I constantly get calls asking about the average service contract penetration in the United States. While it makes sense to measure your production against the average, when it comes to setting goals, I prefer to set mine higher!
When I was working at a Honda dealership in finance, an associate told me there was no reason a customer would purchase a VSC on a Honda because they never break down. And he was supposed to be offering and selling service contracts!
At the time, Hondas didn’t have all the electronic components they do today, and they weren’t all that pretty. Instead of listening to my co-worker’s advice, I decided the opposite must be true.
It made sense to me that a customer who is purchasing a Honda without all the bells and whistles vs a Chevrolet or Ford might be more service-conscious. They’re buying a Honda because it’s dependable, but may still be concerned about repairs. In fact, I thought, a Honda customer would definitely see the benefit of a service contract. Guess what? I was right!
A different perspective opens doors! I made sure the customer understood all the benefits of the VSC and my product penetration soared! At the same time, my co-worker’s product penetration plummeted to an all-time low!
My approach worked because I saw the glass half full. It may not have made sense to most, but it did to me! If you think you’re selling a half-empty glass, the customer will pick up on it immediately. You have to believe in the benefit! Believe in the WHY!
So why would customers take advantage of a service contract, even though they have the manufacturer’s warranty? Especially on a Toyota or Honda, or vehicles with coverage of 5 years / 60,0000 miles and powertrain up to 100,000 miles?
Here are just a few reasons. Write them down.
First, according to the Federal Highway Administration, Americans now drive an average of 13,476 miles per year. Facts to back up your claims are a google search away. But many customers log 15,000 to 20,000 miles per year annually. This means your average customers would meet the warranty’s comprehensive coverage limit in 1-½ to 2 years! And the powertrain coverage would be up in 3-½ to 4 years.
Point out to the customer that you can maintain an engine, but you can’t maintain electronic components. Anybody who’s had the main buttons on a TV remote stop working knows that electronic devices can wear out with repeated use. Today’s vehicles depend on numerous integrated electronic systems, which are not cheap to repair.
Service contracts not only offer peace of mind, they help ensure the customer isn’t paying for repairs they didn’t factor into their monthly budget. In fact, some customers will skip a car payment so they can get the car repaired – wreaking havoc on their credit.
How many customers still drive a car that needs repair because they can’t afford to fix it, destroying its resale value? A customer with a VSC will usually fare much better selling the vehicle than a customer who doesn’t have one.
The majority of customers who trade their vehicles early see the value of having purchased a service contract. If you put two vehicles of the same model, same year, side-by-side – one with a VSC and the other without – which one do you think the buyer will choose? A service contract adds value to the vehicle – period!
A customer who is buying a preowned vehicle should always leave with a service contract in hand! The last thing you want is the customer coming into the dealership for a repair and having to fork over thousands of dollars when they least expect it. The bottom line is, it’s better to have it and not need it – than need it and not have it!
For the dealership, VSCs don’t just add to F&I revenue. Statistics show that customers who buy one are more likely to purchase their next vehicle at the selling dealership. VSCs = customer retention.
Service contracts have been around a long time. If they didn’t provide customers with real value, there wouldn’t be so many repeat VSC buyers.
Make it department policy to offer your service contract 100% of the time! Be consistent. Train your entire sales team on the genuine benefits of a VSC so they can honestly convey them to customers – and overcome objections. I guarantee you’ll see a measurable increase in your VSC penetration!
