(This article was previously published in F&I Showroom on 10/22/21)
Building customer loyalty can be a challenge for dealers. When customers focus primarily on inventory, the ability to differentiate your dealership from a competitive dealership is limited. One way to stay in touch with customers is by helping them find F&I products that meet their needs and keep their investment protected. Providing peace of mind leads to a better ownership experience and increases the chance that customers will return to your dealership.
Vehicle Service Contracts (VSCs)
Most consumers understand that purchasing a pre-owned vehicle comes with a higher risk of potential problems. Therefore, it’s easy for them to understand the benefits of a VSC. As a dealer, stress how tying the price of a VSC into the purchase price of the vehicle won’t affect the consumer’s monthly budget or cause undue stress in the event of a breakdown.
Additional value for customers comes with the peace of mind that a VSC offers. In the event a customer is stranded, offer a plan with a 24-hour number they can call for roadside assistance. Towing benefits, rental car coverage, or rideshare reimbursement are also popular options.
To ensure customers get their service claims taken care of in a timely manner, choose a provider that pays generous hourly labor rates to service centers. Many traditional service contracts pay flat rates of $75 or $80/hour to technicians, while others pay new-car franchise rates as high as $130/hour or more.
Also, look for a provider that offers day-one, mile-one coverage. It doesn’t happen often, but occasionally customers will drive off the lot and the vehicle breaks down within a few hours or miles of driving. Many F&I product providers delay the start of coverage until 100 miles or 30 days out. If you haven’t paid for the service contract yet, they might not honor the terms, which can cause a big problem with the customer who believes they are covered.
When selling VSCs, it’s important to set the correct expectations so customers understand exactly what they’re getting. This is especially critical when distinguishing between what’s covered in a basic contract versus an exclusionary, high-end contract.
Often a customer will hear “it’s covered,” and then when something breaks and it’s not covered, they get upset. With late-model vehicles, electronics protection has become increasingly important so make sure to also present a cost/risk analysis for these components.
A best practice is to present the basic coverage first and then move up to the exclusionary coverage rather than vice versa. That way, you can focus on what the customer is getting with exclusionary that’s not in the initial coverage.
When selling any F&I product, it’s important to present information visually. Graphics and brochures will help, but there’s nothing better than talking to the customer at the vehicle. Open the hood and show the engine as you explain how the costs of labor and parts are skyrocketing. Selling VSCs should not be about persuading. A thorough presentation of information in an engaging manner should result in the customer concluding that a VSC is a smart investment.
With the average price of pre-owned vehicles surpassing $25,000 in 2021, customers are spending more than ever on vehicles. While car buyers may view their purchase as an investment, in reality, a vehicle is still a depreciating asset.
As soon as a customer drives off the lot, their vehicle is not worth as much as was paid for it. Granted, this year, we have heard many stories to the contrary, where the price of pre-owned vehicles appreciates due to lack of inventory. But a customer who buys a vehicle today cannot count on this trend continuing for long. Eventually, the value will depreciate.
A year from now, if a customer gets into an accident and totals the vehicle, there’s a very good chance they will owe more on the car loan than the car will be worth. If they owe $20,000 on the vehicle and the car is worth only $15,000, that’s $5,000 that has to come out of the customer’s pocket. GAP insurance helps cover that difference.
The nice thing about GAP is that’s it’s fairly inexpensive for the customer, especially compared with the cost of a total loss on their vehicle. The only issue is that nobody expects they will total their vehicle. Reassure the customer it’s not about how well they drive; it’s about all the other drivers out there on the streets.
A bonus benefit for the dealership is that when a customer gets their money from a GAP claim, that money can be used at the original dealership to purchase another vehicle (pending state regulations). This increases the opportunity to create repeat customers.
The biggest reason consumers decline VSCs and GAP coverage is because they want to keep their monthly payments within a budget. Try to steer customers towards a vehicle with a price where they still have room to add F&I products. The investment protection and peace of mind these products provide should keep customers returning to your dealership for their next vehicle.
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