For two decades, US automakers have struggled to close a vast quality gap with their rivals. To be sure, Detroit has improved considerably: US auto defect rates fell by nearly 80 percent from 1980 to 2001, according to the 2001 Consumer Reports auto survey. But the Big Three still lag behind some foreign competitors, primarily the Japanese, by most quality measures.

This lingering gap prefigures a continuing slide in market share, but now another dimension may be of greater concern to the Big Three: over the past few years, consumers have changed their ideas about what defines quality—a shift that is making the uphill climb for US automakers even more steep. Though buying decisions once emphasized quality defined as minimizing the number of defects in a car, consumers are now focusing more on maximizing the appeal of a handful of core product attributes—for example, whether the car is fun to drive, well designed, or stylish.¹ This shift is due in part to Detroit’s very success in bringing the product defect rates of new cars to levels so low that a defect-free vehicle is now largely taken for granted. As a result, quality today is not only about getting fewer things wrong, as in the past, but also about getting more things right: in particular, better performance, greater comfort, tangible amenities, and a sense of aesthetics.

The stakes in the new quality battle are enormous, and Detroit is already at a disadvantage. Since 1996, when most US and some Asian and European automakers started offering sales incentives in the form of discounts and rebates, US companies in 2002 have increased their incentives to a staggering 14 percent of sale prices—twice as high as those offered by foreign competitors, on average. Even so, the US market share of the Big Three has slipped over this period, by a combined 1.5 percent a year (exhibit).

How does a lack of product appeal translate into such losses? For one thing, the need to slather on increasingly large incentives to offset the lower resale value of US cars reflects perceived problems with their long-term quality and durability. Consider the story of the Toyota Corolla and the Geo Prizm, which, save for their nameplates, were virtually identical, made on the same assembly line in the California plant of a GM-Toyota joint venture. Because the Prizm sells in the used-car market for 15 to 20 percent less than the Corolla,² the Geo Division of General Motors routinely offered purchase incentives of $1,000 a car, four times more than Toyota’s givebacks.³ Our own research shows that appealing design can generate brand premiums of 5 percent or more—sometimes much more. Assuming, conservatively, that Detroit’s vehicles (at an average price of, say, $22,000) sell at a 5 percent discount as a result of their lower appeal, the annual cost to the Big Three (and their dealers) comes to more than $10 billion, admittedly a sum to be shared between car companies and their dealers.

US carmakers recognize this evolving definition of quality and are changing their product-development processes to meet the new needs of their customers. But Detroit’s track record isn’t reassuring. In the case of one popular US passenger car, for instance, the manufacturer chose to cut costs by removing some sound insulation—saving about $50 a car. While the change had no impact on its safety or durability, interior noise levels rose, so it lost an attribute that is increasingly important to many customers: quietness. Customers noticed and sales fell, only to rise again when the manufacturer restored the insulation.

Measuring a bundle of these qualitative "appeal" attributes is certainly more difficult than measuring defects per thousand during the manufacturing process. What makes customers happy about such intangibles as styling or noise levels is inherently subjective. Nonetheless, the highest priority of US automakers should be making the transition from managing the quality of their products to managing the quality of attributes, because customers are clearly demanding that they do so. The transition requires them to take three steps.

The first is to define the two or three attributes that matter most to consumers and then to guide the product-development process in that direction by reverse-engineering customer satisfaction ratings. Since J. D. Power knows that car buyers want engines that perform well, for instance, it ranks them by looking at a handful of subattributes related to engine performance, such as total power levels, ease of starting, and the level of noise. A car’s performance in any of these subattributes can then be broken down into more specific engineering metrics, such as the number of seconds that pass from the moment the ignition key is turned until the engine starts—and even the angle of the key when it starts the car (some angles are easier for drivers than others). These metrics can be used to guide product design. Typically, US companies don’t follow this approach; they try, perhaps understandably, to make cars that perform reasonably well in 10 to 15 categories, not cars that perform distinctively in those few that make the most difference to customers.

US automakers could design cars for quality from the outset by starting with a clear sense of their performance as defined by a small set of important attri-butes. Nokia, which has used this approach to design mobile telephones, provides a model. Nokia handsets embody two attributes—ergonomics and distinctive styling—that are primary drivers of customer satisfaction. Even if a competing product should be smaller, lighter, and better engineered, Nokia’s focus on attributes is largely responsible for making it the most popular brand of handsets.

The second step is to make the same transition from products to attributes in testing. The Big Three, again understandably, continue to concentrate their testing efforts on the defect rates of product components. Unfortunately, this focus doesn’t increase the likelihood of producing a more appealing car: fewer wrongs don’t make a right. Tests should rate not only components but also the performance of the entire car as measured by the desired attributes, such as quietness. Japanese automakers are particularly effective at testing for the attributes that excite their target customers. The Honda Civic, for example, is tested extensively for three key attributes: fuel efficiency, initial product quality, and durability. The resulting vehicle is more than a collection of defect-free subsystems; it is a car that performs well in the areas that customers have come to expect from a Honda.

Finally, US automakers must develop cross-functional support systems for this new approach to quality, both within the company and beyond. To do so, they will have to increase coordination among the marketing team (which defines the important attributes), product development (which must design a car that satisfies the customer’s requirements), purchasing (which can provide realistic cost-benefit trade-offs when cars are developed), manufacturing (which actually makes the cars), and external suppliers (which are increasingly responsible for delivering preassembled subsystems, not merely raw materials or parts).

But the organizational structure of every US automaker continues to be remarkably compartmentalized; functions struggle with each other, primarily because of misaligned incentives. These companies tend, for example, to judge the success of marketing by total unit sales, of purchasing by costs per vehicle, and of manufacturing by production hours per vehicle. If marketing identifies a new technology that might increase sales but will also cost more and slow down production, purchasing and manufacturing could well fight its adoption. Close internal coordination for attribute management, particularly between marketing and purchasing, has been a major reason for the steady progress of Japanese and European auto manufacturers in the United States.

The management of appealing attributes is no panacea for the broader product-development problems of the Big Three. A great car can never be designed through market research alone, but a focus on attributes can help Detroit see quality through the eyes of its customers and focus more clearly on what is important to them. Combining traditional design innovation with attention to desired attributes is the path to automotive excellence; a focus solely on avoiding defective products is not. For US auto manufacturers, the dynamic of quality has involved a Sisyphean struggle. After making great strides to reduce the number of defects in their cars, they must redouble their efforts to hold their ground in the new auto quality landscape.