Automotive News - May 5, 2008 - (Page 28)

28 • MAY 5, 2008 The resilient dealer INSIGHT Certified buyers opt for extended service contracts Arlena Sawyers asawyers@crain.com Dealers, automakers and vendors are finding a growing market for extended service contracts: buyers of certified used cars and trucks. “Wraparound” service contracts augment factory-backed warranties of certified vehicles. They cover what warranties generally don’t: components other than powertrains. Owners of certified vehicles can get bumperto-bumper protection by adding a few dollars to their monthly payments. Dealers say they like the extended contracts because they are a profit source, help keep service departments busy and build customer loyalty. “Happy customers will refer you to MICHAEL SETO Paragon Honda’s Brian Benstock says his customers find wraparound warranties “worth the investment.” other customers and return to your store,” says Larry Taylor, owner of Beau Townsend Ford near Dayton, Ohio. “And selling extended warranties and certified cars has helped us maintain” customer satisfaction. Last year Townsend’s dealership sold 862 certified Ford cars and trucks, No. 3 among Ford dealerships. Townsend says buyers of 71 percent of those vehicles also purchased factory wraparound contracts. That’s a wrap Dealers cite these advantages of selling extended service contracts for certified used cars and trucks. � The contracts provide more profit for the dealership. � They generate work for dealership service departments. � They build customer loyalty by covering repairs that factory warranties don’t. who buy late-model certified vehicles rather than new cars and trucks. “There is a tremendous amount of traction for that kind of transaction in today’s market,” he says. Profit center Prices of extended service contracts for certified vehicles vary widely depending on model, type of contract and amount of warranty coverage remaining. One dealer who asked not to be identified says dealers typically pay $300 to $700 for wraparound contracts and sell them to consumers for about $700 to $2,500. Dealers pay about 30 percent less for contracts that cover steering and brake systems but exclude powertrains, an industry source says. In 2007, buyers of about one-third of all used vehicles sold at franchised dealerships chose a service contract, according to J.D. Power and Associates’ Power Information Network. Power did not have a penetration rate for certified vehicle contracts. Glenn Roberts, a training executive at Zurich North America Commercial’s Direct Markets unit, says buyers of certified vehicles often buy service contracts for the same length of time and mileage as the factory powertrain warranty. “If there is a 5-year/60,000mile or 7-year/70,000-mile powertrain warranty, that is typically what you’ll see for the wrap,” Roberts says. “There needs to be some underlying coverage. Otherwise the wrap is sitting there by itself.” Zurich North America, of suburban Chicago, sells extended service contracts to dealers. The company declined to say how many contracts it sells for certified cars and trucks. Roberts says wraparound coverage generally covers electrical parts, which generate the problems that send most customers to service departments. Dealer Taylor says extended contracts tie buyers of certified vehicles to his store for service. He says he marks up the retail cost of the contracts, “but not a great percentage.” “We can’t stay in business selling people one vehicle,” Taylor says. The certified service contract coverage “really enhances our repeat business.” Patrick Donahue is president of Resource Dealer Group Inc., a service contract administrator in Chicago. He says wraparound contracts are increasingly popular among consumers - Gaining traction Forrest Heathcott, president of JM&A Group, says dealers also offer owners of certified vehicles maintenance contracts that cover such items as tires, wheels and theft deterrent systems. JM&A, in suburban Miami, supplies finance and insurance products to dealerships. “These products add value for the customer during ownership of the certified pre-owned vehicle and do not conflict with the certified warranty coverage,” he says. Brian Benstock, general manager of Paragon Honda in New York, says buyers of certified cars and trucks have high expectations of vehicle quality. As a result, he says, some customers have misconceptions about which components a factory warranty covers. A wraparound warranty fills the gaps, he says. “Our customers find it worth the investment,” Benstock says. Last year, Benstock’s dealership sold 1,542 certified Honda cars and trucks — the most of any U.S. Honda dealership. More than 75 percent of those buyers purchased a wraparound contract sold by Honda, he says. Will Amiri, pre-owned sales manager at Longo Toyota, says the suburban Los Angeles dealership sells 300 certified used vehicles each month — the most of any U.S. Toyota dealership. Certified vehicles are covered by Toyota’s powertrain warranty — 7 years/100,000 miles from when the vehicle was sold as new. Amiri says Toyota Financial Services offers a wraparound contract that provides more comprehensive coverage. “If you’re concerned about your power windows, your stereo, your power seats, you get the comprehensive coverage,” he says. About 60 percent of Longo’s certified customers buy the added coverage, Amiri estimates. “We introduce it to every single guest.” c IF NOT, THEN YOU AREN’T PARTNERED WITH ONE OF THE FASTEST GROWING SERVICE CONTRACT PROVIDERS IN NORTH AMERICA INTERSTATE NATIONAL DEALER SERVICES. Our stars are perfectly in line with exciting products including our re-energized Hi-Road and a Missed Opportunity Program to get you financially aligned PLUS our powerhouse StarAuto, F&I training and private labels to keep your stars burning bright. With 27 years of administering nearly $600 million in paid claims to over 1.5 million customers, Interstate National Dealer Services remains the industry leader in strength, stability and your partner for a bright and profitable future. Team up with Interstate and get your stars aligned now! WE WARRANTY THE BIG THINGS IN LIFE CALL 866-515-INDS OR VISIT INDS.COM http://powerpusher.com http://powerpusher.com http://inds.com http://inds.com

