Bryan Bergsteinsson is a gearhead's gearhead. If you want to know about H-points, headlamp redesign philosophies, or why it's hard to find a car with window cranks these days, Bergsteinsson, a longtime member of the Society of Automobile Engineers, is your guy. He comes by his knowledge through much experience. Bergsteinsson was a highly regarded, extremely successful Toyota executive for 36 years.
In 2006, Bergsteinsson retired from his position as group vice president with Toyota Motor Sales, U.S.A. He was in charge of the renowned University of Toyota, which is responsible for the development and delivery of education and training for employees of Toyota Motor Sales as well as employees of the Lexus, Toyota, and Scion dealer bodies. Prior to that, Bergsteinsson's roles ranged all throughout Toyota's executive ranks, from human resources to product planning. These days, Bergsteinsson is the leader of Gallup's automotive industry practice.
There isn't much Bergsteinsson doesn't know about cars -- building them, selling them, and driving them. In this interview, the first of two parts, Bergsteinsson draws on that knowledge to suggest that the automotive industry is being pushed too far too fast on environmental issues, questions the value of customer satisfaction ratings, and explains why engaged car customers are more valuable than merely satisfied ones.
GMJ: What's happening in the auto industry?
Bergsteinsson: In the United States, Japan, and Western Europe, the markets are mature, so there's been quite a bit of shakeout and consolidation in the industry. As an example, in the United States, there are really only two independent car companies left, General Motors and Ford, although Chrysler could return as a third when the split from Germany's Daimler is concluded successfully. In Japan, there are really only two large independent car companies left, Toyota and Honda. There's no British-owned industry really, no more independent Swedish industry. And even though sales in North America are fairly strong -- they're near record levels, a little less so in Europe and Japan -- many of the major manufacturers are struggling to realize a profit in today's environment.
GMJ: Why is it so hard for car companies to turn a profit?
Bergsteinsson: For starters, it's a capital-intensive business. It takes billions of dollars to bring an automobile to market, and the market is competitive and fickle. There's a lot of pressure on the industry to turn on a dime, and most manufacturers don't have enough flexibility. The market also is extremely fragmented, requiring manufacturers to derive profit from much smaller volumes and shorter product life cycles.
GMJ: What about the unions?
Bergsteinsson: Well, I've always thought it was a bit disingenuous for the car companies to blame the unions, as they certainly have historically. Most of the problems were caused by management and can't all be put on the unions. But my perspective is that unions haven't made it easier. They seem to thrive on an adversarial relationship, saying, "Pay your dues, rely on us, or the company will take advantage of you." And the work rules, job classifications, and seniority rules are inflexible and costly to manufacturers. But to blame the plight of U.S. car companies on the UAW is missing the point.
GMJ: What's the point? What will it take to be profitable?
Bergsteinsson: In the U.S. market, at the end of the day, you have to build products that people want. When pickups and SUVs were doing well, the American manufacturers ignored cars. Now that gas prices are up, some car companies don't have a competitive line-up of passenger cars -- but Toyota does, and that's why it has outsold Chevy and Ford in total vehicles in two separate months this year.
Toyota has been the number-one selling passenger car in the United States for some time, but the domestics always retained an overall lead on the strength of their truck and SUV sales. But twice now in 2007, Toyota has been the number-one selling nameplate, and it's the first time since 1906 that the number-one selling brand in the United States isn't either Ford or Chevrolet.
For U.S. car companies to become profitable again, they're going to have to build cars and trucks that people want, get costs under control, build flexibility into the plants, and deal constructively with the unions.
GMJ: How are auto manufacturers responding to calls for more concern about global warming? They seem more defensive than proactive in a lot of ways.
Bergsteinsson: It's going to be very interesting, [given] the heightened awareness of global warming and the role the automobile is playing in that. It seems like Congress is very anxious to take action. Global warming is a concern for everyone to address, and the auto industry has to do its part.
