Power Play

Few small companies have worldwide brand recognition like J.D. Power & Associates. The Westlake Village business is known as the go-to firm for any kind of quality, safety and consumer data related to the auto industry. Here’s what is less known: the company was in fact founded by a man named James David Power III. Born in a town outside Boston, Power has had a roller-coaster ride of a life. Before getting his MBA at Wharton, Power served in the Coast Guard on an ice-breaker, taking cruises to the Arctic and Antarctic. After graduating he went to work in the automotive industry as a financial analyst. But it was years later that he founded his firm, which at first encountered resistance from the auto industry but later gained traction by serving the growing Japanese brands that were seeking U.S. market share. In 2005, Power sold his namesake business to McGraw-Hill for a reported sum of about $400 million – a figure he says is wildly inflated. This month, his memoir, “Power: How J.D. Power III Became the Auto Industry’s Adviser, Confessor and Witness to History,” was published. Power sat down with the Business Journal at an office he keeps in Westlake Village not far from where J.D. Power & Associates was founded and talked about his life – how his first wife always decided who to hire, how a famous automotive entrepreneur still owes him money and how he helped change the car industry. Question: So there is a J.D. Power! Do you ever get that when you sign your name? Answer: People don’t believe it. They say “I didn’t know there was someone with that name.” What is it like to have a name that has become a worldwide brand? Amazing and beyond what I ever expected. But on the other hand, I know a lot of hard work went into it and it was not by accident thanks to our associates, my family and our clients. For that I am incredibly grateful. Do you think the ratings you employed improved the auto industry? Absolutely. The ratings we did across the board improved the industry. Why did you write the book? Well, after I sold the company and left, we started packing things up. I had more than 35 boxes of files that started in 1968. I didn’t want to throw them out. So that was the whole history of my involvement and started the book thing. And I did it because you can’t keep the files forever. You call yourself the auto industry’s adviser, confessor and eyewitness. Why confessor? What does that mean? Well, those aren’t my words. It’s the editor. That bothered me a little bit, being brought up a Catholic. I thought of having to go to confession. But I think the confessor is that I was able to talk about things that weren’t being talked about publicly before. What is the single thing you would want people to take away from it? I want people to know the world is changing and everyone has to change. With it, the consumer is in charge and is going to continue to be. I wanted to show the challenges we had over the 50 years I was in the industry. So are consumers more empowered today than ever before? Oh yes. What is happening now is that the consumer is driving the business. They are more informed and are living in a situation where even though they don’t realize it, it’s their ideas that are changing the industry. What about online rating sites such as Yelp? Do you see your company as a precursor to all that? Yes, we started the thinking in the direction that the customer is who you have to pay attention to. Not the production engineer or marketing guru. It’s the customer that counts. With the technology that’s exploding now, it’s even more important to listen to the customer. What was the main motivation for J.D. Power & Associates? I wanted to make an impact on the industry. In what way? The way that the industry was formed was all around manufacturing. It was highly structured and they did their own market research. And each company didn’t share their research with other companies. As a result, the market research that was being done was more self-serving instead of giving a good picture of reality. Can you give an example? The first study that really hit home was the (May 1973) press release on the problems with the Mazda rotary engine. That really caught hold. If you talk to some of the old-timers at Mazda, they were able to understand the value we presented very quickly after that. If they had gone on another year, they would have sold another 100,000 vehicles with problems. The Wall Street Journal put us around the world in 24 hours. That was without a doubt the first big thing. I hear J.D. Power & Associates was founded in the kitchen in 1968? Tell me more about that. It started after I had dinner with an alumni friend of mine from Wharton who had flown out from Rochester, N.Y. with two of his friends. They were quitting their jobs to start a company to read utility meters at houses. That was their objective. I got home that night after dinner with them and talked to my first wife (Julie Pierce Power) about it. I said I should do the same thing and she said go for it. So how did your friends from Rochester do? Did they succeed? No, they failed. What were you doing at that point? I was at McCulloch Corp. here in Los Angeles. They made chainsaws. I had done research for them and I changed their whole way of thinking about product development. They were impressed with my study and made me director of corporate planning and I was only there about a year. How did they take your quitting so soon? When I went in to give my two week notice, they tried to talk me out of it. But 15 minutes later I got a call from the founder of the company, Robert McCulloch. He didn’t want to change my mind. Instead, we worked out a deal where they would be my first client. I worked at their office five days a month for the next three years. What did you do for them? Very similar to what I did for them as a full-time employee, I continued to do market analysis and research projects as they refined their marketing plans and developed new products for consumers. How did you crossover into the auto industry? One day I got a tip that a Japanese car company may need some help understanding the U.S. market. I made a cold-call visit to Toyota’s headquarters in Torrance. That led to some projects based on my experience with the auto industry. Eventually I realized I could serve the other burgeoning Japanese car companies too like Honda, Datsun and Mazda. What kind of experience had you had with the industry? I took a job at Ford Motor Co. when I was graduating from Wharton (in 1959) because one out of every seven employed people was involved in the automobile industry at that time. It had a tremendous impact. I wanted to do market research but I got hired as a financial analyst. What was that first contract? The cold-call visit led to a small project with of all places the forklift division