• by Karl Greenberg , December 7, 2007

J.D. Power reports Toyota retains its customers better than any other automaker. The company's 2007 Customer Retention Study measures the percentage of new-vehicle buyers and lessees who replace a previously purchased new vehicle with another from the same nameplate.

For the second year in a row, Toyota leads with over 64% of customers staying with the nameplate. Also, as in 2006, Lexus is second, and Honda is third. The 2007 Customer Retention Study is based on responses from 169,017 new-vehicle buyers and lessees, of which 101,860 replaced a vehicle that was previously acquired new.

Neal Oddes, director of product research and analysis at J.D. Power and Associates, said Toyota's high retention rates come even as sales are down. "Toyota maintains its high retention rates by providing high-quality vehicles and service to its existing customers, which in turn generates favorable word-of-mouth recommendations that attract new customers."

The firm says industry-wide average retention rates have remained at 49% since 2003, with big gainers Suzuki, which improves by 19% and Mazda, up 9% since 2003.

J.D. Power says Suzuki's five-year gain in customer retention is the largest since the study's inception in 2003. Increased cargo capacity and higher resale value as the main reasons for Suzuki's improvement, per the firm.

Mazda's improvements to the styling and quality of its product line have helped to elevate their retention rates. In particular, the study finds that better safety features, fuel economy and seating arrangements have led to Mazda's five-year gain.

"The improvements that Suzuki and Mazda have made in vehicle appeal and quality have paid off in steady increases in their customer retention rates during the past five years, indicating that they have also been successful in changing customer perceptions of their vehicles," he says.

"Typically, when a brand introduces improvements to its product line, it takes some time for customer perceptions to improve accordingly, particularly if there are negative perceptions to overcome."

Customer retention may become even more important to automakers in the coming years, as new-vehicle sales between 2007 and 2014 are expected to increase by only 8%, or about 1.2 million units.

"Competition for a dwindling number of new-vehicle buyers will likely intensify in the next seven years, meaning that brands will need to retain more of their existing customers in order to increase, or even maintain, market share," said Oddes. "In addition, it is approximately four times more costly to attain a new customer than it is to retain an existing one, so in the face of a very competitive new-vehicle market, a strong focus on customer retention becomes particularly important."