Service Contract Sales Down for Third Year
New-vehicle service contract penetration declined to 20.8 percent in 2004. This is the third year of declines since its peak of 28 percent in 2001, according to the Power Information Network, an affiliate of J.D. Power and Associates.
New-vehicle service contract penetration declined to 20.8 percent in 2004. This is the third year of declines since its peak of 28 percent in 2001, according to the Power Information Network, an affiliate of J.D. Power and Associates.
The study attributes much of this decline to a drop in penetration among Generation Y customers, who have the highest probability of purchasing service contracts.
Generation Y buyers had the largest decline of 7.2 percent in penetration rates from 31.7 percent in 2002 to 24.5 percent in 2004. The factors contributing to this trend include longer loans — an average of 65 months — and increasing loan amounts.
In addition, this demographic group has begun trading in vehicles on a shorter cycle, which has increased negative equity. This has resulted in fewer available funds to purchase extra items, such as service contracts.
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