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Belief in brands, but wallets are closing

While the nation's consumers gave record-high marks last quarter to the goods and services they buy, according to data released Tuesday by the American Customer Satisfaction Index, that didn't necessarily inspire them to open their wallets and spend.

While the nation's consumers gave record-high marks last quarter to the goods and services they buy, according to data released Tuesday by the American Customer Satisfaction Index, that didn't necessarily inspire them to open their wallets and spend.

The results, while not likely a signal of a long-term spending slowdown, comes with a few sobering messages to U.S. manufacturers, especially automakers.  The index, compiled by the University of Michigan's business school, remained at 74.4 and equaled levels of a decade earlier.

But consumer spending grew just one percent in the second quarter, the survey's authors noted, driven by high prices, a weak labor market and rising interest rates, among other things.

"There are two things that are necessary for spending. One is willingness to spend, which is really about the satisfaction, and the other is the ability to spend, which is being able to pay for it," said University of Michigan professor Claes Fornell, who runs the index. "Credit has not been a problem in the past, but we are a heavily debt-ridden nation. We may have reached a point where households are saying, 'Wait a minute, maybe we've gone too far.'"

The short-term dip in spending isn't likely to last, Fornell said, but it is an indicator that companies may be forced to adopt more competitive pricing.

At the same time, some sectors of the economy have seen drops in satisfaction, which the index measures on a 100-point scale. Consumer electronics dropped 2.4 percent, while automobiles — one of the most stable categories — dropped 1.3 percent from last year.

Cadillac's image challengeWhile Ford's Lincoln and Mercury brands shot up over 6 percent and Honda rose nearly 4 percent, several major U.S. auto brands saw notable drops. Dodge was down 3.8 percent from 2003, and Cadillac was down 4.6 percent. While vehicles from U.S. manufacturers have improved in quality, they still lag all foreign models as a category in J.D. Power and Associates' 2004 initial quality survey.

While General Motors believes the index's findings don't reflect the satisfaction of some of its newest customers, GM spokesman Dan Flores acknowledged the leader among the Big Three has a public perception that's still on the mend after 20 years of largely treading water in the auto market while Japenese rivals took away market share.

"One of the challenges that GM has is there is a gap between the customer perception of our quality and the actual real-world quality of our cars and trucks," Flores said. "Our quality is much higher than many customers perceive."

As to the drop in satisfaction for the the newly retooled Cadillac line, including its popular Escalade SUV, Flores noted that in the current J.D. Power customer service survey Cadillac surpassed longtime rival Toyota luxury brand Lexus. (It came in second to Lexus in the initial quality survey.)  Sales for Cadillac trucks were up over 70 percent so far in 2004, though car sales for the line were down over 5 percent.

U.S. automakers weren't the only ones who saw weaker brand perceptions. DaimlerChrysler's Mercedes-Benz unit witnessed a 2.4 percent drop. Mercedes has expanded its product line in the past couple years, including its new C-class models, which start at just $27,000. "They are losing some of this luxury image," Fornell said. "I think that is costing them."

One of the brighter spots in the survey, produced jointly with the American Society for Quality and the CFI Group, was in personal computers. Apple Computer's satisfaction index jumped 5.2 percent from last year and Gateway's leapt 7.2 percent.  With a satisfaction rating of 81, Apple now has the highest score yet received by a PC maker.

The iPod rallyThe jump appears to have come as Apple witnessed spectacular success from its iPod portable music player, which has not only been successful on its own, despite growing feedback from users who find the $300 device breaks too easily, but has helped boost popularity of its iMac and the rest of its Mac line.  Apple had $5.9 billion in net sales through June of this year, up over 30 percent from 2003. Informa Media of London projects some 4 million iPods in use worldwide by the end of 2004.

In the online world, customers grew slightly more satisfied with portal sites, though the category, with an index of 71, lags overall satisfaction.  Yahoo and MSN, respectively scoring 78 and 75, beat the category, while AOL continued to lag, with a 67 — though the Time Warner property marked a 3.1 percent gain from 2003. (MSNBC content is distributed by MSN. MSNBC itself is a Microsoft-NBC joint venture.)

Search engine Google scored the best of any online property last quarter with an 82, though it trails online retailer Amazon, which scored an 88 last year, one of the two highest scores by any company. (The other was by food manufacturer Heinz.)

"They've obviously turned Google into a verb, which is pretty incredible," said Larry Freed, president and CEO of ForeSee Results, which sponsors the index's ratings of online properties.

But Google faces a big challenge in growing customer satisfaction, Freed added, since its initial public offering last week and other recent expansions, like shopping site Froogle, indicate their growth plans will enter them into the heavily competitive portal market. As competitors like Yahoo and MSN strategize to compete head-to-head with Google, the search firm will struggle to retain customers.

"I tend to think that they've sort of peaked," said Freed.