Toyota Leads in Customer Loyalty

Toyota and its Lexus luxury division finished first and second in J.D. Power's annual customer retention study
Toyota Solaras on display at Melody Toyota in San Bruno, Calif. Justin Sullivan/Getty Images

Toyota Motor (TM) may be experiencing its share of quality slips and bad press about not being as "green" as its reputation suggests, but Toyota customers have been re-upping with the Japanese automaker at a rate that makes rivals envious.

It was the second straight year that Toyota led all automakers in a study conducted by J.D. Power & Associates. Sixty-five percent of Toyota's buyers last year traded a Toyota for a new one. Toyota's luxury nameplate, Lexus, finished second, with 63%, followed by Honda Motor (HMC), at 62.8%.

Behind the Scores

"Toyota's high customer retention rate is particularly notable, considering that new-vehicle sales have declined in the past year," says Neal Oddes, director of product research and analysis at J.D. Power. (Like BusinessWeek, J.D. Power is a division of The McGraw-Hill Companies (MHP).) "Toyota maintains its high retention rates by providing high-quality vehicles and service to its existing customers, which in turn generates favorable word-of-mouth recommendations that attract new customers." says Oddes.

Toyota's performance in customer retention is impressive considering the industry average of just 49%. The highest scoring U.S. nameplate was Chevrolet, at 56%, owing mostly to the high loyalty rate among buyers of Chevy pickups and large sport-utility vehicles such as the Suburban. Ford Motor (F) scored 53%, much of that also owed to its pickup business.

The lowest-ranking automotive brands score poorly for different reasons. Mini, for example, scored second from the bottom mainly because Minis (, 3/29/07) have been sold only since 2001, and not many are being traded in. Isuzu Motors (ISUZF) is the lowest-scoring brand, but that Japanese brand is barely in business at all. Pontiac was the lowest-scoring nameplate with no mitigating explanation for its poor rating of 28%. General Motors (GM) has muddled the brand for more than a decade with a mixed bag of disconnected products, poor resale value, and mediocre quality.

Jaguar and Land Rover were the poorest-scoring luxury brands in the Power study. Land Rover has scored poorly in Power's quality rankings for years. Jaguar has had poor resale value, as well as notable design misfires including the X-Type and S-Type. Ford, which owns both brands, is on the verge of selling the luxury nameplates, possibly to one of India's two automakers, Tata Motors (TTM) or Mahindra & Mahindra (MAHM).

BMW (BMWG) topped European brands for customer loyalty, at 58%. Mercedes-Benz (DAI) followed at 57%, Porsche (PSHG_p.F) at 42%, Audi at 41%, Saab at 34%, and Volvo and Volkswagen (VLKAY) both at 33%. The weakness of the U.S. dollar against the euro will make retaining customers even harder for European brands in the next few years as they are pressured to raise prices.

What Keeps Buyers Coming Back?

Marketing analysts say a solid record of quality and reliability combined with clarity and consistency of advertising keeps customers coming back. "There are still many companies that do not understand that consistency of image over time is as important as making sure the quality is up to snuff and the dealers are doing their jobs properly," says independent marketing consultant Dennis Keene, who advises companies on long-term brand strategy. "BMW not only performs on quality and design year in and year out, but it's communication as 'the ultimate driving machine' hasn't wavered since the early 1970s,"

Brands that are surging in customer retention after new-product and customer service blitzes include Suzuki Motor (SZKMF) and Mazda Motor (MZDAF), which have gained 19% and 9%, respectively, in the last 5 years. "The improvements that Suzuki and Mazda have made in vehicle appeal and quality have paid off in steady increases in their customer retention rates during the past five years, indicating that they have also been successful in changing customer perceptions of their vehicles, which can be a daunting task," says Oddes.

Auto executives disagree sometimes about the most important drivers of customer loyalty—quality, design, or customer handling. But one thing they agree on is that it's far cheaper to keep a customer under the brand umbrella than it is to convince someone to change brands.

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