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.

"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

Automobile dealers have little doubt that a bankruptcy would create enormous problems for them, because buying an automobile is a "big ticket" item that a customer pays for over many years. With a bankruptcy, there is a huge risk for even the loyal customer, says Annette Sykora, chairman of the National Automobile Dealers Association in McLean, Va.

"You establish that relationship, you have to continue that relationship," says Ms. Sykora, who owns Ford and Chrysler dealerships outside of Lubbock, Texas. "If the customer is abandoned and actions force the dealer out of business, it's difficult to reestablish that relationship" even if the automaker eventually returns to viability.

Don Wissel in New Jersey is a case in point. He would be hesitant to buy a GM car if the company were to go into Chapter 11 bankruptcy. "A guarantee is only as good as the company," he says. But it would depend on how it works out, he adds. "If the dealers are as nice as they are now, I might take a chance."

Wissel's choice is important because entire generations of families are known to become buyers of one company's cars. That's the case with Wissel, who still can remember his parents' 1937 Buick. Now, his two daughters drive GM vehicles.

The loyalty profile for the Big Three tends to be different from that of imported vehicles, which enjoy much higher loyalty rates, says Kelley Blue Book's Mr. Nerad. (In the latest J.D. Powers survey, the top five nonluxury loyalty rates were for foreign-made brands.) "Very often with the Big Three, there is a somewhat lower level of education [among loyal customers], a bit more of a blue-collar tinge," he says. "Also, older Americans are more loyal to the Detroit companies, and there are those of any age who are 'buy American' people," he says.

Successful dealers know how to enhance those relationships. Skyora cites a family who has been buying cars from her family's dealership for 70 years.

"I remember when the great-grandfather drove through some water and, after we worked on repairing the car, we filled up the vehicle with little kiddie life rafts. "He got a huge kick out of it," she recalls, "and even when his grandsons come in, they still think it's hilarious."

A longtime relationship

Wissel has purchased many of his cars from Jim Curley, owner of Jim Curley Pontiac Buick in Toms River, N.J.

Mr. Curley, who has been in the business 21 years, has definitely learned the fine art of cultivating multigenerational customers. "With the local residents, we probably get half our business that way – where someone comes in and says, 'My dad told me to come in,' " he says. "It seems like where there is a strong family, there is a tie to us."

Curley, who likes to spend time in his waiting room talking to customers, suggests that they expect a positive resolution from the automakers' request for help from the government.

"They realize there were a lot of mistakes made in the past between management, labor, and government," he says. "But they have confidence it will work out."