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john paul mcduffie from the management
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department at the wharton school i'm
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here with
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jd power the third or j david power also
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known
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to his friends and everyone else as dave
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power he
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has been our special guest at a
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conference of the mac institute
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for management innovation on the theme
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of
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disruptive technologies what happens
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when they meet
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tightly integrated systems dave
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brought his own disruptive impact to the
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auto industry through
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the company he ran that bears his name
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which delivered to the public reports on
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the quality of automobiles
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publicly and with the best and the worst
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identified so i'm here to talk to dave
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about his
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career based on a new book that has been
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published
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about him so dave welcome to wharton
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thank you
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john paul so
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the career that you've had started with
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a number of experiences
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uh after you graduated from wharton i
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forgot to mention your wharton grad
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yes and then you started your own firm
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so it's it's a it's almost a modern
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uh career path when i think about what
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my students say they say
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i want to work for a while and then i
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want to start my own business so
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tell us some of the things that really
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brought you to that decision you
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graduated from wharton and you decided
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to go to the auto industry why was that
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because 14
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of all uh jobs in the united states in
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the 50s
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were due to the automobile industry and
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i thought
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that gave me plenty of chance to
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make of a name for myself in that
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industry now you you went to ford but uh
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they they they didn't put you in the
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automotive division right off
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tell us about that i was a marketing
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major and they put me into finance
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so-called training program which was
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on-the-job training
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and i
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learned a hell of a lot it was uh
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just uh an industry the
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tractor industry was uh
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starting to go downhill fast because of
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the mechanization of the farms
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with bigger equipment the little
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tractors no longer
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had a place and you were doing auditing
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so you got to look at how the dealership
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system worked which
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again wasn't what you expected but uh
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probably had an impact because you ended
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up studying dealers the rest of your
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career
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yes i audited
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the dealers after a sales contest
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i arrived just after the contest was
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over
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and they suspected that they were
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getting credit
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for vehicles that tractors or
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implements that they hadn't sold yet
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and we had to go around and cross-check
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them
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that was an experience that gave me
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uh really uh hands-on uh
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reactions of people when they get caught
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sure
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the uh the next step for you was
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out of ford and into the market research
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business for a while so
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tell us tell us about what you learned
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from that experience well
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i i wanted to get out of
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finance and ford wouldn't transfer me so
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i ended up with marplan
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the market research arm of mccann
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ericsson
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and they had just won the buick and gmc
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account okay and so we started doing a
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lot of
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research for them market research
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and you learned a few things about how
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market research was done that you didn't
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necessarily like right
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right i had a situation
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where i was representing buick division
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in this
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meeting they were they had a big project
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million and a half dollars at that time
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was
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huge yeah and we
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were uh told to measure the effective
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effectiveness of the advertising of
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all of the general motors divisions so
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we had to create
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a questionnaire to do it and
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the first day we got to question 1a
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through 1b at lunch and then