of Toyota. This first contract helped explain the market size and structure of the U.S. market for imported forklift trucks. They were struggling to figure out how to compete. I did well. That project impressed the Japanese management and it opened the door to doing more work for Toyota’s larger, but still small, automotive division. Similarly, I created a project for the automotive division to better understand the market size and structure for imported car buyers in Southern California. And how did it grow from there? Then I realized that the other auto industry companies could use better information about customers. In time we found more business in the auto industry and developed that expertise further. We always did work in other areas but automotive became the biggest segment for us. So it was not a conscious decision as much as opportunity, good fortune and hard work. The rest is history. What were some of the early challenges? Well, we owned the data and sold subscriptions to the studies, so it took time to get the companies to buy the studies. They didn’t want them because it contradicted a lot of the research they had been doing. It was a long haul. Any notable missteps? We were a little early on the used car market. We did a study in 1990 and no one bought the results. Today, everyone is interested in the used car market, but they weren’t then. It was much smaller. How about the top experiences of your professional career? It was really catching the changes and trying to predict where the market was going. We caused a lot of consternation among manufacturers and dealers, but we finally got them to understand that the customer is in charge and they need to be satisfied. Did you make a lot of money? The business was very successful as an operation. Perhaps not that much as a financial endeavor, though. Really? The toughest thing was definitely the cash flow. There’s never really enough of that. See, I’d spend the money on a new project the second it came in. Was there any automaker that you didn’t like working with or was most difficult? Malcolm Bricklin. He had started a sports-car company, building in Canada. I never got paid fully for the work we did. Why not? He just didn’t like what I had to say. That’s all I will say about that. What about some of the other famous critics of the industry, such as Ralph Nader? Do you know him? I’ve heard him speak, but I have never met him. What’s your take on some of the research he did? I felt his research was atrocious. When he was with Nader’s Raiders, I felt they were just out to get the top car manufacturers. I did not want to get involved with him. I never saw eye-to-eye with the way he did things. In the heyday of the company, what was the workload like? Twelve hour days were routine. And there was a lot of travel on top of that. What kind of toll did running the business take on your personal life? It took a lot of effort and a lot of time. If it wasn’t for my wife Julie, I wouldn’t have been able to do it. And then Jamey came on and ran our Detroit office so the family got to work together. Did your wife play a big role in the business? She was the most influential person concerning the business. She had our kids fold the questionnaires with a quarter under the tape that sealed the envelope. They folded and stamped it in our living room, and that’s how it all started. She was diagnosed with MS in 1981. It was progressive and we lost her in 2002. What was her role in the office? My wife and I did a lot of traveling together. She knew all the CEOs of the companies and went to all the major meetings. She would tell the CEOs some things that I wouldn’t dare tell them. I would want to kick her under the table, but they loved it. We were a team. What was your fondest memory of working with your wife? We had a policy that when I would hire a senior person, we would go out to dinner with the candidate and his wife. And we learned a lot in those meetings from the way the candidate would act around his wife and even more from the way a spouse would be toward him. She was the final say. So why did you sell your business in 2005? Our situation was that we had grown internationally and my son Jamey (J.D. Power IV) was running oversees all the time. He has a family and he saw the shortcomings of being so involved in the business. We talked it over and decided that was the time to sell. There was a lot of interest, but McGraw-Hill stuck around and we decided to go with them. Do you regret selling your namesake business? I think we sold at the right time. It was going to take a lot more investment and maybe even a restructuring. I don’t think we were ready for all that. What do you think of the direction of the company since? It’s doing fine. Generally speaking, I am happy with what they’re doing. I’ve seen analyst estimates around $400 million for that sale. It’s not that. We are duty-bound not to say how much, though. It was sizable, but it was nowhere near that much. What’s your net worth? I honestly don’t know. It’s all set up in trusts for all the kids. What personal attributes do you think made this success possible? Well, it was really perseverance. I was a C+ student, so I had to work harder than everybody else. What would you have done differently through your career? Nothing. As a matter of fact, nothing. I was fortunate every step of the way. My college years were great. And my time in the service was outstanding. You couldn’t ask for a more exciting life than what I have had. What is your life like now? Well, I’m remarried (Joan Heiler Power, 67). And together we have six children and 12 grandchildren. That’s my life. I hear you spend a lot of time in Cape Cod now. What do you do there? We have family and friends who come to visit. But I just like sitting out on the porch and smoking a cigar now and then and relaxing. What kind of cigars? Well, I have some Cuban cigars right now. You’re also a board member for DealerTrack Technologies in New York, right? Yes, I’m a board member. I attend quarterly meetings on Long Island. I’m really more of an advisor on market trends, though. They will call on me for my thoughts at various times. What kind of car do you drive? I have a 2003 Mercury Marauder. Before that it was an Impala. I’m not really a big car guy. What did you look for in a car? Well, I had to be careful of people thinking I would only drive the top of the list cars on our ratings. I wouldn’t do that. I would drive a car that was more in trouble a lot of the time. I wanted to be neutral. You’re J.D. Power III and your son is J.D. Power IV. Is there a J.D. Power V? There is a J.D. Power V and he’s in college at Holy Cross – the fourth generation at that school. How do you sign your name? J.D. or James David? In the Coast Guard, I had to sign it fully, James David Power III. So I’ve held onto that.