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GM’s Message to F&I

The editor says GM’s decision to reduce terms on its powertrain warranty and visits under its maintenance program is just another reason F&I is here to stay.

April 3, 2015

There’s all this talk about dealers needing to rethink the F&I experience by moving more of the process online, yet finance sources and vehicle OEMs keep giving us every reason to stick with what works.

Mad Marv covers one of those reasons this month: J.D. Power’s study on vehicle dependability. The 2015 edition showed that in-car technology took the Top 2 spots in its list of problems reported by car owners. I’m sure I don’t have to tell you why that’s important to your service-contract pitch.

In fact, we made in-car tech a part of our pitch when General Motors began placing its five-year, 100,000-mile limited powertrain warranty on the hoods of its 2007 models. I do remember how concerned we were that GM’s warranty was going to hurt service-contract sales. But it didn’t, right?

In fact, according to 2013 data from the National Automobile Dealers Association (NADA), F&I’s contribution to profitability in new- and used-car departments reached its highest level since 2004. We’ve also witnessed some of the highest F&I profit-per-deal averages in seven years.

Now GM is cutting coverage terms on its limited powertrain warranty to five years or 60,000 miles. It also reduced the number of visits under its two-year, 24,000-mile free maintenance program from four to two. Why? Here’s a statement I received from a GM spokesperson: “We talked to our customers and learned that free scheduled maintenance and warranty coverage do not rank high as a reason to purchase a vehicle among buyers of non-luxury brands.”

J.D. Power released a study last April that concluded the opposite. It said maintenance fueled brand loyalty and increased brand repurchase rates among consumers who prepaid for the product or got it for free. The GM spokesperson did note, however, that usage of the OEM’s free maintenance offering fell off after the first visit.

I reached out to Joe St. John, director of training for IAS. I saw him deliver a stirring address at our company’s Agent Summit event last month in Las Vegas. I’ll save his message for a future column, but I’ll just say the guy has motor oil running through his veins. I mean, his mother was a service writer and his father was an F&I manager.

Anyway, I chatted with him about GM’s decision. He pointed out that the powertrain is really the only part most OEMs build, which is why they can be confident in the way it performs. By the way, Chevrolet, Buick, GMC and Cadillac all ranked in the Top 10 for vehicle dependability in that J.D. Power study I referenced earlier.

So was it a financial decision? Well, by reducing terms on what Rick Wagoner, the company’s former chairman and CEO, once called a “consumer confidence package,” the company does reduce its risk exposure. It also gets to reallocate those savings to invest in features the OEM believes consumers want more, like, as the GM spokesperson noted, “advanced connected vehicle technology.”  

This is how St. John viewed GM’s decision: “If it doesn’t make sense for a multibillion dollar company like GM to assume the risk for their clients, then why would we ever think it makes sense to expose our clients to the risk?

“The crazy thing is, it’s not just the manufacturers like GM reducing their powertrain warranties, it’s all the other things our market’s doing to expose them to risk.”

He’s right. Just check out this month’s auto finance report from Experian Automotive. You’ll read that not only has the average amount financed for new vehicles reached an all-time high, loan terms continue to stretch.

And that’s why you need to be at this year’s Industry Summit (Sept. 8-10), which will feature the who’s who of F&I trainers to help you, as St. John put it, “help your customers protect their financial investments and insulate their families from catastrophic financial loss.”

By the way, St. John believes there’s one other thing to glean from GM’s decision. “As General Motors continues to keep that focus on retention, they’re going to shift more of that responsibility to their dealers,” he said. “So what GM is really helping to reiterate is the importance of the role of the business manager to take care of dealers’ clients and building that retention model that is so important in today’s market.”

Comments

  1. 1. Jack [ April 18, 2015 @ 01:53PM ]

    Great for selling more servisbay ppm plans and growing dealer retention.

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