Automakers Learn That Closing Brands Costs Customers

May 13, 2011

What happens when automakers like GM shutter brands such as Pontiac and Saturn, or when Ford closes Mercury? In a perfect world, customers loyal to these brands would stay with the parent: Saturn and Pontiac customers would shop for their next car from Chevrolet, while Mercury owners would heard down to their local Ford dealerships.

As automakers are finding out, more often than not former customers are leaving the family entirely. The Wall Street Journal reports that 70 percent of new car buyers trading in a Pontiac this year did so on a non-GM model; for former Saturn owners, the number increases to 71 percent. Even Mercury owners have expressed their dissatisfaction by shopping elsewhere: 65 percent have bought brands outside the Ford family this year.

Incentives offered by GM to former Saturn, HUMMER and Pontiac owners earlier in the year helped, but drew criticism that the automaker was merely exchanging profit for market share. When GM gave a supplemental discount of $1,000 to owners of defunct brands, they were able to retain as much as 57 percent of the business from former Pontiac owners. GM president Mark Reuss justified the incentives as short-term and strategic, saying that they helped retain customers at a critical time, shortly after the re-launch of GM’s stock.

GM can’t afford to offer indefinite rebates to former owners, and cites that 23 percent of former Saturn owners buy their next car from Chevrolet. As good as that sounds on paper, it also indicates that 77 percent of former Saturn owners buy replacement vehicles from another automaker, and 35 percent of that business is going to a combination of Ford, Toyota and Honda.

To recapture potentially lost business without additional expenditure, GM is working with its dealers to target owners of defunct brands, reminding them of current programs and promotions on similar, in-production GM vehicles. Time will tell if good, old-fashioned customer service is as effective as cold, hard cash.

[The Wall Street Journal]

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