Warning light on for the rapid growth of Imports?

There seems to be a sign of slowdown for the rapid growth of Imports. Consumers had evaluated vehicle
product quality and service of Imports a way better than domestic cars, and such evaluation had driven the
explosive growth of Imports. But this year’s study results display not-so-little changes. That includes
narrowed gaps and even a reversal in some cases. That’s not because domestic cars had done well but
Imports had not done well. Imports are losing competitiveness by going back in several areas. Especially,
catching up Imports in Initial Quality and Customer Service Satisfaction, which are most importantly
considered by automakers, was noticeable. Degradation of Imports’ competitiveness, which was once
dominant, can be detected and it can be led to slowdown or stagnation of growth.

Automobile specialized research firm, Marketing Insight(www.consumerinsight.co.kr, CEO: Kim, Jin-Kook), has
been carrying out a mega size syndicated research in every July for 12 years since 2002 on ‘Automobile
Experienced Quality & Customer Satisfaction’ (101,701 samples in 2013). This study is composed of
Experienced Quality part that counts the number of problems on product and service experienced by
consumers, and Customer Satisfaction part that subjectively evaluates the experienced feeling while using
product and service. Measuring Experienced Quality and evaluating Customer Satisfaction are the main
contents.

In more detail, ‘Experienced Quality’ is composed of 3 parts, the number of Initial Quality Problems
experienced during the early period of vehicle purchase (hereafter ‘Initial Quality’), the number of Durable
Quality problems experienced after 3 years (hereafter ‘Durable Quality’) and the number of experience
stress from vehicle and service (hereafter ‘Quality Stress’).

‘Customer Satisfaction’ is also composed of 3 parts, ‘Sales Service Satisfaction’ that evaluates customer
care during vehicle purchase process and after purchase, ‘Product Satisfaction’ that evaluates performance,
feature and design of new car while using, and ‘Customer Service Satisfaction’ that evaluates process-
result-cost of vehicle maintenance and repair service.

The results of 2012 and 2013 studies for 6 areas in 2 divisions are presented in [Figure 1] Experienced
Quality and [Figure 2] Customer Satisfaction, while [Tab. 1] presents the 1st place domestic and Import
brands in each area along with their scores.

Vehicle Experienced Quality is divided into a part for product and a part for overall product and service
[Figure 1].

Product Quality counts the number of experienced incidents for trouble, defect and problem while using
vehicle, and the result is presented in average ‘incident’ per vehicle. Therefore, the lower the number, the
better the score. The number of problems for the vehicle with 3 months of use on average is used for Initial
Quality (purchased after Jan. 2013), while the number of problems for the vehicle with 3 years of use on
average is used for Durable Quality (purchased in 2010). There was a partial change in this year’s study on
the measurement of Initial and Durable Quality. On top of defect·flaw, Design Failure that causes
inconvenience in use was dealt with in more detail.

Experienced Quality for overall product and service counts the number of stressful experiences (Anxiety ,
Discomfort, Loss, Anger) while using vehicle, which is called Quality Stress.

Initial quality (4,109 respondents);); The number of problems for 2013 Initial Quality, in other words, the
average trouble, defect and problem experienced by consumers who purchased new car within 6 months
(average 3 months use) was 1.62 incidents for domestic cars and 1.72 incidents for Imports [Figure 1].

Since measuring Initial Quality in 2002, it is the first time for domestic cars recording less number of problems
on average than Imports. Especially, this year was a grand turnaround when considering past 5 years’
records (after 2008) of 1st place domestic makers not reaching the Imports average.

It happened not because domestic cars had improved but Imports had poor performance. Domestic cars
actually had no change from last year’s 1.61 incidents to this year’s 1.62 incidents. But Imports had
increased by 0.33 incident on average from past year’s 1.39 incidents to this year’s 1.72 incidents. The poor
performance of Imports seems to be caused by several factors affecting in complex way such as Customer
service problem, increase of mid-to-low price models, fallen image of once powerful Japanese cars, etc.

