In business school, one of the first things you learn is that it's much more costly for companies to find new consumers than it is to retain existing ones. We're at an intriguing point in time, where consumers are holding onto their vehicles much longer than we've ever seen. As the consumers hold onto each vehicle longer, their loyalty to the brand tends to decline -- most likely because older cars have more problems. For that reason, it's more important than ever for automakers such as Ford (NYSE: F ) and General Motors (NYSE: GM ) to focus on improving customer service and vehicle quality to retain market share.
Here's a look at a recent study by R.L. Polk & Co.that ranks automotive brands by consumer loyalty.
Ford continues to take home the top spot, and is the only brand with a loyalty rate that breaks 60%. Those 13 brands in the graph are the only brands that had an increase larger than the industry average compared to last year's numbers. Since the U.S. automotive market is fairly mature, you can expect that these thirteen brands have gained at the expense of the rest of the industry's brands.
While Ford is still dominating what I consider the most important sorting of these numbers -- overall loyalty -- GM should get a nod for having three of the top seven most-improved loyalty ratings. Its Cadillac brand jumped 8.3 percentage points over last year, which was the second highest rate of improvement, trailing only Porsche. GMC and Buick jumped 5.7 and 5.3 percentage points, respectively, to land just outside the top five most improved.
The reason for all these jumps is pretty clear: After Ford and GM exited the recession, a new focus was created to produce vehicles of higher quality in growing segments. Ford's Fusion and Escape have had record months of sales this year, and have a chance to break over 300,000 in unit sales this year -- a feat that only the F-Series has accomplished for Ford in nearly a decade.
GM has been slower to launch new vehicles and redesigns after its government bailout led to a cash crunch. That's about to change as GM continues to improve financially, and new models begin to roll out during GM's strategy to redesign, refresh, or replace almost 90% of its models by 2016. I believe that the jump in consumer loyalty reflects the early stages of success from that strategy. In addition to its regular lineup, GM's luxury Cadillac line reported its best year-to-date sales increase since 1976.
In addition to the surge in sales, roughly 70% of Cadillac ATS buyers are purchasing their very first Cadillac. That's a huge percentage, and represents a chunk of market share stolen from other brands -- a huge win for Cadillac, and a large reason for Cadillac's jump in consumer loyalty.
In the first quarter, the one from which Polk has derived its information, something took place that hasn't happened in almost two decades; all three of Detroit's automakers gained market share in the U.S. It's clear that consumers are reacting favorably to all of the newly designed vehicles coming off their production lines.
There are still hurdles for these automakers to jump over, such as reversing huge losses in Europe, but this could be a great time to buy into the automotive rebound. As consumer loyalty, vehicle quality, and market share continue to increase Ford's top line revenues and bottom line, profits should follow. The future looks very bright for Ford investors, and it could warrant a position in your portfolio.
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