Wheels Blog: Porsche and GMC Rank Highest in New Version of J.D. Power Initial Quality Study

Porsche The 2013 Porsche 911 50th Anniversary Edition. Porsche received top marks in J.D. Power’s revised Initial Quality Study.

J.D. Power released the results of a new version of its Initial Quality Study on Wednesday at a news conference with the Automotive Press Association in Detroit. The 2013 study was redesigned to measure better the quality of new technology that is becoming common in vehicles – including features like voice-recognition, blind-spot-monitoring, lane-departure-warning and self-parking systems.

The study scores automakers by brand and by model on the number of problems per 100 vehicles, or “pp 100.” A lower number signifies a better rating, indicating that owners have reported fewer problems for that brand or model.

The top scorers in the brand rankings were Porsche at No. 1 with a score of 80 problems per 100 vehicles, followed by GMC (90), Lexus (94), Infiniti (95), Chevrolet (97), Acura and Toyota (tied at 102), Honda (103), Jaguar (104), Hyundai, Kia and Mercedes Benz (all tied at 106). Because of the changes in the study’s methodology and content, the pp 100 scores cannot be directly compared with scores from previous years. But it is still possible to compare the brands’ relative rankings.

The redesigned study found that nearly two-thirds of the problems that owners experience with their new vehicles in the first 90 days are related to design and not manufacturing. In some cases, a component may be working as it was designed to, but can still pose a problem for the owner because it is difficult to understand or operate.

While this may seem like good news – because it involves fewer breakdowns – it is actually bad news because design-related problems are more difficult, if not impossible, to resolve.

Because design problems are not the result of breakdowns or malfunctions, the study found that just 9 percent of the problems are taken to a dealership within the first 90 days of ownership. And when they are, the problem is fixed only 13 percent of the time, whereas in the case of an actual defect or malfunction, the problem is fixed 42 percent of the time.

Many of the problems owners had with a vehicle were related to the driver’s interactions with it. These interface problems often involve voice recognition or hands-free technology, Bluetooth pairing for mobile phones and navigation systems.

What was J.D. Power’s takeaway message for consumers? When test-driving a vehicle you intend to purchase, spend as much time evaluating the technology and how easily you interact with it as you spend evaluating how well the vehicle drives, David Sargent, vice president for global automotive at J.D. Power, said in a telephone interview.

The study also found that initial quality had decreased from last year and that the decline was due mostly to technology design issues, Mr. Sargent said.

General Motors made a strong showing in this year’s survey. “GMC is second; they haven’t been anywhere near that before,” Mr. Sargent said. “Chevrolet is fifth; they’ve not been near that before. Buick and Cadillac were above the industry average.” Mr. Sargent added that they G.M. had worked “incredibly hard” to overcome its problems, noting that its recently introduced models included some, like the Buick Encore and Chevrolet Malibu, that score well on quality.

Indeed, at the news conference Mr. Sargent said that if the rated brands were combined under their parent corporations, G.M. would have a better score than any other company in this year’s study. G.M.’s trucks scored particularly well, he said.

Conversely, Nissan fell conspicuously and is now 30th out of 33 brands because of problems with three major new models — the Altima, Pathfinder and Sentra. “The competition is so tough these days, you don’t have to get much wrong to fall down in the rankings a long, long way,” Mr. Sargent said.

Ford remained in relatively the same position it has occupied for the last two years when it was hit hard with complaints about its MyFord Touch driver interface. Ford was 27th out of the 33 rated brands. Even though the interface is improving as Ford brings out updates, Mr. Sargent its inclusion in more vehicles has resulted in continued complaints.

As in years past, the Initial Quality Study surveys the owners and lessees of new vehicles after the first 90 days of ownership. This year it was based on responses from more than 83,000 owners of new 2013 passenger vehicles. Owners were asked whether they had any of 233 possible problems, which included mechanical defects and malfunctions, as well as design issues.

In this year’s redesigned study, design problems accounted for two-thirds of the total number of questions. Previously, design issues accounted for about half of the survey. For the first time, the study is conducted online, which allowed J.D. Power to get more detailed feedback on each of the problem areas.

This is the fourth generation of the study, which was begun in 1987. It was also updated in 1998 and 2006.

Advertising: Courting Thrifty Consumers With Value and Quality Brands Stress Value and Quality to Reach Thrifty Consumers

Many on Madison Avenue are deciding to focus on value, as in value for money, celebrating thriftiness as they did during the dark days of 2008 and 2009 but also, in an effort to keep ads from growing stale, suggesting that product attributes like quality matter, too, in a “you get what you pay for” fashion.

