New car buyers in the United States have had wandering eyes this year. Among those shopping for a new vehicle, brand loyalty dropped to the lowest rate seen in the past six years. That’s according to the most recent IHS Markit analysis that follows brand loyalty rate through June 2021. Overall, new vehicle purchase brand loyalty fell to 51%.
Compared with June 2020, dealerships saw a 1.7% decline in repeat customers for the same brand. However, the larger picture shows aggregated three-month brand loyalty was at 54.1% two years ago, and a steady decrease has been occurring since.
There’s no question that the decline in inventory car buyers sees on dealership lots is affecting their loyalty. In many jurisdictions around the nation, dealers are either sold out or nearing the end of their stock in certain models, and that’s certainly true for popular trim levels. It’s forcing shoppers to either wait for inventory to arrive or roam other brands to locate a similar vehicle.
Body style loyalty holds its ground
While brand loyalty is shrinking, body style loyalty is staying strong, especially for the most popular three styles: pickup trucks, sport utility vehicles, and sedans. All three have picked up traction in their respective areas. The likelihood that sedan owners will buy a subsequent is up by 2.4%, trucks are up a half-point, and SUVs are up by 0.3%. And earlier this year, IHS Market reported that EV loyalty had risen to 55% in 2020.
Tom Libby is the associate director of loyalty and industry analysis at IHS Markit. He says, “Households with a pickup in the garage like the concept of a pickup, and therefore will acquire another one. But their likelihood of staying loyal to the brand of their pickup has diminished.”
There’s little that dealers can do
The loyalty trend is industry-wide, it seems, and is likely to affect dealerships similarly. A previously loyal customer may have purchased another vehicle from a different brand out of necessity. For example, a Ford pickup truck owner who writes off their vehicle is forced to replace it and can only find a similarly equipped Chevy in its place.
But for others who are replacing their vehicles without a pressing need, there may be short-term solutions that can be sought.
Libby says, “Obviously a major risk is that due to lack of inventory, a brand’s existing owners now are more likely to defect to another brand than they have been in quite a while. One approach to minimizing defections would be to offer lease extensions to existing lessees. Regarding opportunities, brands can conquest competitors through enticing marketing messages focused on a brand’s or model’s differential advantages.”
Those solutions may be more manufacturer-level, but dealers can implement their own processes instead to tide over customers until more inventory arrives.
In the end, the current situation could payout as an anomaly where those customers return to the brand they abandoned with their next vehicle cycle. That would become evident over the next three to six years with loyalty rates that are continually lower as they switch back to their previous brand. Or, it could be a realignment among the top carmakers with owners becoming loyal to their new vehicle’s nameplate. In that situation, the industry will see a return to stronger brand loyalty in the coming years.
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