The number of new-vehicle buyers opting for extended warranty coverage has reached an industry high, according to the J.D. Power and Associates 2001 New Vehicle Service Contract Report(SM) released Oct. 8.

Twenty-eight percent of new-vehicle owners purchased service contracts in 2001, compared to 21 percent in 1996. The average price of a service contract on a new vehicle also increased to $1,178 — up $81 from last year.

"The increased number of contracts being sold is great news for dealerships because these contracts often serve as a continuing source of revenue," said Dan Lawlor, senior analyst with J.D. Power and Associates. "During the first three years of ownership, when they are relying on their base warranties, service-contract buyers spend an average of $50 more per year on maintenance and repairs at the dealership than do non-service contract buyers. Spending at the dealership increases with each successive year of ownership, including the time beyond the base warranty, often because service contract customers tend to put more miles on their vehicles."

The average dealer profit on service contracts in 2001 is $548, a 7 percent increase over 2000. Plymouth and Mitsubishi lead the industry in having the largest dealer profit, with a 57 percent profit margin.

Plymouth leads the industry again this year with the highest service contract penetration rate among all nameplates with a rate of 44 percent, up 4 percentage points compared to 2000. Following Plymouth is Saturn at 42 percent, increasing its penetration rate by 10 percentage points over 2000.

Customers buying vehicles with more comprehensive warranty coverage tend to purchase fewer service contracts. For example, Kia’s standard warranty went from 3 years/36,000 miles in 2000 to 5 years/60,000 miles in 2001, with extra drivetrain coverage increasing as well to 10 years/100,000 miles. Consistent with these changes, Kia’s penetration dramatically decreased by 22 percentage points from 2000.

"Richer manufacturer warranties affect service contract penetration rates," said Lawlor. "For many customers, the purchase of a service contract is added insurance for the future when their factory warranty expires. When the manufacturer’s warranties become longer in duration, buyers don’t feel as inclined to buy added service coverage."

The 2001 New Vehicle Service Contract Report is compiled using information from a variety of J.D. Power and Associates sources: the 2001 Early Buyer database; the 2001 Customer Service Index Study; the 2001 Service Usage and Retention Study; and the Power Information Network, a nationwide data collection system that aggregates daily vehicle transactions from approximately 7,500 automotive franchise points in more than 22 major U.S. markets.

About J.D. Power and Associates

Headquartered in Agoura Hills, Calif., J.D. Power and Associates is a global marketing information services firm operating in key business sectors including market research, forecasting, consulting, training and customer satisfaction.

The firm’s quality and satisfaction measurements are based on actual responses from millions of consumers annually.

J.D. Power and Associates can be accessed through the Internet at www.jdpa.com.