Vehicles like the 2011 Edge are driving high customer r... Vehicles like the 2011 Edge are driving high customer retention rates for Ford and Honda (Ford).
Are we starting to see a bit of light at the end of the Great Recession tunnel? Are car buyers ready to have a little fun, fun, fun again?

It would seem so, as new-vehicle owners are increasingly citing fun-to-drive vehicles as a top reason for remaining loyal to their current brand, according to the new 2010 Customer Retention Study released last week by J.D Power and Associates.

Ford and Honda ranked highest in the survey – tying for first place – when it comes to retaining vehicle owners, each retaining 62 percent of their owners.

The Winners

Ford's high retention rate was primarily driven by the Edge, F-Series and Fusion models. Two of those models – the Edge and the Fusion – are relatively new, having been introduced in the last few years.

"So, that's a good sign for Ford," observed Raffi Festekjian, director of automotive product research at J.D. Power and Associates. "Ford seems to be doing the right things. In our initial quality study this year, Ford ranked higher than it's ever ranked – 5th place."

For Honda, meanwhile, it was the Accord, CR-V and Pilot that primarily drove their high retention rate.

When comparing the two brands, the study revealed that Ford owners are more likely than are Honda owners to say that they've stayed loyal because their new vehicle is fun to drive or features snappy styling. Conversely, Honda owners were more likely than Ford owners to identify resale value and safety as the main reasons for buying another Honda.

"Honda has been a consistently strong performer in this survey. Hondas have always been on the top tier with it comes to retention – their owners pretty consistently cite safety and resale value," said Festekjian.

That said, the study showed that fewer owners are citing more practical reasons, like anticipated resale value, as a reason for their loyalty to their current brand. The importance of having fun-to-drive vehicles increased by eight percent compared to last year, while the importance of resale value dropped by 10 percent over that same period.

What Price Loyalty?

J.D. Power and Associates 2010 Customer Retention Study

Make Retention Rate
Ford 62%
Honda 62%
Hyundai 60%
Lexus 60%
Toyota 60%
Mercedes-Benz 59%
Kia 58%
Subaru 57%
Nissan 54%
BMW 53%
Chevrolet 52%
Industry Average 48%
Audi 46%
Lincoln 45%
Ram 45%
Cadillac 44%
Acura 43%
GMC 43%
Land Rover 41%
Volkswagen 41%
Porsche 39%
Mazda 37%
Infiniti 35%
MINI 35%
Jeep 34%
Volvo 32%
Suzuki 31%
Mercury 28%
Buick 27%
Mitsubishi 27%
Scion 25%
Chrysler 24%
Dodge 22%
Jaguar 16%
Saab 4%

The customer retention study, which has been conducted for the last eight years, measures the rate at which car brands keep their existing customers and asks owners why they remain loyal. Customer retention is always key to a brand's success in the marketplace, especially during a recession or slow economic recovery -- times when every sale is crucial to the bottom line.

The study also measures how well the various brands "capture" consumers who were previously driving other brands -- or, as it's known in the car biz, "conquest." The importance of vehicles being fun-to-drive has also increased as a reason why some brands are able to lure new customers away from competitors. In the new study, styling was also cited when it came to conquesting.

The 2010 Customer Retention Study is based on responses from 123,601 new-vehicle buyers and lessees. Of those, 81,350 replaced a vehicle that they had purchased new. The study was conducted between February and May, and between August and October, of this year

"This is a key study, because it's important to understand the reasons that drive loyalty within the industry," said Festekjian. "Customer retention is the primary goal of every manufacturer. It obviously has a direct impact on sales, and it fosters a favorable word of mouth."

Best Of The Rest

Ford and Honda didn't "beat out" their competitors by much. In a three-way tie for second, Hyundai, Lexus and Toyota each scored retention grades of 60 percent. Kia boasted the strongest increase in customer-retention compared to last year – the Korean carmaker improved by 21 percentage points in one year, notching a score of 58 percent in 2010.

Toyota's yearlong woes -- the Congressional hearings into the acceleration problems, the myriad recalls, etc. -- did not seem to hurt their ability to retain customers. "Toyota has historically also been in the top tier, and their current customers remain pretty loyal," said Festekjian. "The challenge Toyota now faces is the ability to conquest new customers, because now those buyers now have some questions about Toyota. In this survey, Toyota did, in fact, see a drop in their conquesting."

It's The Economy

Festekjian confirmed that customer retention is also critical during tough economic times, or during a sluggish recovery like the current one. "With total sales down, and with consumers having so many more choices now, it's really important for the carmakers to know why they're retaining customers, because it's a lot easier to retain a customer than to conquest a new one," he said.

But, since the economy and car market are improving, if only slightly, car owners are increasingly returning to citing emotional, rather than practical, reasons for staying with their current brand or switching to a different one, Festekjian added. "Developing new models that are fun to drive, with more attractive styling, seems to be increasingly more critical for automakers, as they continue to try to retain and conquest customers as the auto market continues to recover."

Good News For Detroit

The study also found that that customer retention among U.S. brands, taken as a whole, has improved slightly. In 2010, 69 percent of domestic-brand owners who traded in a vehicle purchased another domestic vehicle, compared with 68 percent in 2009.

That's an improvement of only one percentage point -- but for Detroit carmakers, that's better news than a decrease. More importantly, compared to their retention rates, domestic brands have performed well over the last two years when it comes to conquesting customers from import brands. In 2010, 14 percent of buyers of domestic brand vehicles previously owned an import, up from 10 percent in 2008.

Context is everything, however. The retention rates among domestic brands still lag behind those of import brands. In 2010, 90 percent of owners who traded in an import vehicle bought another import. That number has remained high in recent years.

"So, even though import brands still have notably higher customer conquest rates than domestic brands, the gap is beginning to narrow," said Festekjian. "In recent years, domestic brands have achieved parity or even surpassed the performance of import brands in initial quality and new-vehicle appeal."

And customer perceptions of the Detroit nameplates seem to be evolving accordingly, he added. "It will be interesting to see how the performance gains by domestic brands affect retention and conquest rates in the coming years."

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