By Jeff Lieber, Regional Director of Sales, APC

The COVID-19 pandemic has pushed the entire automotive industry to undergo 10 years of digital transformation in just one year, and this evolution is ongoing. We now have zero-contact automotive transactions, computer chips causing both new vehicle production delays and used vehicle shortages. Dealerships have had to react with reduced working hours, and staffing cuts have been made. One vital concern is how all these changes will affect F&I products, including vehicle service contract sales, which are critical to dealers’ long-term overall profitability.

Critical Issues for Dealers’ Profitability

Vehicle service contracts are crucial to gross profit across several departments within a dealership. The importance of vehicle service contract sales begins in the finance department where they add to the gross profits on new or used vehicle sales. The profits continue when customers utilize those vehicle service contracts, generating parts and service department revenue. But what else do they do? The short answer is, they build loyalty to your dealership by way of returning customers to the service department and through your exceptional customer service.

Statistics show that when a consumer’s vehicle coverage ends, many will no longer continue to have their vehicles serviced at the dealership. When customers approach 36,000 miles (the most common expiration of a new vehicle warranty) without having extended their coverage, about 35% will search for less expensive garages to repair their vehicles. This allows independent repair facilities that are potentially less expensive with more convenient hours to convert your customers. Those who have coverage through extended vehicle service contracts are far more likely to keep servicing their vehicles at your dealership throughout the term of their contracts.

In addition to retaining these customers for future service department revenue, statistics indicate a high percentage, 74% of customers, will purchase another vehicle from your dealership. This helps establish a cycle of buying, servicing and repeat buying. Another benefit is higher trade-in values to supply the pre-owned department, which dealers will tell you is hard to accomplish at reasonable prices.

Pre-owned vehicle shortages are a direct result of pandemic buying behaviors. More people are opting to drive instead of flying and consumers are keeping vehicles longer. Dealers, in turn, are looking to allot more dollars on a trade from their customer base that was serviced at their store, as opposed to paying exorbitant prices for inventory elsewhere.

So, ultimately this translates to more vehicle service contract sales (which equals more parts and service profit), more new vehicle sales from loyal, repeat customers, and quality trade-ins for pre-owned inventory (which increases used-vehicle sales also).

Ensuring Maximum Vehicle Service Contract Sales in This Evolving Automotive Environment

The purchase of a vehicle service contract can be somewhat complicated due to customers having different driving habits and needs. Your customers need to be educated on the value and assurances that a vehicle service contract can provide them.

A professional who is well versed in the intricacies and options that are available is the optimal way to provide this type of personalized information.

As the industry continues to shift to meet consumer demands for virtual processes, we will be better equipped to evaluate if this can be effectively accomplished through drop-down menus and online presentations. Technology can be an enhancement but will never be a total substitute for the user experience of personalized salesmanship.

Dealers today are doing what they do best, which is to adapt as required, but we need to make assessments for potential missed opportunities during the adjustment period. General managers are working harder than ever as they try to keep up with customer needs. Is this creating more missed opportunities for quality vehicle service contract value presentations? Will this impact vehicle service contract sales and all the revenue streams they create?

Dealers should consider the best way to ensure that those quality presentations take place.

Key questions to address:
• Can the management team address every customer with a presentation?
• Alternatively, can the business development center address every customer with a presentation?
• Do we have the right software and hardware needed to present to these customers?
• Would we be better served if we pay an outsourced company to provide this service?
• Are we targeting automotive owners coming to their service department now without a vehicle service contract about purchasing one?

You don’t have to surrender your customers to third-party companies. If left unattended and without a plan, surely the third-party robocalling entities will approach your customers with inferior coverage that may not be applicable for serving in your shop. Take a hard look at your current vehicle service contract penetration and reflect on how it will impact future profits and how you can increase it effectively in this new world.