For most people there's nothing quite as thrilling as rolling off the lot in a brand new vehicle. Even if you choose to buy used, the feeling of accomplishment and freedom that accompanies buying a new vehicle is matched by very few things in this world.
Of course, there's nothing that we as consumers fear more than problems arising with our new vehicles. As technological advances in engine technology and interior styling and efficiency work to make our lives easier we (wrongly) assume that everything is always going to go according to plan with our new vehicles. Consumers experience very few problems with new vehicle purchases from some brands. Certain brands, however, in the words of the late, great Desi Arnaz, "have some 'splaining to do!"
That's why each summer for the past 28 years the auto industry researchers at J.D. Power have conducted their Initial Quality Study which examines the number of problems owners reported within the first 90 days of purchasing their new vehicles. The goal of this data is to identify as a whole whether car problems in the industry are getting more or less common, and to pinpoint which brands could be driving higher loyalty, since brands with fewer problems are more likely to create and keep loyal customers.
According to J.D. Power, consumers that reported no problems within the first 90 days stuck with the same brand 57% of the time with their next purchases, compared to just 53% of those who reported a single problem and 48% of those who reported more than one problem. Without strong loyalty automakers are forced to market their products heavily to consumers, or offer promotional deals in order to drive sales,which only contributes to reducing margins -- never a good thing.
J.D. Power's initial quality findings show that the average new vehicle had more problems this year (116 problems per 100 vehicles) than in the previous year (113PP); however, many of these problems likely can be attributed to non-manufacturing issues or unique weather events.
For instance, vice president of global automotive at J.D. Power, David Sargent, had this to say about automakers integrated newer technologies into today's new cars: "Automakers are trying to give consumers the new features and technology they want without introducing additional quality problems into their vehicles. However, almost all automakers are struggling to do this flawlessly with some consumers indicating that the technology is hard to understand, difficult to use, or simply does not always work as designed."
Sargent also blamed the polar vortex for a number of engine and heating and cooling system issues on the East Coast -- the harsh winter weather wreaked havoc even on new vehicles.
Overall, after questioning more than 86,000 new vehicle purchasers, here's where all 32 brands stand in terms of initial quality, according to J.D. Power in 2014:
The three biggest surprises
As you can see above, luxury brand Porsche held its top spot for the second year in a row with its PP100 dropping from 80 to 74, which isn't a huge surprise as many consumers perceive Porsche's price point and history to be indicative of high quality. Another luxury vehicle maker, Lexus, also managed to maintain its No. 3 ranking with its PP100 falling from 94 in 2013 to 92 this year.
But, there were also three big surprises in this year's initial quality study.
1. Fiat Chrysler flops
To begin with, despite a 13% year-to-date sales surge in auto sales primarily as a results of gains in its Jeep brand, Fiat Chrysler Group (NASDAQOTH:FIATY) still has a lot of work left to do to improve its image with consumers.
As Jeep CEO Michael Manley outlined in early May, the company is focused on cresting 1 million total unit sales this year -- which would represent a growth rate of at least 37% year-over-year from 2013 -- and anticipates selling 1.9 million vehicles by 2018, for an average annual growth rate of 22%! Jeep plans to accomplish this through the reintroduction of the Cherokee, as well as the debut of its mini-SUV known as the Renegade which it believes could sell like hotcakes around the world.
Yet as production increases, Fiat Chrysler is going to have to ensure that quality doesn't suffer. As J.D. Power's report shows, Jeep's PP100 rose from 118 in 2013 to 146 in 2014, putting it second to last of all auto brands. Making matters worse, finishing dead last, by a mile, was Fiat which only produces two different vehicles with a PP100 of 206 compared to 154 last year. I fully understand that Fiat Chrysler wants to ramp up production in the U.S. and abroad to compete with its peers, but if its quality begins to suffer, then that could dissuade consumers from purchasing its vehicles, ultimately hurting the company and its shareholders.
2. Ford zooms higher
While Fiat Chrysler languished, Ford (NYSE:F) cranked up its turbochargers and blasted from 27th in 2013 with a PP100 of 131 to 16th place, which was good enough to put the domestic automaker on par with the industry average.
Why is this important? At the moment the auto industry is absolutely mired under a mountain of auto recalls, so anything that Ford can do to differentiate itself and the quality of its vehicles from any ongoing recalls and scandals is likely to be viewed as a positive development by consumers and investors. Receiving three segment awards for the Ford Edge, Ford F-150 LD, and Lincoln MKX in J.D. Power's Initial Quality Study certainly didn't hurt, either.
Ford's push to improve fuel economy without sacrificing power, as well as its ability to incorporate voice-activated technology and other luxury features and gadgets into the cabin of its new cars without significantly altering the price appears to be working. Ford is successfully reaching a younger generation of buyers with a wide range of vehicles, and it's also earned the top mark for automotive loyalty from Polk Automotive in each of the past four years. Needless to say, in spite of its recent recalls and slower U.S. growth, Ford's innovative capacity and opportunities in China could continue to propel demand higher.
3. General Motors topped the individual model awards
Perhaps what I find most surprising of all is that the highly controversial General Motors (NYSE:GM), which has been issuing a parade of recalls this year to rectify ignition and other series issues that could affect consumers, finished tops among all 32 auto brands for individual segment awards, garnering six.
According to J.D. Power's rankings, the Buick Encore, Chevy Malibu, Chevy Silverado HD, Chevy Suburban, GMC Terrain, and GMC Yukon all finished first, or tied for first, in their respective categories when it came to fewest PP100 in initial studies.
As David Sargent told USA Today last year after the company brought home a handful of individual segment awards, GM has accepted the fact that technology quirks are going to occur and has instead chosen "ease-of-use" when it comes to improving technology in its vehicles. In other words, GM has chosen to focus on lower-key tech devices, like touchscreens, which receive fewer complaints from consumers, rather than switching immediately to the latest in-car gadgets. While that could put GM behind the curve compared to peers like Ford when it comes to reaching Millennials, it could wind up making an older generation of buyers much more comfortable, which is especially important considering that these buyers are the bread and butter margin producers for GM.
We're going to have to wait a few more months to get a look at the next dependability survey from J.D. Power, but I'm very curious to see how consumers respond to the the fact that GM's initial quality has been improving in individual segments at the same time as the company contends with one of the largest recalls in automotive history.
Sean Williams is short shares of Tesla Motors, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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