Among domestic brands, Hyundai claimed the 1st place for 2 years in a row with 1.43 incidents. In the
comparison of 5 domestic brands and 4 Import brands, BMW took the 1st place with 1.22 incidents.

Durable Quality (7,442 respondents); In the average of Durable Quality which counts the number of
problems on the vehicle with average 3 years of use after new car purchase (purchased in 2010), Imports
(2.93 incidents) surpassed domestic cars (4.05 incidents) with a large margin. For past 4 years (after 2009),
the average number of problems of Imports in Durable Quality had been lower than Domestic average and,
of course, the 1st place brand, continuing the lead in this year also.

Among the 6 key quality areas, Durable Quality was the only area, in which Domestic cars had an eye-
catching improvement, decreasing by 0.30 incident from 4.35 incidents in last year to 4.05 incidents in this
year. But Imports made even larger improvement (from 3.41 incidents to 2.93 incidents), enlarging the gap in
quality.

Among domestic makers, Hyundai returned to the top after 3 years with 3.72 incidents. In the comparison of
5 domestic brands and 3 Imported brands with over 60 cases, BMW took the 1st place with an outstanding
record of 2.59 incidents.

Initial Quality and Durable Quality, which are measured with same scale but different in comparison period,
are well known for high correlation to each other. Hyundai among Domestic cars and BMW among Imports
displayed competitiveness in both ‘Initial Quality’ and ‘Durable Quality’.

Quality Stress (7,811 respondents); Quality Stress counts ‘the number of stressful experiences
experienced by the consumers who purchased new car within a year (average 6 months)’. It designates the
number of incidents for stressful experience of consumers in 4 categories of ‘Discomfort’, ‘Anxiety’, ‘Loss’
and ‘Anger’. As Product Quality is measured with the numbers of experienced trouble, defect and problem,
Quality Stress can be Customer Satisfaction that measures the number of dissatisfied experiences. This one
also has lower number meaning higher satisfaction.

In the number of stress incidents experienced from quality problem, Domestic cars had 3.21 incidents, while
Imports had less at 2.97 incidents. When compared with last year, Domestic and Imports both had increases
by 0.2 incident without a big change.

Among Domestic cars, GM Korea took the 1st place for 2 years in a row with 3.09 incidents in the brand with
least Quality Stress. In the comparison including 5 Import brands, Toyota was most excellent with 2.19
incidents.

Quality Stress can be called as Overall Customer Satisfaction because it has high correlation with both
Product Quality and Service Quality Satisfactions.

Customer’s Satisfaction evaluation is composed of 3 parts. They are ‘Sales Service Satisfaction’ that deals
with satisfaction for customer care during purchase process and after purchase, ‘Product Satisfaction’ that
evaluates performance, feature and design of purchased product and ‘Customer Service Satisfaction’ that
counts how satisfied with customer service such as vehicle maintenance and repair, etc.

All 3 parts are calculated on 1,000 points scale, while Sales Service and Product Satisfaction target the
consumers who had customer service within a year from purchase (purchased after July 2012), whereas
Customer Service Satisfaction targets all the customers who had been serviced within a year.

-Sales service satisfaction (7,538 respondents); In the evaluation for Sales Service (sales outlet,
salesperson, delivery process) experienced by consumers while purchasing vehicle (was called Sales
satisfaction before), Domestic cars scored 782 points (1,000 points scale) and Imports scored 794 points,
surpassing Domestic but that was at similar level from past year (781 points and 790 points, respectively).

Imports had been a way ahead of Domestic cars until 2010 with a large gap of around 40 points but from
2011, the gap had been narrowed to a close gap at around 10 points. Unlike other areas, the cause can be
found from improved evaluation on Domestic cars in this area rather than receding of Imports. It displays the
achievement of domestic cars in efforts of responding to the rapid growth of Imports.

Among Domestic cars, Renault Samsung took the 1st place with 811 points, defending the top for 12 years in
a row. It is the only case of a specific automaker monopolizing the 1st place since the launching of this
syndicated study. In the comparison of 10 brands including 5 Imported brands with over 60 cases,
Mercedes-Benz took the 1st place with 830 points.

