with ACSI scores of 89, followed by Buick, Honda and Lincoln Mercury, all at 88. BMW was unchanged at 87, with Mercedes-Benz (up 5%), Toyota (unchanged) and Volkswagen next at 86. The Chrysler division increased by 5% to the industry average of 84, sharing the spot with Saturn, which fell 1%. Chrysler's other divisions, Dodge and Jeep, improved 4% to 81 and 79, respectively, joining GMC (down 1% to 82) and Pontiac (up 1% to 81). Several overseas nameplates displayed weaker results: Kia and Mazda (both up 1% to 81) and Nissan (down 5% to 78) round out the bottom of the industry.

Ford, which did not accept government money, has shown strong improvement in customer satisfaction. GM, with less of an improvement, also has a strong showing, particularly with the shedding of Pontiac and Saturn, divisions that either have falling or weak ACSI scores. Four years ago, Bill Ford announced that Ford Motor Company would no longer produce cars in order to fill a factory, but to satisfy customers. Since then, customer satisfaction with Ford cars has jumped by 10%, the biggest improvement in the industry over that four-year period. Ford went from an all-time low ACSI score of 75 in 2005 to an all-time high of 83 in 2009. Perhaps even more telling, while both GM and Chrysler saw U.S. market share losses over the past year, Ford increased its market share by a small margin. GM sales fell 44%, a steeper decline than the industry, and market share eroded by 16%. Chrysler's position is even more daunting. Its market share shrunk by 35% and sales fell 56%.

Even though ACSI data suggest that quality has indeed improved and that customers recognize the improvement, some of the rise in customer satisfaction is the result of a shrinking customer base. That is, as the least satisfied customers don't return, the ones who remain are on the average more satisfied. For example, Buick, Cadillac, Lincoln Mercury, Jeep and Chrysler were among the most improved, and all five nameplates had declining sales of 50% or more over the past year. However, this is not all bad in the context of a downsized company. The domestic car companies now have a smaller, but more satisfied customer base to build on. This is more sustainable than having a large diversified mass of buyers, who tend to be less satisfied than the customers of the competition. Not only is a smaller, more satisfied customer base less difficult to develop further, it is also much easier to defend against competitive inroads. Although the future will obviously be challenging for Detroit, especially since the long-term demand will probably favor more fuel-efficient cars, the recent strides in customer satisfaction offer a better outlook. But future success also implies changing the ways in which the customer base is maintained and nurtured. The auto industry's traditional ways of tracking customer satisfaction need to be replaced by modern methods and relevant data.

Two other automakers deserve comments. Volkswagen improved 6% to tie Toyota with an ACSI score of 86—VW's highest-ever customer satisfaction. A combination of improving vehicle quality and value-for-money lofted VW above the industry average. At a time when many auto companies are scaling back advertising, Volkswagen did the opposite: it increased advertising by nearly 50%. Market share increased 17% in 2008. Nissan is moving in the opposite direction. Recent quality problems have hit Nissan hard and customer satisfaction fell 5% to an industry low of 78.

Personal Computers: Apple on Top despite Stalling Customer Satisfaction

Customer satisfaction with PCs improved slightly after two years of decline, increasing 1.4% to an ACSI score of 75. Rising satisfaction among Windows-based machines drove the improvement. Dell was steady with an ACSI of 75, while Gateway improved 3% to 74. The aggregate of smaller manufacturers also improved 3% to 74. The HP division of Hewlett-Packard made a modest gain of 1% to 74, while the Compaq division surged 6%, also to a score of 74. The satisfaction of Apple PC customers retreated slightly (down 1% to 84), but the small decline has done nothing to hurt the large lead Apple has enjoyed for six straight years over the Windows-based PC manufacturers. In fact, Apple’s customer satisfaction lead is the second largest of any industry in ACSI—only Southwest Airlines' advantage over its closest rival is bigger.

Apple’s success has been a result of innovation, integration of products, customer service and good marketing. By integrating its computers with the iPhone and iPod, Apple is encouraging the phone and music product users to become Apple computer users as well. Despite the recession, Apple has posted strong financial results, with profits up 15% for the second quarter, and sales of Mac computers have increased, while competitors’ sales have shrunk.

As the recession has shifted demand for lower priced PCs, Hewlett-Packard has been rolling out less expensive Compaq laptops—consumers can now get a fully loaded Compaq notebook computer for less than $300. The emphasis on Compaq has driven up recent sales and HP's stock is up 20% since the beginning of 2009, more than double the market.

Major Appliances: Whirlpool Outdistances Competition

The major household appliance category includes big-ticket items such as ovens, dishwashers, refrigerators, and washers and dryers, products hit hard by the recession. To confront falling demand, appliance companies have slashed production, laid off workers and closed plants, but customer satisfaction remains strong: the ACSI score for major appliances improved 1.3% to 81.

Whirlpool is back on top and its lead over competition is the largest in a decade. Whirlpool’s ACSI score jumped 4% to 83. Lower prices and a slew of successful new products helped the world's largest appliance maker boost customer satisfaction, and even though second quarter profits fell by 33%, the company beat market analysts’ expectations. General Electric seems to be heading in the opposite direction. Its appliance division has not matched Whirlpool on quality or service and has had a greater share of product recalls. GE's ACSI fell 4% to 77, and its stock price has plummeted 53% over the past year.

E-Business

Portals and Search Engines: Rivals Still Searching for Ways to Break Google’s Dominance

The e-business category reached a new high this year, up 2.8% to an ACSI score of 81.5. Since measurement began in 2000, the category is up a remarkable 29.4%, good news for people who are increasingly turning to the Internet as a primary source of information. Portal and search engine sites led the way, improving 4% to a new category high of 83, while sites that provide news and information, in particular the online versions of national newspapers and television news media, lagged well behind, falling 1% to 74. Still, the Internet has proven to be a more satisfying resource for news and information than its more traditional news counterparts—broadcast and cable TV news programs and newspapers had ACSI scores of 71 and 63, respectively, when last measured in the first quarter of 2009.

Leading among portals and search engines again this year is Google, unchanged with an ACSI score of 86, maintaining its substantial lead over Yahoo! (also unchanged at 77). Google has led among portals and search engines for seven of the last eight years and this edge in user satisfaction is reflected in Google's dominance of the search market. Measured by query volume, Google does 74% of all search business on the Internet, with Yahoo! a distant second with 17% and Microsoft’s new entrant Bing.com third with 7%. Bing has won early accolades among industry insiders, but even a recent collaboration by the two smaller rivals (Yahoo! Search is now powered by Bing) hasn't managed to put a dent in Google’s usage. Strong and stable customer satisfaction has also left Google’s share value more insulated than most companies.