Detroit's auto troubles test brand loyalty

Scot Roskelley wanted a Saab his entire life.

He learned to drive stick shift on one as a teenager. He loves its little quirks, like the way its ignition is mounted on the floor and not the dash. He trusts his local dealership to regularly service his 2002 Saab 9-3 hatchback and no one else.

So when he learned last week that General Motors, which owns Saab, plans to either sell or phase out the Swedish subsidiary by 2010, Mr. Roskelley was stunned.

"I kind of gasped a little bit," the Chicagoan says, "Is that the death of the car? One of the first things you worry about is what will the accessibility of parts be like if they stop?"

That sentiment is being shared among many car owners who feel they are being forced to divorce from automotive brands they have been loyal to, in some cases their entire lives.

GM's restructuring plan includes selling or discontinuing Saturn by 2012, downsizing Pontiac into a niche division with a smaller lineup of vehicles, and selling its Hummer brand of light trucks.

The plan GM submitted to the federal government – a condition of receiving bailout money – shows a leaner company: Instead of eight nameplates, GM plans to operate with just four: Chevrolet, Cadillac, Buick, and GMC.

In a time when mass layoffs are announced in every sector of the workforce and consumers are struggling to hold onto their homes, it is hard to imagine that brand loyalty is still a factor among new car buyers.

"It depends on which brand," says Dave Sedgwick, editor of Automotive News. "For the Jeep Wrangler, those people are fanatics. They're not going to go out and suddenly buy a Kia. On the other hand, if you're talking about people who own a Chevy Malibu or a Ford Focus, it's about, 'Show me a deal.' "

Customer loyalty is slipping

The proliferation of so many brands on the market, however, is giving consumers more options than ever, so that overall "there is less brand loyalty than there used to be," says Mr. Sedgwick.

Yet for car owners already happy with vehicles but who are learning those brands may not be around for long, their next car purchase is giving them pause.

"It's kind of a bummer," says Ed Timpe of Los Angeles, in a phone interview. Surviving a near-fatal car crash seven years ago, as a teenager, resulted in his purchase of his current Saturn, which he valued for its reinforced safety features. "I'm getting to a point where I'm considering buying a new Saturn because I consider it a safer American car. But if it's gone in three years, that's harder for me to commit to."

Saturn owners in particular feel at sea, considering they bought into the brand because it was marketed as "a different kind of car company" when it was launched in 1985. The promise meant haggle-free prices and less pressure to buy on the showroom floor – factors designed to generate long-term loyalty and repeat business.

Both are eroding. Jerome Pohlen of Berwyn, Ill., remains satisfied with his 1998 Saturn and feels the company was "walking the walk as far as their marketing strategy."

But he adds: "If it gave out tomorrow, I don't think I would buy a Saturn." His biggest concern: that it would be discontinued. As for resale value, he says the writing is on the wall: "I don't expect to get anything."

The used vehicle market will feel the sting.

"An orphan brand is likely to see less demand once those cars go into the used car market. You're going to wind up seeing that used car residual values are going to drop," said Paul Eisenstein, bureau chief of Thedetroitbureau.com, a website covering the automotive industry.

If resale values are eroding, more consumers are expected to hold onto their vehicles as long as they can or find creative ways to deal with their diminished value.

"I buy cars and drive them into the ground, so [the resale value] is not as big a concern for me," says Denison Hatch of Wilmington, Del., reached by phone. Although he was happy with his 1999 Saab – "a BMW without the nameplate" – he decided to hand it off to his son who is heading off to college, rather than trade it in for a replacement.

Dealers offer incentives and service

While dealerships are faced with the burden of stocking inventory, the public is wary of purchasing. They are waiting to see how the next chapter in this drama unfolds before doing anything differently on the showroom floor. So far, GM has promised it would help by offering buyer incentive programs and a pledge to abide by all remaining warranty and service agreements.

"I try to look at it from a positive perspective. Hopefully, this doesn't spell the end but is really a new beginning," says Charlie Merki, general manager of three Saturn dealerships in northwest suburban Chicago.

One option GM is considering for Saturn is selling it to a foreign company from China or India interested in getting into the North American market and spinning off its distribution network. That would enable Saturn dealerships in the US to move forward as independent retailers, meaning they could sell non-GM brands that have similar price points and cachet with consumers that the Saturn brand does.

"There are 400-some of us [across the US], with buildings and rooftops and parking lots and computer systems that are all there," says Mr. Merki. "My feeling is that it has some value."

But, he adds, "It's just who has got the money at this juncture to play?"