The Genius Of The Consumer And The Failure Of Car Brands

Consumer Reports came out with its annual new car reliability survey. The study is widely anticipated because it  pre=”it “>is based on the opinions of 1.4 million people and because the Consumers Union is considered unbiased in its work of evaluating goods and services for the American public. It is also one of the most well-known non-profit organizations in the US.

Sometimes a quality survey’s results have little to do with the real world, offering results that have nothing to do with the commercial realities of the marketplace. But, in the case of the Consumer Reports review of cars, the models that do the best also happen to be, with very few exceptions, the most commercially successful. The brands that do the worst are on their way toward extinction, if they have not reached that destination already.

The Japanese manufacturers that the top seven spots among the most reliable brands undercut the idea that American or European car quality have reached a point of parity with the perennial market leaders. Toyota (NYSE:TM), Honda (NYSE:HMC), and their luxury brands hold their positions at the top of the reliability pyramid. These are the car companies that have made the most money over the last several years, despite the recession, and that is likely to be true as the economic downturn ends.

It must be unsettling for the US auto firms to see Hyundai in the No.7 spot just behind many of the Japanese. Hyundai has had an extraordinary sales success in the US over the last two years and its parent company was the envy of the industry when it posted a profit for the third quarter. Hyundai, unlike manufacturers of small cars like VW and Fiat, has a beach head in the US that is likely to expand. It has a large enough model line, good enough pricing, and a quality reputation that have made it a substantial competitor against other car firms that have had 5% of better of the American market for years. That list includes US manufacturer Chrysler.

The media marveled that Ford (NYSE:F) did so well because it is an American company. To the public and many investors, being a US-based vehicle manufacturer means having one foot in the grave. Ford, on the contrary, has been picking up market share all year and it is even money that they corporation made a profit in the quarter that just ended.

The Wall Street Journal leaked the news that Chrysler’s turnaround will be based to a large extent on imported Fiat cars. Fiat has operating control over Chrysler, so there is some logic to that. But, the Fiat models will not make it here until 2012. Chrysler may not have the balance sheet to make it that long. Its sales are falling over 40% compared to last year in a typical month.

Chrysler needs a new set of brands immediately. The Fiat plan to phase out many Dodge and Jeep models is too late. The Consumer Reports survey shows that Chrysler is in last place, which is 32nd place, among all brands based on reliability. Dodge and Jeep are also near the bottom of the list.

GM is shutting down Saturn and Pontiac, and perhaps the quality of their products is why these brands have seen their time come and go. Pontiac turns in respectable numbers in the Consumers Report study, but Saturn is in 29th place. The weakest of the brands that GM will keep open as it restructures, Cadillac, ranks next to last of all those name plates in the study. GM is hoping to resuscitate the division which has lost 44% of its sales this year. But, the Cadillac model line is too small and ill-designed to keep its place as an important luxury car brand. Cadillac may survive as a niche product like Jaguar, if it survives at all.

Car buyers have proved themselves to be remarkably good at picking brands that are financially healthy now and which have been, for the most part, the ones that will weather the recession best and emerge as leaders in the new order of successful car companies after an economic recovery.

Douglas A. McIntyre