Skip to Content

How J.D. Power drove change in auto research

James David Power III, 84, built a business selling auto companies something they didn’t initially want: their customers’ opinions. Detroit carmakers in the 1970s weren’t interested in independent reports about their shortcomings. But Japanese rivals, he says, were “fanatical” about understanding the American consumer and signed up for his surveys on quality. That established his foothold. Today dozens of industries vie for top rankings from J.D. Power and Associates, which had estimated revenues of $269 million in 2014 (it’s now owned by McGraw Hill Financial), and such surveys are a business staple. Power’s story:

Market research has changed a lot over the years. I grew up in Worcester, Mass., and studied English at College of the Holy Cross. My father, who was an English teacher, said, “Don’t go into teaching.” So after college I spent four years on an icebreaker in the Coast Guard, and when I got out, I got an MBA in marketing at Wharton. One of my first classes was marketing research, and I decided that’s what I wanted to do. I graduated in 1959, and ended up at Ford Motor (F).

I like analyzing what’s going on. Back then, people weren’t doing market research correctly, especially the car companies. Market research reported to sales, so it had to come up with results that reinforced decisions the sales department was making. Researchers interviewed people and just tortured the data till it confessed.

I wanted a change, so in 1961, I took a job with Marplan, the research arm of McCann Erickson, and later moved my family to Los Angeles. I did studies for Reddi-wip, Kal Kan Dog Food, U.S. Borax, and others. When the McCulloch Corp. [a maker of lawn mowers and tractors] offered me a job as director of corporate planning, I took it.

One day a friend from Wharton came to town with two other fellows. All three had quit their jobs to come to California to meet with people in the aerospace industry. They wanted to measure household utility meters by satellite. It was 1968, so they were thinking ahead. I asked, “You’ve each got kids and are giving up good jobs?”

One of them said staying in the same job is something people may do to get ahead, but you become a captive of the company. I told this to my wife, Julie, and she said, “Why don’t you start your own company?” So I quit my job. I immediately got a call from Mr. [Robert] McCulloch himself. They were concerned I might do work for a competitor. So he retained my services for two years. For five days a month I was paid my full salary of $15,000 a year, which was a lot back then.

We used that to start J.D. Power and Associates at our kitchen table. With my background, I thought we could do market research in areas the auto industry wasn’t paying attention to.

Toyota’s (TM) U.S. headquarters was in Torrance, Calif., and I spoke to the advertising manager, who was in charge of research. He told me over the phone that he wasn’t interested. So I decided to go down there. I noticed forklift trucks in a display, and asked to see the person in charge of that. I told him I’d do a good report on what was going on in the U.S. on forklift trucks for $600. He was delighted with the report, and before long I was introduced to Tatsuro Toyoda, the son of the company founder. We talked, and I sold him on my experience in the auto industry. I then went on to do a study on imported cars to help Toyota understand the competitive landscape.

In the early years, I put our kids to work on the survey mailings; Julie supervised. We taped a quarter on each cover letter as an incentive to answer, and that got us a 60% response rate. In the 1990s we switched to a fresh $1 bill. Before long we got an office to look more professional, and I hired some former Marplan colleagues.

We were the first to do independent research studies on the auto industry. The first reports on customer satisfaction were purchased by Japanese auto companies. People said we were in bed with the Japanese while Detroit was suffering. But the CEOs of the U.S. manufacturers became interested in our data because they found that their internal surveys weren’t accurate.

Then, in 1980, my wife was diagnosed with multiple sclerosis. Julie went from a cane to a walker to a wheelchair to an electric wheelchair. But she still went with me to meetings and knew all of our key clients. She’d tell me afterward what we should be doing.

Our biggest challenge was cash flow. When there was no contract work, we’d sell subscriptions to a report. As we grew, the cash flew out, and when the car companies were in trouble, they’d be slow to pay. It took us 15 to 20 years to really get stable.

I had a flair for seeing trends in data. As our experience became widely known, we got phone calls asking, “When are you going to do studies on banks or hotels?” We began researching other industries.

In 1992, Acura (HMC) wanted to advertise its No. 1 ranking in sales satisfaction. So we developed the J.D. Power Awards to honor the winners of our studies. By the early ’90s, every car manufacturer had to subscribe to us. It had taken decades to win people over.

In 2002 my wife passed away from MS. That really hurt my initiative. We sold to McGraw Hill (MHFI) in 2005, and I stayed on. Four years later I left to work on other boards and investments and set up a family foundation.

I’m proud of the impact we’ve had on improving the quality of products and services. Before the ’60s, nobody really cared what the consumer thought. We made the term “customer satisfaction” part of the vernacular of business today.

My advice

James David Power III, Founder, J.D. Power

  • Be accessible to your employees.
    I would walk around at 5 p.m. to see who was still working after quitting time. I’d ask everyone, “What are you working on? Any difficulties? Any suggestions?”
  • Hold internal focus groups.
    We had frequent employee meetings, mixing all levels and divisions. No one was criticized for surfacing problems. It took a half day and a lunch or dinner to get together, but the information we gained was worth it.
  • Hire problem solvers.
    Whatever the job was, we didn’t want just experts. We wanted people who had an intellectual curiosity and who had the characteristic of wanting to solve problems.

A version of this article appears in the July 1, 2015 issue of Fortune magazine with the headline “Driving Change in Car Research.”