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came back and it was we didn't even
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reach
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question 2. wow we had about 40 people
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in the room
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trying to agree on the way the question
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should be
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so the customer really controlled very
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tightly what data could even be
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collected
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yes and and and that data came back just
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to that customer
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yes yes it was uh uh
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if you did work for one car
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company you had to remain
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captive to that you couldn't work with
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any other car company
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the same way it was with the advertising
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company advertising
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so i uh you know i i know that that
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became a
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important principle for your business
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that you would you would be
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independent and and and not be uh be
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captive in that way
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uh you worked for mccullough company
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that made chainsaws
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uh that is a very interesting part of
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that experience which i just taught you
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about listening to the customer
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yes we've when i
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was in mar plan in los angeles
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we conducted a study for their client
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which was
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mcculloch and it was interesting because
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what i found is that they were
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still doing their forecasting based on
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the
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number of trees that were going to be
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cut down
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in the pacific northwest and
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the uh trees in the southeast uh
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the pine trees that uh were made pulp
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yeah and uh they forgot about the casual
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user that was just the family
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uh chainsaw and the
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trees trees don't buy the the home
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version of the chainsaw right
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and we opened up a whole new uh
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view of what they had to do and the
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they after i finished the study
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they asked the officials at mccain
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erickson
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if they could offer me a job as director
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of corporate planning
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and since they were the client
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they said okay and that's how i got to
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uh
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be an employee of
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mcculloch my colleague and i remember uh
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from the book that
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another thing you learned is that the
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they basically were applying the same
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standards they apply to their
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professional chainsaws to the home
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equipment so it was
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built to operate 200 hours a year and
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these folks were probably only using it
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five or six five or six hours
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yes completely over engineered you might
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have seen that a few times in the auto
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industry too
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yes so sometime around there
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some friends came to visit and you
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decided to start your own firm so tell
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us about that
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yes my classmate at wharton
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came into town from rochester new york
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with two other young fellows
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all three of them had their mbas and
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were
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going out to start a new company this is
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in 1968
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very early 68 and
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they uh said that they
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had quit their jobs and they all had
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good jobs uh general electric uh
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um oh kodak kovacs
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and xerox and i said what are you doing
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and he said we're going to measure the
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meters at homes uh
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via satellite and this is back in 68 we
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only had one or two satellites up there
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then
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and i said that's crazy and
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they said well if we don't make it
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we'll get another job and
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i thought about it and i went home and
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talked to my wife about it and she said
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you should
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start your own company so great that's
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how we did it yeah and your wife was an
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important partner in the business from
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the start
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right and uh we had child labor
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rights they'll never let me down now
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that's right it's a wonderful uh
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image from the book of as the surveys
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are being sent out to the to the
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consumers yeah your four kids are
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taping carefully taping the shiny
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quarter on each one to make
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it's that extra bit of incentive to get
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the response face up right
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yes the head had to be square i'm sure
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yeah
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and we got perhaps the first uh
