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Incentives seen a short-term fix for automakers

A new survey released Tuesday indicates that while this summer’s employee discounts may give automakers short-term sales gains, improving quality is more important in the long run.
Customers check out a car priced at the employee discount rate at the Larry H. Miller Chevrolet dealership in Murray, Utah.Douglas C. Pizac / AP file
/ Source: The Associated Press

A new survey of U.S. vehicle owners released Tuesday indicates that while this summer’s employee discounts may give automakers short-term sales gains, improving quality is more important in the long run.

Toyota Motor Corp. got the top score of 87 out of 100 in the University of Michigan’s American Customer Satisfaction Index, which rates automakers based on owners’ satisfaction. Owners were asked about their overall satisfaction and their satisfaction level compared to their expectations. They also were asked to rate how their vehicle compares to their ideal vehicle.

Honda Motor Co., BMW AG and General Motors Corp.’s Cadillac and Buick brands rounded out the top five performers. Ford Motor Co.’s Ford brand got the lowest score of 75.

Half of the brands improved their scores from last year, including Hyundai Motor Co. and GM’s Pontiac brand. One-quarter stayed the same, while one-quarter saw their scores drop, including Nissan Motor Co. and Ford’s Lincoln and Mercury brands.

University of Michigan professor Claes Fornell, who compiles the index, said Hyundai’s rapid climb shows that focusing on quality can significantly improve satisfaction ratings. Hyundai was at the bottom of the index with a record low score of 68 in 1999, Fornell said. Quality and styling improvements and the introduction of the industry’s first 10-year, 10,00-mile warranty catapulted Hyundai to No. 6 in this year’s ratings, with a score of 84.

“That’s something to hold up for Detroit, that this can be done. It’s possible,” Fornell said. “You don’t have to give away cars.”

Fornell said the Big Three U.S. automakers should spend less on incentives and more on quality improvements. U.S. automakers spent an average of $4,239 per vehicle on incentives in July, compared to $2,372 for European brands and $1,619 for Asian brands, according to Autodata Corp.

Since July, GM, Ford and DaimlerChrysler AG’s Chrysler Group have been offering employee prices for all customers on most 2005 vehicles. Those incentives have a positive effect on customer satisfaction, but it’s not large or sustainable, Fornell said. Fornell said Toyota was raising its prices this summer but still got the highest satisfaction score.

“It’s a dangerous path that the domestic industry is on, and it certainly looks like they’re not making the right moves,” Fornell said.

GM and Ford have both said they intend to lower their prices and rely less on incentives in the 2006 model year. The Chrysler Group has been trying a similar strategy for several years.

Ford’s Lincoln and Mercury brands ranked highest in last year’s survey but fell to seventh this year. Lincoln Mercury spokeswoman Sara Tatchio said Lincoln and Mercury have gotten high marks in other recent surveys, including dependability rankings by J.D. Power and Associates.

“We always want to do very well with surveys and certainly we don’t like a downward trend, but it’s good to know we’re still in the top ten,” Tatchio said.

The survey questioned 8,096 people by phone between April 1 and June 30. It has a margin of error of plus or minus 0.3 percentage point, Fornell said.