Table of Contents Feed for the Digital Edition of Automotive News - May 5, 2008

Automotive News - May 5, 2008 Dodge dealers battle to bust Ram logjam Used-car price slump slams luxury makes INDUSTRY IN DISTRESS Tesla opens first dealership in L.A. Los Angeles Top auto execs to talk marketing at seminar Nader and the Corvair: GM edition tells whole story Dealers take Tundra to the people UAW official expects American Axle buyouts Ford plans more UAW buyouts at 2 plants Honda to some dealers: Upgrade or else Hyundai: Powertrains will take us halfway to mpg target Diesel dynamo Daimler cuts Chrysler value, again Ford domestic dealer count dips below 4,000 Seems like old times: More cash on the hood Toyota sister car poses a challenge for Subaru Suzuki to offer standard navigation in $16,000 car Mpg plan fuels states-rights battle Kerkorian interest buoys Ford stock Henderson: GM will keep tight rein on inventory Is it real, or is it just temporary? Ford Motor must stay focused on recovery 'Have you lost your mind?' Dealers are victims of Axle strike Federal oversight? Good heavens, no Geoff Polites: A salute Save a board seat for the UAW A car for everyone or cut, cut, cut, cut? Think of Buick as part of B-P-G Costs up in China, but bargains still abound Mexico sales fall 17% in March Obituary Hyundai reworks Sonata sooner rather than later Nissan's Dominique gets to the big dance Dana seeks new business with Japanese companies ZF will supply Nissan Certified Tool closes a plant German engineering company plans Ala. factory Dealers A Lexus colossus Used-vehicle leasing boosts showroom traffic Certified buyers opt for extended service contracts Repossessed vehicles offer dealers a profit opening Prepaid plans spark service visits beyond oil changes Key to managing floorplan costs: Be realistic Long-term loans: Convenience or bad deal? Dealers hunt upside-down buyers with leases, incentives and long-term loans Where have all the investors gone? Dealer rebounds from contract mess Dealers must choose: Reynolds, GM — or start over AutoTrader.com makes big pitch to bump up new-vehicle sales CAW, Ford reach extensive early labor deal Infiniti asks: Do you smell something? Sure, Nissan GT-R is impractical — but what a rush Faurecia: We'll break even in N.A. Suppliers join carmakers' charge into Russia Chrysler small cars, Jeep crossovers are hot A dreary April in Detroit Penske earnings rise in 1st quarter Lithia posts $1.9 million loss GM makes 2nd ethanol deal Group 1's earnings slip Magna profits down; sales rise AIADA picks dealer of the year Vox(wagen) populi — plus a sales pitch Wagoner's pension shift: More earlier, less overall COMMENT: Bargaining barbs will sting for a long time Bugging the boss: Who's listening to Porsche CEO? New models from the post office Critics have kind words for Pontiac's G8 Ford can't picture kids at design studio

Automotive News - May 5, 2008

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