Owners of Defunct Brands Ride Off
GM Struggles to Convince Saturn, Pontiac, Hummer Customers to Remain Loyal
By SHARON TERLEP
http://online.wsj.com/article/SB10001424052748703983104576263312463666954.htmlTina Shaw and people like her are a big worry for General Motors Co.
Three times before in the last seven years, the 35-year-old stay-at-home mom bought cars from GM's now-defunct Saturn division. But when she shopped for a new ride a few months ago, the Ft. Worth, Texas, resident didn't bother checking out any GM models.
"We were a Saturn family all the way, but we had to look at other options" after GM discontinued the brand, she said. Ms. Shaw paid $18,000 for a pearl-white Nissan Motor Co. Cube, describing the boxy little car as the closest thing to a Saturn she could find. "I probably wouldn't have considered another kind of GM vehicle."
Ms. Shaw is one of more than three million Americans who are driving vehicles produced by the three GM divisions that were shuttered in the auto maker's 2009 bankruptcy reorganization—Saturn, Pontiac and Hummer.
GM is racing to hold onto those customers. Early results, such as Ms. Shaw's purchase of a rival's small SVU, and similar defections among Ford Motor Co.'s Mercury owners, show the car makers' uphill struggle to retain former customers.
So far this year, about 70% of customers who traded in a Pontiac this year replaced their car with a non-GM model; with Saturn that number rises to 71%. Ford, which killed its Mercury division last year, isn't doing any better. About 65% of the Mercury owners who have bought new cars this year have defected to auto makers other than Ford. Saab, now a subsidiary of Spyker Cars NV, recently halted production while its parent looks for a cash infusion.
In January and February, GM offered extra discounts of $1,000 to owners of its defunct-brands, putting more Pontiac and Saturn owners into other GM brands. Buyers who opted to stay with GM those months climbed, especially for Pontiac, which hung on to 57% of customers who traded in their vehicles, according to Edmunds.com. But the effort was controversial as Wall Street questioned whether the incentives were a sign that GM had returned to the old strategy of pushing market share over profits, which helped push it into bankruptcy court.
GM reported higher first-quarter results on Thursday but some investors felt it had spent too freely on incentives in North America, resulting in a 3% stock-price drop.
GM North America President Mark Reuss defended the incentives in a recent interview, arguing it threw off competitors and helped hang onto existing customers at a critical time. The move was short-term and strategic, he said, not a return to GM's old ways.
"We fight tooth and nail to retain these customers," he said. "We caught a lot of [rivals] sleeping with" the elevated incentives offered to buyers in January and February.
The effort to retain customers is crucial if GM is going to regain market share in an increasingly competitive U.S. market. In Saturn's case, 23% of owners traded their Saturn for a Chevy, the most popular choice. But Toyota Motor Corp., Honda Motor Co. and Ford combined grabbed 35% of those shoppers, according to Edmunds.com Inc., operator of an auto-industry website.
In addition to incentives, GM works with its dealers to target potential defectors. It sends notices of special deals they can get and reminders encouraging them that GM has new Chevrolet, Buick, Cadillac and GMC models that they could consider when shopping for new vehicles.
GM dealers also are contributing to the effort. At Harry K Chevrolet Buick, in Chamberlain, S.D., every time a Pontiac owner drives in for service, the repair shop called the sales department. A salesperson then arrives to pitch the owner on purchasing a GM car or truck.
"Hopefully with the breadth of the Chevrolet line and new vehicles from Buick, we can bring those owners into the fold," said owner H. Douglas Knust. Even with the effort, he said, keeping customers will be a challenge because Pontiac owners may not find what they want in a Chevy.
Despite the defections, GM's overall sales are rising amid an economic recovery. The auto maker has gained market share so far this year—in large part because it now concentrates on its Chevrolet, Buick Cadillac and GMC brands. In the first quarter of this year, GM had U.S. market share of 19.4%, about flat with the 19.6% it held in January 2009, just before GM announced it would unload its other four brands.
Still, keeping the orphan-brand owners is critical, Mr. Knust said. "The onus is on us now to convert those owners, or else we're going to lose market share," he said.
Write to Sharon Terlep at sharon.terlep@wsj.com
