Review of J. D. Power Quality Measurement of U. S. and Japanese Automotive Industry

INTRODUCTION J. D. Power and Associates (JDP) conducts customer surveys and reports information on automobile quality, reliability, safety, customer satisfaction and buyer behavior. Driven by the results of these studies, car manufacturers have substantially improved vehicle quality over the years. The Initial Quality Study (IQS) provides feedback on quality of new vehicles during the first 90 days of ownership. The results from the IQS surveys (Greywitt & Tews, 2001, 2002; 2003, 2004, 2005; Tews & Dadlani, 2006; Tews & Perryman, 2007, 2008, 2009, 2010) provide consumers with information on the awards for the three best vehicles in each car segment. These awards are used extensively in advertising that influences purchasing decisions. Before purchasing a car, consumers review the available literature on the quality of a product to minimize their risk of purchasing a defective car. Such information reduces the risk of making a decision with partial or imperfect information (Heizer & Render, 2012). This paper evaluates the quality measurements of IQS and its economic impact on the sales performance of major U.S. automakers (GM, Ford, and Chrysler) and Japanese automakers (Toyota, Honda, and Nissan) between 2001 and 2010. The following research questions are addressed in this study: (1) Does IQS have significant impact on the customers' purchasing behavior during the period of study? (2) Who benefits more from IQS, U.S. or Japanese automakers? (3) How can the quality information of IQS be measured and evaluated? In order to address the first two questions, the event study methodology (Bowman, 1983; De Jong, 2007) is used to analyze the impact the IQS surveys on U.S. market sales. Event study is a statistical method that has been used extensively in financial research to find the stock market reaction to important financial events such as mergers and acquisitions, earnings announcements, corporate reorganizations, investment decisions and corporate social responsibility (MacKinlay, 1997; McWilliams & Siegel, 1997). In this paper, event study is used to measure the impact on sales performance instead of applying it to the financial performance. Impact on individual firms as well as groups based on national sales and market share are measured and analyzed. Specifically, the IQS survey and the sales impact for major U.S. and Japanese automakers are analyzed and compared as specified in the second research question. The third research question is to identify what factors in IQS affect sales performance change, and how much they affect those changes. In this paper, the following two factors of IQS are considered: * Awards list: identifies the three best models in each segment (i.e., compact car, midsize car, full-size car, etc.) * IQS ranking based on the number of identified problems per 100 vehicles The effect of the first factor (i.e., the awards list) is measured by employing IQS scores (Richardson, 2009). An automaker's adjusted IQS score is computed by assigning the weight of three for the first place, two for the second place, and one for the third place (Richardson, 2009). In case of the second factor (i.e., IQS ranking), a measure called event type is introduced. Consumers' perception of IQS ranking can be categorized as a positive event or a negative event to an automaker based on the number of defects. An event is defined as negative if the reported number of problems for the automaker is greater than average and positive otherwise. Regression analysis is performed to analyze the relationship between these two factors and the impact on sales and to quantify the strength of the effects by the factors. This paper is organized as follows. In section 2, the event study methodology is introduced and applied to the U.S. sales data (specifically U.S. and Japanese automakers) between 2001 and 2010. Section 3 introduces two quality measures (IQS score and event type) that are defined and analyzed. …