GM and Chrysler Make Effort to Retain "Orphaned" Customers

The year 2009 has seen General Motors (GM) and Chrysler closing dealers and brands as part of the companies' bankruptcy proceedings, with just under 800 Chrysler dealers closing shortly after the company's bankruptcy in June 2009 and GM marking nearly 1,300 for closure by the end of 2010. These closures have created millions of customers from both companies who are now either not served by a local dealer, resulting in longer journeys than previously if they want to service their vehicle or buy another of the same brand. In addition, GM has ended both the Pontiac and Saturn brands, and is seemingly continually on the cusp of closing down the Saab brand after failing to find a buyer. The Hummer brand has been severely curtailed, while its future has been put in doubt as an attempted sale to a Chinese industrial equipment manufacturer crawls towards completion. As a result, GM estimates that it has approximately 3 million customers who have been "orphaned" thanks to the brand and dealer changes, with Chrysler estimating that about it has some 2.6 million who will be affected by the closure of dealerships.

These are not insignificant numbers and both companies are attempting to retain these customers through a variety of ways. Most directly, both have implemented retention incentives for customers who have been affected by the closure of dealers nearest to them. In mid-November GM began offering select customers who had been affected by dealer closings near them a US$2,000 incentive towards a new vehicle, on top of incentives already in place to the public at large. As a result, Edmunds.com reports that GM has been able to improve its Chevrolet customer retention rate from 55% to 59% for the month, as compared to November 2008. Chrysler has not been so fortunate, however, with loyalty rates falling from 46% last year to 32% for November 2009. Chrysler's own orphaned incentive programme was brief and only lasted through the third quarter after the company exited bankruptcy. The company is also having issues regarding its line-up—GM has a significantly refreshed line-up with continual introduction of new products, while Chrysler's showroom looks the same as it has for the last couple of years, with little to hold new buyers' interests when returning vehicles for new ones. GM also has the advantage of having many of its stores still open, with the wind-down deadline set for the end of 2010, while Chrysler closed most of its 789 rejected franchises in June 2009. As such, GM still has the momentum of sales, while Chrysler is struggling to find reasons for returning customers to drive longer distances to the remaining stores.

Outlook and Implications

The two companies are at very different levels of strength with regards to their ability to retain customers. As IHS Global Insight's John Wolkonowicz has put it: "GM has a cold, but Chrysler has pneumonia," or, in other words, they both face the upcoming year from very different positions of competitive strength. GM's big challenge will be the retention of customers lost from the elimination of half of its brands and nearly one-third of its dealers over the next year. However, GM has several weapons that may enable it to make a strong run at this. Fresh products is the first key element and the company has a number of new vehicles in the pipeline for the next year or two which have been shown to IHS Global Insight and which look like strong competitive offerings. Although the company may be losing half of its brands, combined they make up some 10% of its North American offerings—the four core remaining brands comprise a far greater portion of the company's global offerings. On top of that, those remaining four core brands will now receive much greater marketing resources than they had previously. The company is no longer trying to launch vehicles across multiple brands and multiple markets. It can now focus its resources on more strategic launches, a strategy that new Chevrolet brand boss James Campbell told IHS Global Insight is how the company expects to be able to grow the business despite the loss of outlets and brands. That strategy is simple: fewer brands and fewer models mean that GM can take a page out of Toyota's book and throw more money at launching and marketing those products.

Chrysler is not so fortunate. The company has fallen well behind in terms of its branding and marketing, taking nearly a four-month hiatus from advertising in the last half of 2009 while Fiat management got its house in order. As such, Chrysler is already starting from a disadvantage that has seen the company's sales slide over the last half of the year quite dramatically. Now it faces the added dilemma that even as it tries to retain customers, it has no new product to entice them with. The company is carrying out a rebranding strategy across its line-up in an attempt to retain these customers using slightly refreshed versions of current vehicles. Nothing substantially new will be arriving for at least two years. Trying to retain these customers in the face of competition like GM (and even more stiff competition from a resurgent Ford and a surprisingly strong Hyundai/Kia) make this an extremely tall order. However, Chrysler is depending on not only retaining the customers it has, but actually growing its market share over the next two years—in fact, its entire business plan presented last month depends on increasing market share to nearly 14% by 2014. IHS Global Insight's prediction has Chrysler falling to nearly 8% by that time, a significant difference from Chrysler's forecast. Some sources have suggested that Chrysler is actually rethinking its business plan presented last month with the idea that it was too optimistic. Moreover, unlike GM, which intends to refocus its marketing budget and more heavily promote fewer models from core brands, Chrysler is looking to add as many as three brands to its showroom: Ram trucks, Fiat (which will sell the 500 minicar), and possibly Alfa Romeo down the road. Thus Chrysler will have more mouths to feed in terms of brands to support with marketing dollars, essentially reversing the idea that paring down the line-up (as envisioned under the company's Project Genesis programme) is a good idea.