But in the United States, I think the industry is nervous that there may be a knee-jerk reaction on the part of politicians to address the problem without a careful and studied review of the science and what actions are really in the best interest of Americans. I think the industry should be challenged to improve fuel economy, but how that's done and what targets are set and what other steps are taken from a regulatory perspective could have a profound impact on the industry.
GMJ: Ford, GM, and Chrysler are asking Congress to lighten up on fuel economy standards.
Bergsteinsson: I don't think the industry is against addressing the concerns over fuel economy. With gas prices now above $3 a gallon in the United States, there are market-based forces at work that are demanding better fuel economy. It's caught domestic manufacturers particularly in a tough situation: Because they rely so heavily on trucks and large SUVs, they don't have the breadth of products in their mix to address shifting consumer preferences. (See "Why Gas Prices Are Soaring" in the "See Also" area on this page.)
As I've mentioned, it takes literally billions of dollars and several years to design and bring a product to market. [Manufacturers] try to lock in the concept of the new product as late as they can before they start building it because they realize the market can be fickle, and consumer tastes and desires can change fairly dramatically. So it puts big pressure on the car industry because it takes an extended period of time and billions of dollars to develop a new product. Then, by the time they bring it to market, consumer preferences may have changed.
So yes, America needs to address fuel efficiency. But I think it has to be cautious to do it in a way that's not significantly detrimental to either consumers or the industry. Frankly, it's disappointing that there is little discussion on a carbon tax, which is probably the best method to spur conservation and address global warming.
GMJ: What's your view of customer satisfaction ratings?
Bergsteinsson: In the United States, the car industry is mature and highly competitive. It's a great time to buy a car. The choices that are available to consumers are broad, the quality is much improved, and every car manufacturer cares about satisfying customers. They work on it, they address it, they say they care about it. But their ability to deliver what the customer wants is not always seamless.
A customer's relationship with a brand is represented primarily by two things: the vehicle itself and the dealer experience. They're both tremendously important. Automobiles are unique in that they are a major purchase; they're the second biggest purchase that people make, other than their homes. But it's a purchase that not only has a high initial cost but also significant operating, maintenance, and depreciation costs. So it's unlike many other products that consumers buy, take home, use them over their effective life, then discard. A car is much more complex than that.
Dealers and manufacturers care about customer satisfaction, but I doubt they're doing everything they need to do to address it effectively. Furthermore, they're doing it against a backdrop of increasing consumer demands. When my father bought a car back in the 1950s, his expectation was that it was a new car, and several things would go wrong with it. I can remember the dealer telling him to make a list of everything that was wrong with the car, and then, when he brought it in for that thousand-mile service, the dealer would take care of everything at once. The exception was for a serious problem. Then, he should bring it in -- or tow it in -- right away.
That's not at all palatable to a customer today. They think of automobiles as appliances that they should drive away and not have any trouble with at all.
GMJ: Do you agree?
Bergsteinsson: Absolutely -- because you can never disagree with a customer. Whatever the customer wants, it's up to the industry to figure out how to deliver. Any time you start to say that your customers are being unreasonable, a red flag better pop up. You're in trouble if your customers are unreasonable, because customers are customers, and it's their right to demand whatever they want. I don't think it's unrealistic to expect a trouble-free car.
GMJ: But that's the least of customers' expectations.
Bergsteinsson: Yes, that's just the ticket of entry.
GMJ: So all cars are equally reliable, and all cars are equally easy to buy -- just look up the wholesale price, add in a percentage for the dealer, and drive away. How does that leave room to create customer satisfaction?
Bergsteinsson: Well, I would characterize the car industry as having higher degrees of satisfaction than loyalty or engagement, which is an interesting dichotomy. Customers may be reasonably satisfied with their purchase and their ownership experience of a car, but that doesn't mean that they won't be enticed or seduced away by somebody else's new car. (See "Why Satisfaction Isn't Satisfying" in the "See Also" area on this page.)
