The latest results on automobile satisfaction from the American Customer Satisfaction Index are in, and they're disappointing, to say the least.
For the second year in a row, American consumers are less pleased with their new automobiles. Based on ACSI's data, satisfaction fell by 1.2% from the previous year.
For domestic automakers it's even worse, with customer satisfaction declines extending for a fifth consecutive year. Of the 21 most popular foreign and domestic brands that ACSI rated, 80% of them saw their satisfaction decline from the prior year.
According to ACSI's findings, the only two brands that saw their customer satisfaction scores improve were General Motors' (NYSE:GM) Chevrolet and Buick, whose scores increased by 4% and 1%, respectively, over last year. This can likely be attributed to GM's recent facelift for the Silverado, which has boosted sales of the nation's second-best-selling vehicle, and sizable investments in its Buick brand. Not coincidentally, Buick sales surged 12.5% through the first half of 2014. For two other brands, satisfaction remained unchanged, while the remaining 16, including list-leader Mercedes-Benz, saw their customer satisfaction dip. (It was Audi's first year on ACSI's list, meaning it had no corresponding data from last year; thus why we have only 20 data points to compare and yet 21 auto brands.)
Customer satisfaction is a key metric worth keeping a close eye on, because satisfaction data can give us added insight into the prospective loyalty of consumers. Think back to the big-ticket items you've bought over your lifetime and consider whether or not you'd stick with the same brand of product if you could make that purchase over again. If automakers are consistently delivering on their product and providing what customers want, then they have an improved chance of making that consumer a customer for life and reaping the benefits of both word-of-mouth advertising and the cash flow from that consumer.
Why customer satisfaction keeps falling
"What's causing the persistent dip in domestic new auto customer satisfaction?" you may wonder.
A record number of car recalls are certainly playing their part and increasing consumer distrust of new vehicles. Through just the first half of 2014, U.S. automakers had announced recalls on a whopping 39.85 million vehicles, shattering the previous full-year recall record in 2004 of 33.01 million vehicles. As NBC News noted in late June, General Motors was responsible for 26 million of these recalls by itself.
Furthermore, GM lost its bid last month to dismiss a lawsuit that will now force it to defend whether or not it concealed ignition switch defects that led to the death of a woman in Georgia. This landmark case could set the tone for the entire sector, as a loss on GM's part could harm what trust consumers have left for automakers.
In addition to recalls, incentives have likely played a role in reduced customer satisfaction, as noted by Daily Finance's Drew Trachtenberg. Following the recession, automakers were pretty generous with their incentives in order to get consumers buying once again. As automakers have seen the economy improve, they've begun to throttle back on these incentives, which appears to have resulted in slightly lower consumer satisfaction.
But not to be misleading: Customer satisfaction in the auto sector, despite falling, still ranked as the sixth highest of the 43 categories that ACSI examines.
Customer satisfaction with one luxury brand, however, went down the tubes, with satisfaction declining 7% from the prior year to a score of 77, placing it decisively in last place behind its peers.
This brand ranked dead last in customer satisfaction
Coming in dead last in ACSI's survey was Honda (NYSE:HMC)-owned luxury brand Acura. In its defense, this is only the second year that Acura has been included in ACSI's ranking, so some volatility in its customer satisfaction score is to be expected. However, finishing last among its peers and being the only luxury automaker to report a sales decline through the first eight months of the year leaves it with some explaining to do to consumers and investors.
Based on Honda's August 2014 report, its Acura division has seen sales decline by 3% year-to-date, highlighted by a 9.2% year-over-year decline in August, with eye-popping weakness in its sedan sales. Compared to other luxury automakers, this is an especially poor performance: Daimler's Mercedes-Benz, BMW of North America, and Volkswagen-owned Audi have seen their year-to-date sales jump by 9%, 11.6%, and 14.5%, respectively.
Why such apathy toward the Acura brand? I'd suggest that's because Acura is right in the middle of a major rebranding of its line of luxury sedans. Out are the TL and TSX, which Acura announced it would halt production of late last year, and in is the all-new midsize TLX, which went into production in July and hit showroom floors in mid-August.
Acura's new lineup of sedans will consist of the entry-level ILX, the midsize TLX, and its flagship RLX. Honda fully expects the introduction of the TLX to boost sales of its Acura brand, and initial results from August have been promising, with the company noting that the TLX "drove heavy dealer traffic" in its first few weeks. Overall, Acura sold 2,266 TLXs in its first partial month of sales. In addition, ILX sales also hit a high note in August, rising 5.7%. Still, the idea of seeing Acura's already small line of sedans get completely shuffled around might be a bit unnerving for some consumers as they wonder if the car they're buying might end up on the chopping block just a few years down the road.
Furthermore, while the TLX will represent an attractive entry point into a midsize luxury car, prior to the introduction of the TLX, the TL price point was notably higher, making it out of reach for some consumers. ACSI's survey also only takes into account what would now be an outdated lineup of Acura's models and doesn't include the TLX, which began production several weeks after ACSI conducted its survey. In other words, there's a decent chance that the TLX's attractive starting price of around $31,000 and Honda's aggressive advertising campaign for the vehicle could help its customer satisfaction in next year's rankings. As for this year's rankings, Acura's out of luck.
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.
The Motley Fool owns shares of, and recommends, Tesla Motors and Ford. It also recommends General Motors and BMW. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.