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