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Extended Powertrain Warranties Could Fuel VSC Sales

December 2006, F&I and Showroom - Feature

by Dennis Alexander - Also by this author

The automotive industry has seen significant changes over the last few years. The impact of Internet sales, the evolution of the menu, and product innovations, such as GAP insurance, etch and vehicle return programs, have changed the way dealers conduct business. In every instance, adapting to market conditions is what determined a dealership’s ability to remain profitable. Now, the industry will have to factor in the emergence of factory-extended warranties, a trend that could present more upside for a savvy dealership.

How extended powertrain warranties impact dealerships remains to be seen. Where dealerships stand to gain is in the amount of warranty work returning to the service department. The increase in factory coverage will also eliminate the chance for customers turning to outside service shops for repairs, which should have a positive impact in service department absorption.

Additionally, increased customer awareness about factory warranties creates an opportunity for business managers to educate customers about the factory coverage, which naturally leads into menu selling. For example, 25 to 40 percent of claims on new vehicles may occur on powertrain components, which means 60 to 75 percent of the exposure still exists for the customer. That statistic alone provides the perfect lead-in to sell a wrap coverage to supplement the extended powertrain warranty.

Service Contract Sales and Extended Powertrain Coverage Can Coexist

Many service contract providers offer wrap coverage to fully protect customers. The dealership cost and retail prices for wraps are significantly lower than traditional coverage, allowing business managers to carry more with a lender. In addition, lower service contract costs equate to payment relief for the customer, which should increase VSC penetration. Combining these advantages with realignment in VSC marketing and product offerings will enable service contract sales to coexist and even increase with extended powertrain coverage.

Dealers also have powerful resources at their disposal to do this. Outside development partners that have a full portfolio of products and development programs, such as wrap programs, can provide marketing solutions to maximize sales. For example, many of these companies already have wrap programs developed with reduced pricing that exclude the powertrain components now covered by the manufacturer. Many companies have also developed, or are in the process of developing, “upgrades” to allow for terms that exceed the

extended powertrain coverage.

Complementing the manufacturer’s programs is not a new phenomenon to the industry, and with the right processes and training, the industry as a whole stands to benefit.

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