The service plan is now a crucial item in the franchised dealer’s customer relationship management toolbox.
With most consumers now costing their new or used car purchase into their monthly budget, that mindset fits with the dealer’s ability to sell a plan that covers their next two or three services for just a few more pounds per month.
But a challenge for suppliers and franchised dealers is the growth in manufacturer-backed service plans provided either heavily discounted or free to incentivise the car purchase.
Serkan Obuz, head of corporate sales at The Warranty Group, believes service plans generally are an excellent way to encourage people to return. But he warned: “One of the downsides with a manufacturer plan is that it doesn’t always bring benefit to the dealer. If they have their own plan, they are more likely to retain customers into their own business.”
He also argues that dealers who provide their own plan can see larger improvements to the bottom line, adding: “The manufacturer plan will have prices created by them. It may not be as profitable for the dealer as having their own plan, and we often find they will get a lower labour rate on a manufacturer plan than on their own because the rate is dictated to them by the manufacturer. The same can also apply to parts.”
The Warranty Group administers service plans for a number of manufacturers plus dealer groups and independent used car retailers. Its service plan business has almost doubled in volume over three years, and it now looks after more than seven million policies for around 500 UK dealers.
Obuz said that just a few years ago the average service plan penetration was about one in five or six. “Now it’s one in three or four, depending on how good the offer is. For example, Vertu has a substantially higher rate because it prices it very competitively and has a strong outbound contact centre.” Its staff also earn a commission for every plan sold.
Service plans can be a more difficult sell when maintenance items are also bundled in, such as tyres, because sales executives have more terms and conditions to explain. Obuz said keeping to a simple service plan that can be explained in a sentence will bring more success.
“One of the downsides with a manufacturer plan is that it doesn’t always bring benefit to the dealer. If they have their own plan, they are more likely to retain customers into their own business” Serkan Obuz, The Warranty Group
Service plan provider Edynamix has around 100,000 policies in the UK, and its clients include Tustain Motors, Endeavour Automotive, Vantage Motor Group and MK Group. Director Iain Nickalls said its independent service plans enabled the dealer to protect its recovery rate and allow the customer to truly pay monthly by direct debit, unlike manufacturer plans which are often a capital cost with full up-front payment added to the invoice, meaning a customer on a budget might decline GAP or accessories offered at the same point.
Edynamix also splits out the administration charge so the customer can see exactly what they’re paying. New developments include an online calculator that’s a plug-in for the dealer website. It allows the customer to configure a service plan and get a indicative price before they buy the vehicle.
Any plan subsequently taken can also be fully integrated with the dealer’s DMS, so it will send a reminder to the customer to say their service is due, populate the booking system with all relevant info and allow the customer to build in other items, such as a request for new tyres.
“Automated renewal is another new development,” said Nickalls. “When a plan is coming to an end we will create an extension that renews it for 12 or 24 months, potentially keeping it at the same price for the customer – as a reward for their loyalty – even if the service price has gone up.” The company has also begun offering a follow-up contact programme for car buyers who didn’t purchase, to give dealers a second bite.
Integration with third party suppliers, such as a roadside assistance provider or a company like XSPaid, is also helping to build value and choice for the customer.
The ability to meet the needs of individual customers is another area where manufacturer plans can lack flexibility. For example, high-mileage customers on a three-year PCP might need some form of compound plan where they can build in additional cover because the standard three services would be used up within two years.
“In my experience over the past 15 years, dealers often underestimate the effort required to get sustainable sales traction and the sheer volume of post-sale customer calls, all of which can all too easily result in a cancellation” Angela Barrow, Emac
Angela Barrow, managing director at service plan provider Emac, which works with dealers including Drive Motor Retail and TrustFord, said the company operated a programme of continuous improvement to try to enhance the scope and flexibility of its offer. That can include items such as an MOT after three years or extra ‘no servicing’ maintenance items. Emac’s field-based team visits showrooms to help with training, planning and pricing.
“The last year has been another one for strong growth for Emac,” she said. “We have welcomed a succession of new dealers and manufacturers and perhaps most pleasingly welcomed back a number of dealers who had tested the water with alternative suppliers. In reality, there is huge scope for almost all dealers to increase their sales penetration of service plans and this remains a key priority for us.”
With Emac’s service plans, customer retention rates can be up to 60%, compared with as low as 22% if no service plan is in place, she said. Unlike Nickalls, Barrow is convinced the sales team are best placed to sell plans, not the service desk. However, she does see online purchase as an opportunity.
Some dealers have adopted a multi-level service plan offering in response to initial customer confusion about what was included and what wasn’t. Often, arguments would centre on consumables such as filters or brake pads. Now, different options, with different price points and more comprehensive explanations, are helping to solve the issue, create more transparency and improve customer satisfaction.
Barrow said service to the dealer was a key part of Emac’s proposition. Its E-volve technology is available 24/7 for rapid quotes and administration support, and Emac’s team handles more than 7,000 customer enquiries daily.
“In my experience over the past 15 years, dealers often underestimate the effort required to get sustainable sales traction and the sheer volume of post-sale customer calls, all of which can all too easily result in a cancellation.
“We now have over 100 people on hand in our dealer and customer support teams. Six days a week our experts are ready to help dealers and customers on the phone and through digital channels.
“In an era where balancing customer convenience and overhead management are a daily challenge for every dealer, our dealers know they can rely upon our absolute service plan focus to help them to succeed.”