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By David Kiley / USA TODAY

DETROIT — Ford Motor's Mercury is the most under-appreciated brand for quality, while Ford's Land Rover is the most over-appreciated, according to a report by Wall Street firm Morgan Stanley.

The firm used J.D. Power and Associates' 2003 Vehicle Dependability Study, which tracks reliability over three years, and CNW Market Research's Perceived Quality Survey to figure out which brands have the most opportunity to change customers' minds.

Top executives at U.S. automakers say they are spending money and time convincing buyers that their quality improvements are real, despite perceptions.

The stakes are huge, says Morgan Stanley's senior auto analyst, Steve Girsky, because much of Detroit's spending on incentives is to make up for the automakers' poor quality images.

"Perceived quality may be a bigger driver of sales than actual quality, and Detroit has reputations to mend," he says.

Morgan Stanley compared the brands' scores in the Power measured quality study against the CNW scores for perceived quality to determine a percentage gap between the two.

Four of the top five under-appreciated brands — those whose actual quality is better than perceived — are from Detroit. But surprisingly, eight Japanese brands also are on the under-appreciated list, including quality leader Lexus.

Europeans crowded the list of over-appreciated brands — those whose perceived quality is better than actual. That included Volkswagen, whose well-crafted interiors and engines have attracted consumers despite several years of falling quality scores and difficulties in getting timely repairs.

VW Chairman Bernd Pischetsrieder says he prefers to be where he is — on the over-appreciated list. "I'd rather have an actual quality problem than a perceptual one, because we can fix the actual problem faster than the perceptual one."

Detroit automakers agree. "It will likely take two cycles of products to make headway, but we have to keep at it in our communications," says General Motors product boss Bob Lutz.

Says Chrysler Group CEO Dieter Zetsche, "We can get people's attention right away with better designs and better craftsmanship, but quality reputation takes about three times as long to get back as it takes to lose."

The biggest gainers in perceived quality between 1997 and 2003 were South Korea's Hyundai and Kia. And they both raised their market share — Hyundai went from 0.7% to 2.4% and Kia from 0.4% to 1.4%, according to Autodata. Each share point is worth about $1 billion per year in gross profit.

Meanwhile, the big losers in perceived quality were Mercury and Jeep, and both lost market share. Jeep went from 3.1% to 2.6%, while Mercury fell from 2.9% to 1.2%.

Kia's U.S. chief, Peter Butterfield, thinks his brand's perception actually lags the reality of its recent quality gains, even if it is ranked as over-appreciated.

Kia ranked dead last in Power's dependability study last year, although it improved in Power's Initial Quality Survey, measuring problems in the first three months of ownership, by 21%. Butterfield says he aims to be in the top 10 in the Initial Quality Study in three years.

While the under-appreciated brands have the opportunity to gain market share as perceptions improve, the over-appreciated brands face a potential minefield, Girsky says.

"Their market share and profitability could be at risk if consumers come to recognize the differentials."

Some car brands have better quality than buyers think. But for some brands, buyers think the quality is better than it is. Brands whose actual quality meets or exceeds perceived quality by percentage:

Mercury 42.3%
Infiniti 34.1%
Buick 29.7%
Lincoln 25.3%
Chrysler 20.8%
Lexus 17.4%
Porsche 14.2%
Oldsmobile 13.6%
Saab 12.2%
Acura 10.5%
Subaru 9.4%
Toyota 8.7%
Cadillac 8.3%
Nissan 5.2%
Jeep 3.5%
Suzuki 3.2%
Honda 1.2%
Ford 0%

Brands whose perceived quality exceeds actual quality by percentage:
Land Rover 75.3%
Kia 66.6%
Volkswagen 58.3%
Volvo 36.0%
Mercedes 34.2%
Mitsubishi 34.1%
Hyundai 27.4%
Audi 26.4%
BMW 12.4%
Isuzu 8.5%
Dodge 7.4%
Saturn 7.3%
Pontiac 3.0%
Jaguar 3.0%
Chevrolet 1.8%
Mazda 1.2%
Source: Morgan Stanley
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