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double-sided scotch tape ah which was
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important too
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yeah exactly speeded up the process it
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did yeah
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so uh you of course started with direct
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mail
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surveys you have with the auto industry
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uh this resource which not every country
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has which is
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uh this third party rl poke which which
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registers every new
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vehicle and uh you i heard you say
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something about the response rate you
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got it it something that would amaze
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most market researchers
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these days first
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few surveys that we did
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we got close to 50 percent response rate
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and it ran uh 30 to
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50 percent uh consistently
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because people wanted to talk about
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their cars yeah
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some of them sent back uh handwritten
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notes and
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copies of invoices and with circles on
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them and
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yes they were so wrapped up about that
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we collected those
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about 10 of them uh included something
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like that even photographs
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of the paint fading or
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the trunk lid leaking and so
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we would send them
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on to the manufacturer as we told them
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in our cover letter that we would do
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that
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and we lost sight of what
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the manufacturers did with them some of
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them got more than
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others had you already resolved to
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publicly disclose the data on all the
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manufacturers
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with the no not the surveys not not at
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that
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time and it was supposed to be
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confidential okay
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but uh when we did the mazda rotary
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engine survey
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we found a problem with it the first
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uh 2000 buyers and
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um the o-ring was uh
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failing at uh once it hit 30
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000 miles and the o-ring kept the
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cooling system
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from leaking out or leaking into the
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engine
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and it just uh started failing and
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they'd have to
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take the whole engine out of the car to
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replace it wow
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so yeah this was the this was the wankel
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engine which was greeted as quite
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innovation and it was also saved
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improved gas gas mileage and one of the
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car companies that subscribed to it
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the survey results
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released it to the wall street journal
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ah not you
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no but a competitor basically we had to
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uh they called me first and we
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um said how did you get a hold of it
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and the editor said we have our sources
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and it was from detroit so i knew it was
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one of the big three
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they uh really said they were going to
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do an
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article and i said well
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i'd like you to have the benefit of my
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balanced press release on this
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and he said okay get it to us right away
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at the at the moment there was no such
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press release right but you set out to
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write it immediately
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i sat sat down and immediately wrote it
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on a pad
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and we had to find a way of getting
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it right to detroit yeah and we
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ended up finding somebody with a telex
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machine
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in the gals center and we were on
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the front page sure the following day
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and uh that's when you learn the the
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power of the press
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essentially to sort of amplify
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your data and and get the message across
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it went viral and we were in uh just
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about every newspaper
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radio and tv station yeah
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uh for a week yep
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so looking
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at the present day and at the future a
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bit
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uh let me ask you two questions one is
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about
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new technologies so uh
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often executives and engineers in the
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auto companies say
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you know if we're slow with new
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technologies the customers complain
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because they want the new functionality
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but if we put it in
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and it doesn't work perfectly the first
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time or doesn't work perfectly every
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time or we have trouble learning it
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then then they're really grumpy about it
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and