It's gotten to the point that having satisfied customers is not good enough. If the real end game is gaining and maintaining customer loyalty -- to ensure that customers come back to your brand or dealership for subsequent purchases and speak highly of you -- it's not good enough to have satisfied customers. You've got to have delighted customers. You've got to have engaged customers.
GMJ: How do dealers and manufacturers measure delight?
Bergsteinsson: That's a problem. Every manufacturer measures customer satisfaction. In fact, if you buy a new car or truck, you'll find that you're inundated with surveys from the manufacturer and others. Everybody's measuring satisfaction. But are they measuring the right things, and does the data enable them to take action to address whatever deficiencies may exist?
Most of the manufacturers conduct transactional surveys. In other words, they survey somebody when they buy a car, or they survey somebody when they have a service experience. And that can help diagnose if something is wrong. But it doesn't get at the deeper, ultimately more important issue of whether customers are engaged with the brand promise in a way that will ensure their ongoing loyalty. And I think the dealer is tremendously important in delivering on that promise.
GMJ: How can the dealer engage a customer?
Bergsteinsson: By absolutely respecting a customer -- by respecting the customer's time, anticipating the customer's needs, exceeding the customer's demands on a regular basis, and delighting the customer in terms of the relationship.
In the late 1990s, I was the general manager of the Lexus division -- a brand that's highly regarded for its customer satisfaction -- in the United States. I spent my time traveling, and I was continually conducting an impromptu survey of luxury car owners. Fortunately, Lexus is the leading luxury brand in the United States, so there are a fair number of those owners. I would ask people why they bought their cars, Lexus or otherwise, what they liked or didn't like about them, and so on.
I observed that with the most fervently loyal Lexus customers, it was rarely about the product, though Lexus products are outstanding; they are some of the best luxury cars in the world. Their real delight -- the real source of their positive attitude toward the brand -- was generated by the dealer and the people in the dealership. The reality is, if you have a wonderful car but only a mediocre ownership experience through the dealer, customers are much more likely to be enticed away by somebody else's new car.
GMJ: What was it you wanted your Lexus dealers to do to engage customers? And was that any different from what a non-luxury dealer should do?
Bergsteinsson: There are significant differences between luxury dealers and non-luxury dealers. I think that across the board, dealers are finding that they can't take their customers for granted; they've got to continue to raise the bar on the experience they deliver. That means having the right facilities and the right location with the right staffing and training, and so on.
But the demands are much greater for luxury dealers. Before Lexus was launched in 1989, the staff at Lexus developed what's called the Lexus covenant, which summarized what Lexus was about. One of the items of that covenant is that "Lexus will treat each customer as we would a guest in our home." That's something that every retail associate in a Lexus dealer could relate to, and I think that's reflected in the performance of Lexus dealers to this day.
GMJ: How much do car buyers think about the dealer experience?
Bergsteinsson: I think customers tend to pay more attention to data about the car, such as its fuel economy rating, whether it has a five-star crash rating, the resale value of that particular brand of car, and so on, than they do about ratings on the dealership experience. And I think that's because the data on the dealerships is much less persuasive. It isn't necessarily meaningful for customers when they're thinking about buying a car. They tend to do more research about a car's performance than about how an individual dealer or brand may perform on customer handling measurements.
GMJ: So customers don't really trust customer satisfaction ratings?
Bergsteinsson: Buyers care about satisfaction ratings, but they aren't as meaningful as many in the industry would like to think. When buyers are going to the dealership, they're thinking about buying a car. At the end of the day, though, they aren't just buying a car; they're also buying a relationship with the dealer. And as I mentioned before, basically all cars are good these days.
So the relationship with the dealer has to outlast the car. And it will if the relationship goes beyond satisfaction to emotional engagement.
Next month, in the second part of this interview, Bergsteinsson will discuss the particulars of automotive customer engagement, how luxury car engineering has changed the automotive industry, how the Toyota Way has contributed to the company's long-term success, and why other companies have failed at attempts to graft the Toyota approach on their culture.
-- Interviewed by Jennifer Robison