For example, advertising to be introduced on Monday by Vonage, the Internet phone provider, replaces its usual message of lower prices, expressed by exhortations like “Ditch the big bill,” with a theme, “Crazy generous,” voiced by a brand character styled as the company’s new chief generosity officer. “What we need is a company that connects us with generosity,” the character says in a commercial by JWT, part of WPP.

The new theme is “bigger than just saving money,” said Barbara Goodstein, chief marketing officer at Vonage Holdings in Holmdel, N.J.

“We believe people should have the opportunity to find value in technology,” she added, listing elements that, in addition to low cost, include “flexibility, simplicity, quality, new products and innovation.”

The “Crazy generous” theme is meant to convey that Vonage remains “committed to providing consumers with low-cost communications services,” Ms. Goodstein said, as part of “a business philosophy” embodied by the brand character.

“He is a champion of the people,” she added, in a populist way, which makes him “the right spokesperson for our times.”

Procter & Gamble, the nation’s largest advertiser by spending, has been scrambling to fine-tune its lineup of mostly premium-price household staples in categories like beauty, detergents and paper goods. The goal is to add lower-price items to appeal to shoppers who have been switching brands to save money but still seek efficacy from what they buy, while not eroding sales for the company’s higher-price merchandise.

The recent abrupt departure of the Procter & Gamble chief executive, Robert A. McDonald, who was succeeded by his predecessor, A. G. Lafley, was attributed partly to concerns the effort was hitting too many bumpy patches.

One example of how Procter has sought to adapt to the times was the return in January of Vidal Sassoon hair products, discontinued in North America in 2003, as what the company called the “affordable” Vidal Sassoon Pro Series line — i.e., priced lower than the company’s Pantene brand name hair products, but higher than store brands.

This June, Procter & Gamble plans to introduce Iams So Good, a dog food that will cost about 15 percent less than the Iams line, which is among the higher-price dog foods like Eukanuba and Hill’s. Iams So Good, aimed at brands like Beneful and Pedigree, is being introduced with advertising by the creative agency for Iams, Saatchi & Saatchi in New York, part of the Publicis Groupe, that includes commercials, print and online ads, displays in stores and content in social media. The budget for the Iams So Good campaign, which echoes the Iams brand’s ad theme, “Keep love strong,” is estimated at more than $50 million.

Making Iams “more accessible” is “a big move for us,” said Kristine Decker, marketing director for North America at the Procter & Gamble pet care division in Cincinnati.

“We’re broadening our appeal,” she added, because “we realize a lot of our brands need to ‘tier down’ to appeal to more consumers.” She compared adding Iams So Good as part of the Iams line to the way the company added lower-price Bounty Basic and Charmin Basic products to the premium-price Bounty and Charmin lines of paper goods.

As Iams So Good arrives in stores, Procter intends to “support regular Iams, too,” Ms. Decker said, because “we’ve got to build the base as we expand.” According to Kantar Media, a division of WPP, Procter spent $69.9 million to advertise Iams last year in major media, compared with $67.4 million in 2011. That could help deter defections to Iams So Good by buyers of Iams.

The campaign for Iams So Good promotes the absence of ingredients like added sugar, dyes and artificial preservatives and proclaims that the new variety “has 100 percent wholesome ingredients and nothing else.” The product’s lower cost will be conveyed through the store displays and packaging rather than brought up in commercials or print ads.

“We don’t talk about the value or the price,” said Tris Gates-Bonarius, global creative director on the Iams and Eukanuba brands at Saatchi & Saatchi, so “the look and feel of the campaign” can be in “the Iams tone of voice, celebrating authentic, real relationships between pets and owners.” For instance, she added, the commercials for Iams So Good will feature pets, rather than trained animals, that appear with their owners, just as commercials for Iams do. One spot for Iams So Good depicts a dog named Harvey performing what is described as his “ ‘I’m happy you’re home’ dance.”

Ms. Decker echoed Ms. Gates-Bonarius. “Our first priority is to create awareness of what’s in your dog’s bowl,” Ms. Decker said of the campaign’s emphasis on the ingredients in Iams So Good. “We will drive more overt value awareness in stores.”

Fair Game: In Bank Earnings, Quantity Over Quality

The new high followed a report last week from the Federal Deposit Insurance Corporation, showing record earnings across a wide swath of the banking sector in the first quarter. The F.D.I.C. did not break out individual bank performance, but the data showed that the roughly 7,000 banks whose deposits were federally insured earned $40.3 billion, up from $34.8 billion in the same period last year. That’s a nifty 15.8 percent increase.

