Auto firms' woes test customer loyalty
Any bankruptcy among Big Three is likely to cut into retention, making recovery even harder.
Don Wissel's love affair with General Motors cars started in 1960, when he bought a silver-gray Pontiac Catalina, a roomy car with modified tail fins and enough horsepower to gobble up miles on the Garden State Parkway. Since then, he's owned almost everything GM's made – Chevys, Buicks, Olds, Caddys, and now he parks a Yukon and a Denali in his driveway in Rumson, N.J.Skip to next paragraph
Subscribe Today to the Monitor
"I've never had a problem with a GM car," says the retiree. "They make big cars, and I like big cars."
Mr. Wissel qualifies as a "loyal" General Motors customer – a group the automaker will need to hold onto now more than ever if it is to survive and prosper in these hard times. The specter of bankruptcy, though, may impair GM's ability to retain even these loyalists – one reason that the firm's CEO, along with the top executives of the other US automakers, returns to Washington this week to make the case for some sort of federal bailout. Their key argument to get $25 billion: They have a business plan to remain viable.
For any auto company business plan, repeat customers are essential – they're a less expensive way of making a sale than wooing a customer from someone else. But if an automobile company were to declare bankruptcy, even the most loyal customer base would probably dissipate – one reason Detroit executives appear so disinclined to go that route, say analysts.
The theory is that if a car company goes into bankruptcy, a lot of its loyal customers will leave, says Tom Libby, senior director of industry analysis for J.D. Powers and Associates, which measures customer loyalty. "This industry has a wide choice of some 37 brands and 290 models for consumers to choose from," he says. "If GM and its brands were tainted, it would have a huge effect on demand, so the executives will do everything they can to avoid that."
Auto companies with the best brand loyalty sell 45 to 60 percent of their vehicles to repeat customers, estimates Mr. Libby. In the October J.D. Powers survey of loyalty, the top American-made nonluxury brand is Chevrolet, followed by Ford and GMC.
"Loyalty is a good indicator of a company's long-term viability," says Jack Nerad, executive editor at Kelley Blue Book, which gauges car values. "Loyal customers are ambassadors and disciples of a brand."
Dealers are worried