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Service Contracts Improve Customer Loyalty to Dealer

November 9, 2004

WESTLAKE VILLAGE, Calif. -- A study found that less than one-half of non-luxury vehicle owners remain loyal to new car dealers for service after the fourth year of vehicle ownership. But customers who purchase extended warranties or service contracts are more likely to frequent the dealership.

J.D. Power and AssociatesĀ“ Service Usage and Retention Study showed that non-luxury customers defect to non-dealer facilities because they typically have shorter warranties. Non-luxury dealerships retain 66 percent of annual service visits in the first year of ownership. By the third year, the number slips to 55 percent, and to 47 percent by the fourth year.

Nearly 25 percent of vehicle owners said they purchased an extended warranty or service contract when they originally purchased the vehicle. These same people spend nearly $100 more at a dealership in the past 12 months than those who did not purchase additional coverage.

The study was based on responses from 10,201 owners of 2000-model-year vehicles. It measures buyer behavior, customer retention, spending patterns and customer satisfaction at new car dealers and non-dealer aftermarket service facilities.

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