Last year was truly one for the record books in the auto industry. More than 62 million cars were recalled, covering 1,446 separate models. In terms of total cars recalled, it was roughly double the previous high for annual vehicles recalled in a year, a record set back in 2004.
But recalls or not, Americans still love their automobiles. Even with the equivalent of 1 in 5 autos on the road having been recalled last year, Americans wound up purchasing 16.5 million new cars, the highest total since 2006, when sales reached 16.9 million. An improving economy, which could be adding more to consumers' disposable income; lower fuel prices, which are potentially expanding their scope of vehicle choices; and automaker innovation are all factors that have swayed consumers to take action and make the leap into a new vehicle.
The importance of brand loyalty
Yet understanding which car brands consumers are most loyal to involves more than just looking at total sales figures. For that exercise, we'll turn to Brand Keys, a New York-based research firm that surveyed more than 36,000 people to compile its 19th annual Customer Loyalty Engagement Index, in order to decipher which auto brands consumers are most loyal toward.
In order to establish loyalty, Brand Keys' "secret recipe" involves examining how consumers view a brand, how that brand engages with consumers, and ultimately how consumers view that brand compared to other brands within its industry. The idea here is that a brand commanding strong consumer loyalty is more likely to hook customers, and perhaps their family members, for life, driving multigenerational sales. Furthermore, loyal customers tend to be great spokespeople for a brand, having a far greater effect on a potential buyer than any commercial. And best of all, they're free ambassadors of the brand.
Overall, Brand Keys ranked 21 different auto brands. While we don't have time to go through each one individually, let's briefly examine a few of the notable surprises, and then take a look at which automaker is driving over its competition when it comes to creating loyal customers.
In the wrong gear
I don't think there's any doubt that the biggest disappointment among Brand Keys' rankings is Volkswagen's (NASDAQOTH:VWAGY) ranking dead last for the second year in a row.
As I noted last year, Volkswagen's big problem has been in getting younger adults excited about the brand. Even though entry-level models may have lower margins, Volkswagen (like any car maker) is counting on attracting young adults and keeping them loyal to the brand so they can hopefully move up to higher-priced, and higher-margin, vehicles when they have better-paying jobs. Clearly, that's not happening for VW.
The other problem can be traced to its lack of SUV offerings. With fuel prices way down from where they were a year ago, consumers are more willing to look at larger and less-fuel-efficient vehicles than before, including trucks and SUVs. With VW's lineup heavily tied to the Passat and Jetta, VW hasn't been able to capitalize on this bigger vehicle boom in the U.S. While most automakers saw sales grow in 2014, VW's shrank 2.9% to 552,720 units. I personally wouldn't be betting on a sales turnaround anytime soon.
Another surprisingly poor performer was the Mini brand, owned by BMW (NASDAQOTH:BAMXF), which ranked 19th of 21 in terms of brand loyalty.
Minis may be sporty and make buyers feel young again, but according to J.D. Power and Associates, they're a handful to deal with in the repair department. J.D. Power's U.S. Vehicle Dependability Study, released in February, showed that the Mini had 193 problems reported per 100 vehicles -- good enough for fourth-worst among the 31 brands ranked. If Minis are viewed as being unreliable, it could be difficult for the brand to attract and retain consumers.
I'd also suggest that General Motors' (NYSE:GM) unwanted spotlight amid a record year for vehicle recalls hindered its brand. General Motors' flagship GMC brand finished tied for eighth in terms of brand loyalty, while Chevrolet came in with a disappointing 16th-place finish. GM's long lag time in updating its line of Chevrolet and GMC trucks could be another culprit that's weakened the loyalty of its customer base in recent years.
If there are positive takeaways here for GM, it's that consumers tend to have a relatively short attention span for bad news, so it could put this recall mess behind it in short order. Also, sales of its recently remodeled Chevy Silverado have been encouraging. Silverado sales shot higher by 10.3% in 2014 to nearly 530,000 units.
The automaker driving the best brand loyalty is...
Perhaps the real shock is that for a second year in a row we don't have a clear brand loyalty leader for automakers, but instead a tie between Ford (NYSE:F) and Hyundai (NASDAQOTH:HYMLF).
Both Ford and Hyundai have done a great job emphasizing their value to consumers, but have obviously taken different paths to keeping customers loyal.
For Ford, it's all about focusing on its rugged truck line and technological innovation. The redesigned F-150, with its new aluminum body -- which reduces the vehicle's weight by 700 pounds, improving its fuel efficiency -- and EcoBoost engine options -- which boost fuel economy without sacrificing power -- has been a major growth driver for Ford.
In Ford's March sales report, it noted that F-Series sales were up 10% year over year (which is good news, since sales fell 1.3% in 2014 for the F-Series, likely in anticipation of the remodeled F-150 release), helping to lead the company to its best March sales figures overall since 2006. It's probably no surprise as well as that the F-Series pickup has been America's best-selling vehicle for a jaw-dropping 32 straight years. That sort of dominance is bound to attract customers for life.
Hyundai's story is quite the contrast, as it's more about finesse. Through March, Hyundai's U.S. sales are up 7.5% to 172,029, with its luxury Genesis, recently redesigned Sonata, and crossover Santa Fe providing the bulk of the gains.
Last week at the New York International Auto Show, Hyundai unveiled its 2016 Tucson, its compact SUV, which it anticipates will continue its recent streak of fresh designs leading to a jump in sales. The new Tucson features more horsepower, better fuel efficiency, more cabin space, and, most important (and what sets Hyundai apart for consumers), plenty of new technology. This includes an LCD touchscreen and rearview camera, which are standard, a hands-free power liftgate, and upgradable options, including Pandora radio and Yelp.
In terms of safety, it also comes with blind-spot monitoring and lane departure warning. This might be just a single vehicle in Hyundai's lineup (which is set to hit dealer lots in July, by the way), but the story is the same throughout Hyundai's fleet, with fuel efficiency and technology driving consumer loyalty.
As an investor, what this brand loyalty ranking suggests is that it might be worth your while to take a closer look at Ford or Hyundai stock. If these companies are consistently doing a good job of keeping consumers loyal to their brand, it means they're likely growing their profits and not having to spend an arm and a leg on advertising in order to move cars off dealer lots.