Southfield, Michigan – The U.S. “Cash for Clunkers” program, which offered rebates for owners trading in old vehicles on new, more fuel-efficient models, created an unforeseen side effect in a loss of customer brand loyalty, according to a report by industry analyst firm R.L. Polk & Company.

Between July and August 2009, when dealer showrooms saw increasing traffic and vehicle sales, overall loyalty rates to a manufacturer dropped nearly six percentage points. Over the same two-month period in 2008, owner loyalty rates stayed relatively flat.

The largest declines were felt by Chrysler, which fell 13 percentage points, and General Motors, which dropped nearly seven percentage points. Ford was the least affected of the domestic manufacturers, dropping six percentage points. During the same period, Honda dropped two percentage points, while Toyota dropped by five.

“While the Cash for Clunkers program drove sales, it also caused a lot of competitive cross-buying that hurt repeat sales to the same automaker,” said Lonnie Miller, director of industry analysis. “Our analysis supports that OEMs and dealers may not have realized the potential defections the Cash for Clunkers program might bring. Whether this matters in the short-term, we think long-term loyalty needs to be a constant focus.”

Industry-wide, contributing factors to the monthly spike in defections included low or depleted inventory levels of qualifying vehicles, Polk said. General Motors’ planned phase-out of Saturn may also have accounted for the lower levels. For the first time in eight years, fewer than one in two Saturn owners are expected to stay with General Motors.

“The playing field was virtually levelled when all OEMs had the same incentives, and loyalty rates were adversely affected,” Miller said.

Connect with