-Product Satisfaction (7,811 respondents); Product Satisfaction is an evaluation on performance,
feature and design of vehicle by the consumers who purchase within a year. Previously, it was called
‘Product Attractiveness’ but that had a distance with evaluation after actual use because of strong
impression of product value prior to purchase. Product Satisfaction or Experienced Value suit more with the
reality.

The most inferior area of Domestic cars against Imports is Product Satisfaction. Generally, Product
Satisfaction tends to be high in high-price premium product. This year also had a not-so-little gap (38
points) between Imports at 624 points (1,000 points scale) and Domestic cars at 586 points, but that is
natural when considering the price difference of models. This gap has been narrowed from last year
(Imports at 655 points, Domestic at 590 points, 65 points gap) and the cause was largely lowered score of
Imports (655 points->624 points).

Among Domestic cars, Renault Samsung took the 1st place with 601 points, regaining the top lost in 2012.
Renault Samsung had many difficulties in sales but the vehicle purchased consumers were satisfied with
their new car. In the comparison of 10 brands including 5 Imported brands with over 60 cases, Mercedes-
Benz took the 1st place with 640 points.

When diverse mid-to-low price Imports are brought in, Product Satisfaction should be on down curve.
Product Satisfaction is a measured value with reflection of value for price in large portion. Commonly in
domestic and Imports, equipping competitiveness in same price range is important.

-Customer service satisfaction (44,294 respondents); In Customer Service Satisfaction (1,000
points scale) evaluated by the consumers who had maintenance and repair services from the makers within
a year, Domestic cars (789 points) surpassed Imports (772 points).

Domestic cars surpassed Imports for the first time last year (Domestic at 790 points, Imported at 781 points,
9 points gap), and widened the gap in this year (17 points gap). Imports had been ahead of domestic cars
until 2011 by maintaining 800 points range but had been embarrassment for 2 consecutive years in behind of
Domestic cars. Just like in Initial Quality that turned around successfully in this year, stagnation of domestic
cars and depression of Imports made a reversal. The growing worries on Imports’ Customer service seem to
be realized.

Among Domestic cars, GM Korea claimed the top for 2 years in a row with 819 points. In the combined
comparison including 12 Import brands with over 60 cases, Honda took the 1st place with 821 points. It was
a return to the top after 4 years in fierce competition with Toyota and Lexus. When counting Company owned
service stations only, GM Korea beat Honda with a close score at 823 points.

Currently, in all 6 areas of Quality and Customer Satisfaction, 1st place of Domestic cars are behind of the
1st place of Imports. If 1st place of Domestic cars make a new record by beating the 1st place of Imports, it
has a high possibility of happening in Customer Service.

When summarizing the major results of 2013 Automobile Quality & Customer Satisfaction Study, ‘The
competitiveness of once powerful Imports has been retreating from 2012. It is still ahead of Domestic cars
in most areas, but the gaps have been narrowed from the previous year.

Narrowing gaps had been caused by draw-back of Imports rather than improvement of Domestic cars.
Imports had lower scores than last year in most areas including Initial Quality, Product Satisfaction,
Customer Service Satisfaction and Quality Stress. Poor performance in these areas can be directly linked to
slow sales. It is necessary to review the effectiveness of sales and marketing focused strategy in the future.

Regaining of Domestic cars’ competitiveness was caused mainly by poor performance of Imports. Durable
Quality was the only actual achievement, while Quality Stress has been largely increased. Domestic makers
claimed to respond actively to the rapid growth of Imports but had no big achievement in gaining consumers’
hearts in reality.

Currently, in all 6 areas, Imports tops are a way ahead of Domestic tops. The only country that firmly defends
domestic market among the major advanced auto-manufacturing countries in the world is Japan and their
weapon is ‘Quality and Customer Satisfaction’. Unless domestic brands are firmly recognized by consumers
for ‘Quality and Customer satisfaction’, defending the market would be getting more and more difficult.