There was other good news about the banks in the F.D.I.C.’s report. Returns on assets increased to 1.12 percent, on average, from 1 percent for the same period in 2012. And the number of banks on the regulator’s problem list fell to 612 from 651 at the end of last year. Only four insured institutions failed in the first three months of 2013 — the fewest since mid-2008.

These are all welcome developments, especially after the near-death experience of so many banks and their shareholders during the financial crisis. Clearly, the United States banking industry as a whole is better off than it has been for years.

But, as is often the case, a more nuanced tale emerges when you look more closely at the profit figures. Put simply, there is less to the headline number than some investors may think.

For one thing, the good news wasn’t across the board: only half of the insured institutions reported higher quarterly profits, year-over-year. That was the lowest percentage since the last quarter of 2009.

But the quality of the banks’ earnings — an important consideration for investors — starts to look less pretty when you start examining the data. Once you do that, you can identify one-time gains or other gimmicks that can create ephemeral increases or otherwise make the results appear better than they actually are.

Several red flags pop up in the F.D.I.C. report. The most important appears in its discussion of banks’ net interest income, the measure of what a bank earns on its lending after deducting what it pays out on deposits and other liabilities.

This is a crucial gauge of bank profitability — after all, banks are in the business of lending money — and it is on a downward slide. It declined $2.4 billion, or 2.2 percent, among the banks the F.D.I.C. examined during the first quarter, with the average net interest margin falling to 3.27 percent from 3.51 percent in the same period last year. The most recent figure is the lowest since 2006, the F.D.I.C. said.

This crimp comes courtesy of the zero-interest-rate policy of the Federal Reserve Board. As borrowers pay off older loans made at higher rates, banks can replace them only with lower-yielding loans. Sure, their costs are lower, but the spread between what they earn and what they pay out has become razor thin.

Loan balances at these banks also fell slightly during the quarter. Total loans and leases shrank by almost $37 billion, or 0.5 percent, a decline fueled by lower credit card balances, home equity lines of credit and residential mortgage loans. Many bankers may be hesitating to make loans, worrying that interest rates will soon rise; when they do, loans made at current low rates will fall in value.

So how did the banks manage to bolster their overall profits so substantially? They searched for income elsewhere, and found it in the annoying and sometimes egregious fees they charge to consumers. Noninterest income at the banks rose by $5.1 billion in the quarter, according to the F.D.I.C., or 8.3 percent.

Cost-cutting at a few large institutions also contributed to the overall brighter picture in earnings. This was evident in the $4.2 billion decline in noninterest expenses in the quarter, a drop of almost 4 percent.

Another red flag is seen in reductions in set-asides for loan losses. Banks have a good deal of leeway in deciding how much money to provide for future losses. If banks play down the risks in their portfolios and reduce the amount to cover potential losses, that additional money makes their earnings look better.

The loan-loss provisions fell to $11 billion in the quarter, a decline of $3.3 billion, or 23 percent, from the same period a year ago. As the F.D.I.C. noted, this provision is the lowest among the banks since early 2007, at the height of the housing bubble. Reduced allowances for losses were reported by 53 percent of the institutions covered by the report.

So is everything rosy in these institution’s loan portfolios? Are their risks much lower? Not exactly. Loans that are delinquent more than 90 days accounted for 3.41 percent of total loans in the first quarter, the F.D.I.C. said. Although this is down from more than 5 percent, a few years ago, it is still high. In 2007, for example, it was 0.83 percent.

Put it all together, and you see the clouds moving in on the sunny earnings report. Banks’ considerable profits seem fueled by cost-cutting and lowered loan-loss provisions. The effects of such tonics only last so long.

Scott A. Anderson, chief economist at Bank of the West, said the F.D.I.C. report showed that scars from the financial crisis remained in the banking system. With banks still reluctant to lend, he said, the nation’s economic recovery was being held back.

If banks don’t make loans, Mr. Anderson noted, our economy can’t expand as it normally does in a recovery. Even six years after credit started to seize up around the world, we are still relying on the Fed to keep the economy moving.

SUCH is the box the Fed finds itself in. Its muscular response to the credit crisis staved off economic disaster. But its continued efforts to keep interest rates low are doing nothing to encourage lending by banks.

“How does the Fed unwind what it’s done over the past five years without disrupting the bond market and interrupting the flow of loans in the banking system?” Mr. Anderson asked in an interview. “How do you do that without reversing some of the positives?”

Taking away the punch bowl at the party has never been easy for Fed chairmen. This time, though, it’s going to be downright treacherous.