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In play: GM and Chrysler 'orphans'

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In play: GM and Chrysler 'orphans'

Customers of closed stores weigh longer drive, brand loyalty

Amy Wilson

Automotive News -- December 28, 2009 - 12:01 am ET

More than six months after Chrysler and General Motors began dumping dealerships, many surviving dealers anticipate a tough time keeping millions of those dealerships' orphaned customers in the family.

Some customers are angry because their longtime dealership is closing, dealers say. Other customers have turned away from Chrysler and GM because of the automakers' taxpayer bailouts and bankruptcy filings. Still others just won't drive the extra distance to the next-closest store.

GM and Chrysler are designating dealerships to pick up the customers from each rejected store. But they "need to be innovative" to keep their orphaned customers, says Michelle Krebs, a senior analyst with Edmunds.com. "Ford, Hyundai, everyone else wants those customers, too."

It can be done. In November, the percentage of car buyers who traded in a Chevrolet vehicle and replaced it with another GM vehicle improved to 59 percent, from 55 percent in November 2008, Edmunds' data show. In mid-November, GM began offering extra incentives, as much as $2,000, to some of its orphaned owners.

But loyalty plunged at Chrysler Group in November, Edmunds says. For example, among customers who traded in a Chrysler-brand vehicle in November, 32 percent stayed with the Chrysler family, down from 46 percent a year earlier.

Observers cite three differences between Chrysler and GM:

1. Chrysler stripped its 789 rejected stores of their franchises in June while many, if not most, of GM's 1,350 rejected stores are still operating.

2. GM's incentives to orphaned customers began in November, while Chrysler's expired during the summer. Chrysler offered limited owner loyalty incentives in November, but not specifically to orphaned customers, company spokeswoman Kathy Graham said. She also said Chrysler didn't return to what it considers a normal level of advertising until mid-November.

3. Chrysler owners seem more concerned about the company's viability than GM customers, Krebs says.

ORPHAN STRATEGY

What Chrysler Group has done to hold on to its customers orphaned by dealership closings.

• May 14: Sent letters to 2.6 million customers naming 4 nearby continuing dealerships and including a $1,000 coupon toward a new vehicle

• Week of June 22: Sent letters to customers who hadn't yet visited a continuing dealership assigning them to one

• From July 9: If state laws allowed, dealerships contacted their assigned orphans, offering a free oil-change coupon paid for by Chrysler

Source: Chrysler Group

Distance is a huge barrier to retaining customers at a manufacturer-designated replacement store. In some cases, particularly with GM, surviving same-brand stores are dozens of miles away.

In an Automotive News online survey, dealers said the top two reasons orphaned customers give for switching brands are a shorter drive and dissatisfaction with the old brand.

"It's going to be a tough sled," says Tim White, president of White Family Cos., an auto group with 15 stores in Ohio, Wyoming and South Dakota. "It's going to have to be a pretty darn good offer from the dealer that's trying to get the business. There's a resentment that's going to have to be overcome."

White will lose a Cadillac franchise, and he had two locations selling discontinued Pontiac. But he also has continuing GM stores, a continuing Chrysler-Dodge-Jeep store and several import stores. The import stores are getting more domestic trade-ins, White says.

John Lambert, a surviving Chrysler-Dodge-Jeep dealer in Claremont, N.H., says the challenge in his small-town community is overcoming customer loyalties. "Some customers are adamant: 'Geez, I'm really mad about what they did to those dealerships. They're friends of mine, and I won't buy another one of those vehicles,' " Lambert says.

Lower loyalty

Car buyers who traded in Chrysler vehicles were less likely to stay with the Chrysler Group in November than a year earlier.

Bought a Chrysler, Dodge or Jeep

Trade-in brand Nov. 2009 Nov. 2008

Chrysler 32% 46%

Dodge 45% 51%

Jeep 34% 45%

Source: Edmunds.com

Keep 50-70%?

GM has said it will have about 3 million customers orphaned by dealership closures and the sale or closure of brands. Chrysler says it has 2.6 million orphaned customers.

Katherine Kress, a customer marketing expert at Detroit consulting firm Urban Science, says surviving dealers have informally told her company they believe they'll be able to keep 50 to 70 percent of shuttered dealerships' same-brand customers.

Urban Science, which works for the manufacturers, is advocating that the automakers boost that percentage by arming dealers with customer information beyond basic contact details.

Incentives tailored to an individual customer's needs are likely to be more successful retention tools, Kress says. Some manufacturers are working on identifying which customers are likely to be shopping for a new vehicle and which are ripe for certain types of service offers.

New homes for orphans

Dealers and automakers are trying many approaches to woo customers whose dealerships were rejected by GM or Chrysler. More than 90 dealers participated in a related Automotive News online survey on the topic. Here are some of their answers.

What are you doing to capture business from orphaned customers?

Direct mail targeting orphaned customers 77%

More spending on advertising 61%

Hiring sales, service personnel from rejected stores. 46%

What are reasons conquested orphaned customers give you for choosing your store over a manufacturer-designated replacement store?

Shorter drive 45%

Dissatisfaction with old brand 40%

Followed a sales or service employee 31%

Dealership incentives to switch 21%

Manufacturer incentives to switch brands 8%

Dealers also are sending out their own incentives. Many have pursued the orphaned owners by hiring sales and service personnel from closing dealerships.

If done right, the payoff can be big. Tennessee dealer Tim Copenhaver says he generally is pleased with how GM is trying to retain the orphaned owners.

His Champion Chevrolet-Cadillac store in Johnson City, Tenn., is about six miles from a Chevy store that closed in August. Hundreds of that dealership's customers have moved to his store, he says: "In parts and service, it's had a huge effect."

Read more: http://www.autonews.com/apps/pbcs.dll/article?AID=/20091228/RETAIL02/312289960/1400#ixzz0azfV5YPE

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