Doing More with a Service Contract

Autotrader published a study, the Maintenance & Repair Study, in 2016.

For the automotive service industry, some very telling facts come to light in its pages. Less than one in three car buyers visits the car dealership for their automotive service.

Customers trust that car dealerships are knowledgeable about their car repairs, but at an inflated price. And, perhaps deceivingly tucked at the bottom of the study, that six of ten car owners who have warranty visit the dealership. That number is cut in half when the warranty runs out.

As automotive franchises, that should be at least a little uncomfortable. 70 percent of customers aren’t returning to the dealership for maintenance. 40 percent aren’t visiting, even when their car has warranty coverage. And 30 percent more drop out once their warranty expires.

What it means is that manufacturers do a really poor job, on average, of customer retention. Unless a car has a warranty, customers don’t care to visit the dealership’s service department.

The Extended Service Plan Difference

But that changes when a customer has purchased an extended service plan or agreement. Typically adding a few years and tens of thousands of miles onto the factory warranty, extended service plans can keep a customer satisfied with their car for years longer.

That’s huge, considering the average maintenance and repair costs for newer cars is $1,186 annually. In the three years following warranty expiration, nearly $3,600 of service income is at stake for every customer. In addition, the potential for repeat sales almost disappears once the customer no longer visits the selling dealer’s service department.

What’s the Moral of the Story?

Emphasize extended service plans! It’s such an important function of customer retention and service income. Look at the new car lot right now, then picture only one-third of the cars remaining. Of the cars currently on your lot, that’s how many will be loyal to your service department. Nearly two in three will remain IF you’re able to sell them an extended service agreement.

Need help with your extended service plan penetration? Consider spiffing your service advisors and support staff when they actively refer customers who purchase an extended service plan.

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