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ford is uh in the news these days for
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uh quality complaints about sync and
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myford touch
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mercedes had the issue with the s-class
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it's
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it's a repeated story and it would show
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up in your surveys of course so
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what's what's your what are your
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thoughts on the the challenges
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from both the automaker and the consumer
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side of
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bringing this new technology in i think
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there's about um
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five or ten percent buyers
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want that advanced information
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okay the 90 that don't
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are the ones who complain so do you
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think the automakers are too responsive
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to those lead
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lead users yes uh-huh
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so okay so they get out ahead of
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themselves
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i guess another issue is that each
00:15:08
company really does their own thing
00:15:10
right so there's there's
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there's virtually no standards for these
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things as we see in
00:15:15
computers or and multiple car
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house sold right now
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very common yeah they have different
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brands
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and they have to adapt to
00:15:29
the electronics in the particular car
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they're driving and who wants to learn
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who wants to learn three different
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systems
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yes yeah no it's a it's an industry
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that's always been resistant to
00:15:41
standardizing at the industry level they
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wanna control it handheld
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that they use all the time when they get
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in the car
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that's better than sure using what
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at least now yeah than what is in the
00:15:55
car yeah
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yeah um i know people say sometimes that
00:16:00
the
00:16:00
auto companies missed a chance to get
00:16:02
people using car phones because they
00:16:04
were slow to install them
00:16:06
but if you imagine once you got a
00:16:07
physically installed car phone and how
00:16:09
slow how fast the technology moved and
00:16:11
how
00:16:12
infrequently you replace your car you
00:16:14
can imagine how quickly that car phone
00:16:16
would have seemed very
00:16:17
very clunky yes let me ask you about the
00:16:19
future of dealers again remembering that
00:16:21
that
00:16:22
uh dealers have been an important part
00:16:24
of your business right along
00:16:26
uh you stirred some controversy uh
00:16:29
in the early 2000s with a prediction
00:16:31
that uh
00:16:32
you know the traditional dealership
00:16:34
might its days might be numbered there
00:16:36
was a threat from uh more of a big box
00:16:39
model
00:16:39
or a large mega dealer model there might
00:16:42
be threats from other kinds of things
00:16:44
like direct sales through the internet
00:16:46
um tell us a little bit about uh
00:16:49
will it cause controversy and what you
00:16:51
think now
00:16:52
about a decade later caused quite a bit
00:16:55
of
00:16:56
controversy and uh
00:16:59
i think it was the
00:17:04
idea that uh well i know it was
00:17:07
because they cut out my introduction
00:17:11
part explaining why i was saying oh that
00:17:14
was going on
00:17:16
and it they didn't sound good
00:17:19
i was going uh at the end i said if they
00:17:23
uh didn't like uh
00:17:26
what i was saying they should talk to
00:17:29
walmart
00:17:30
and that set a button off uh
00:17:35
and uh the dealers were all upset
00:17:38
yeah as you look at what's changed in
00:17:41
the last 10 years do you do you still
00:17:43
predict a a threatened future for
00:17:46
the traditional auto dealer or have they
00:17:49
adapted
00:17:50
in in good ways well they're adapting
00:17:54
in one way that is good
00:17:59
i guess for the dealers is they're
00:18:01
consolidating
00:18:04
there were 50 000
00:18:08
dealers in 1950
00:18:11
okay franchise new car dealers
00:18:16
uh today there's 17 000
00:18:19
wow and so about a third and obviously
00:18:22
much higher sales
00:18:23
and autonation and uh
00:18:27
group one and other consolidators
00:18:31
uh are taking up uh several thousand
00:18:35
dealers into their fold
00:18:39
and they aren't truly dealers any longer
00:18:41
when they do that
00:18:42
sure what about the whole issue of
00:18:45
direct sales
00:18:46
uh from the manufacturer to the customer
00:18:49
through the internet that's
00:18:50
there are these state laws that mostly
00:18:52
prohibit that yes
00:18:54
do you see those going away or is the
00:18:56
dealer bobby there are
00:18:57
two i i think the lobbying is
00:19:00
very difficult for dealers today
00:19:04
what has happened is the consumer has
00:19:06
more information than the dealer
00:19:08
yeah yeah and they control the market
00:19:12
yeah and then it's going to be
00:19:14
determined by them
00:19:16
and it's going to be determined uh
00:19:19
what the manufacturers have to build to
00:19:22
remain
00:19:22
competitive it's the dealer in charge
00:19:25
this
00:19:26
change has happened over the last 10
00:19:29
years
00:19:30
and it's only going to get more
00:19:33
and they get instant information
00:19:37
it's amazing the customer yeah and they
00:19:40
don't want to
00:19:42
sit down and haggle the price or what
00:19:44
have you
00:19:45
they want it done so that they're going
00:19:47
to
00:19:48
demand change do you support the
00:19:51
efforts of tesla's ceo elon musk to uh
00:19:55
to break those laws and get uh the
00:19:58
possibility of direct sales i know he's
00:19:59
challenged the law in texas
00:20:01
and in new york state i um i believe
00:20:04
that uh
00:20:06
the laws are not reasonable
00:20:10
and uh they were developed in the 1950s
00:20:14
when
00:20:15
there were a lot of dealers and it was
00:20:18
just
00:20:18
to give the dealers
00:20:21
some say with the manufacturers
00:20:25
who were dictating everything and so
00:20:29
they got that covered
00:20:33
and now their
00:20:36
their value to the whole operation of
00:20:40
selling the vehicles
00:20:42
is uh diminished and uh
00:20:45
now they're saying they should still be
00:20:48
in force yeah and i don't think they're
00:20:51
going to
00:20:52
be able to hold up on it and so
00:20:56
we see more changes coming down
00:20:59
the route okay my last question then uh
00:21:02
another
00:21:02
uh look into the crystal ball uh at the
00:21:05
conference today we are hearing about
00:21:07
uh autonomous vehicles and uh the you
00:21:10
know the self-driving car
00:21:12
uh is is this uh a trend that you think
00:21:15
consumers will want
00:21:17
like you say maybe consumers don't
00:21:19
always want this latest functionality
00:21:21
but there's a lot of claims about
00:21:23
better safety of course as well as some
00:21:25
of the convenience
00:21:26
of not having to to give as much
00:21:28
attention to driving
00:21:29
yeah well i i think that
00:21:33
maybe for the average driver they'll
00:21:36
accept it
00:21:37
but it takes the fun out of driving and
00:21:41
that's a story for the automotive
00:21:45
enthusiast
00:21:46
yes uh but uh i think it's it's going to
00:21:50
be
00:21:50
in the our future yeah and uh
00:21:54
you'll still perhaps be able to override
00:21:56
the
00:21:57
yes i'm sure that's right you'll be able
00:21:59
to speed limit and so forth
00:22:01
one of our speakers uh got a laugh when
00:22:04
he said
00:22:04
most male drivers say that they would
00:22:07
like a system like that
00:22:08
for their wife and their kids but not
00:22:12
for them
00:22:12
so well thank you very much dave it's a
00:22:15
great
00:22:16
pleasure to have you here to have a
00:22:17
chance to talk to you and uh
00:22:19
again your book was a marvelous read
00:22:22
about a a
00:22:23
a fascinating career thank you
00:22:53
you
