The changing face of car brand loyalty in an economic downturn

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Residual value, or to be more precise resale value, are talked about only by dealers who sell cars with great residuals, the others tend to do a bit of sweeping under the carpet and certain other features about a product are expressed during a sales pitch instead.

Quality is not necessarily a factor in defining whether a car has a good sell on value, often the factors which contribute are initial price, aesthetics, brand kudos and specification and in the world we live in today it seems the way you look is everything.

When we take a look at buying trends, it has been an interesting last couple of years. In a recession buyers change their habits to suit their budgets so obviously economy brands come to the fore because of what they offer in terms of price. It is no shock then to find out that supermarket own brands are thriving against better known branded products and it is the same with cars.

We have seen, albeit with the help of scrappage, how well value brands have performed and the market share they have gained by appealing to buyers who want a new car with a long warranty, and are encouraged by the economics of their situation to consider a car they may not have ordinarily.

Once they have a car like this they will often be pleasantly surprised at how good it is and, at this point, of course, resale value is a very small consideration for them. If a car is comparatively inexpensive o start with the level of depreciation will be a lot lower in pure monetary terms because it hasn’t that far to go, compared to a £20k car which could clearly turn out to be far more painful.

The point is that the success of these ‘go to cars’ in a recession only tell half the story. For example I have some colleagues who work with Audi, Mercedes, BMW and VW and asked them what effect scrappage has had and also how they have seen not just the demographic of customer change but whether model popularity has been affected by the downturn.

Interestingly, although perhaps not that surprisingly, the VW dealer said that he had seen a marked increase in enquiries from Audi customers who were perhaps familiar with the ‘VW’ brand and although needed to downgrade were comfortable with the fact that their neighbours would see a VW on the drive rather than the 4 rings. In other words they didn’t feel it was such a comedown and would certainly not go below this perception by looking at a Vauxhall or a Ford for instance.

The Mercedes and BMW guys were of a similar opinion but found that their customers were more likely to move around the brand and have a lesser specification model or a cheaper one rather than downgrade in their choice of badge.

With the exception of VW many of them said that scrappage had had a limited affect on sales but there were still customers who had moved a clunker that had remained in the family to buy the odd 1 series or A3.

The BMW and Audi guys said that existing customers they had in were also keen to keep to a high specification but would consider a demo or nearly new used car as a way of economising. Obviously this would mean not compromising on specification and the fact that the model line-ups in these brands have some of the best residuals would indicate that despite pressure from the competition they have a secure future ahead.

On the flip side it doesn’t take much to decimate resale values with Saab being a classic example of this. There are few, if any, models in the Saab range which could ever claim to have strong residuals, indeed it has long been accepted in the trade that the only place a Saab owner could get a decent trade in value on a late plate Saab was another Saab dealer.

Rarely would sellers of other marques be able to construct a deal with a Saab customer without heavily discounting their own car to ease the pain of lost value in a Saab.

That may explain why today they are struggling for their very existence and anyone who owns one and is thinking of changing would probably be financially better off by just keeping it until the situation becomes clearer.