Brand Loyalty: Toyota's Loss Is Its Competitors' Gain

Here's more evidence that other car brands are benefiting from Toyota's (TM) ongoing recall of millions of vehicles: A Kelly Blue Book survey released Wednesday shows that owners of Ford (F), Chevrolet, Kia (KIMTF) and Hyundai (HYMTF) are becoming more loyal to their brands, while brand loyalty among Toyota owners has declined.

Furthermore, Kelly Blue Book Market Intelligence shows that Toyota owners are shifting their car-buying interest to Ford and Korean automakers Kia and Hyundai, and away from Toyota and other Japanese brands, including Honda (HMC) and Nissan (NSANY)."One might have guessed Toyota owners would switch their allegiance to other Japanese brands, but instead they seem to be turning away from Japanese brands as a category," says Jack Nerad, executive editorial director of Kelly Blue Book and "It's just another indication of the far-reaching effects of these recall-related issues."

The recall has already cost Toyota its reputation for safety, and auto-industry experts estimate the recalls will cost more than $2 billion. Last week, Kelly Blue Book cut values on all Toyota used vehicles affected by the recall by up to 3%.

Offering "Conquest Cash" to Toyota Owners

Spokeswoman Robyn Eckard says that while the data aren't not in yet, the switch in brand loyalty could cost Toyota sales because car buyers have already begun looking at other vehicles they normally wouldn't have considered. In addition, domestic automakers are attempting to lure buyers even more by secretly offering "conquest cash," for example, $1,000 cash back for buyers who turn in a Toyota when they purchase a new car.

In a tight economy, such gimmicks may be enough to peel Toyota loyalists away from the brand. Compared to data collected in the fourth quarter of 2009, the latest Kelly survey showed that the percentage of Toyota owners who were looking to buy another Toyota had fallen to 51%, down from 57.5%. Owners of other brands were also less likely to consider buying a Toyota, down five to eight percentage points, depending on the brand.

Korean imports Kia and Hyundai seem to be benefiting the most from Toyota's misfortune. The willingness of Kia owners to stay loyal to their brand when looking for a new vehicle rose to 56.1%, up 17.1 percentage points, and Hyundai owner loyalty rose to 56.5%, up 10.5 percentage points.

Chevrolet and Ford also showed increases in customer loyalty, with Chevy's rising to 52.5%, up 6.5 percentage points. Brand loyalty for Ford increased to 48.9%, up 4.6 percentage points. Says James Bell, executive market analyst for Kelly Blue Book's "This indication toward increased loyalty should translate well to the bottom line of these manufacturers in the near future."
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