By Chris Phillips
Extended warranties offer dealers the potential to generate extra revenue at the same time as offering consumers peace of mind, but they can also protect dealers, say warranty providers.
Eric Stone, business development director of the WMS Group, said: “Consumers have their statutory rights, but what about the dealer? It’s all very well to say to the customer ‘if anything goes wrong, come back and we’ll fix it’, but if the engine packs up they could be faced with having to pay hundreds of pounds.
“It’s like holding a bag of money on a car you’ve sold and not being able to bank it for six months or so.”
David Gerrans, managing director at Warranty Direct, cited “astronomical” repair costs on some prestige cars – up to £16,115.38 out on a Mercedes-Benz GL, for example – with even mainstream models like a BMW 3-Series costing up to £6,800.
He noted that as more motorists now opted to purchase a service plan when they bought a car, it was likely that some would expect it to include repairs. “Adding a warranty will avoid any confusion or potential conflict between the dealer and customer.”
Selling the extended warranty to a customer when they buy a car raises another persuasive selling point, said Richard Hodges, marketing manager of Warranty Wise.
“The most competitively priced cover is at point of sale because the vehicle has undergone condition checks and a service. If a customer belatedly decides a warranty is maybe a good idea after all – perhaps after a nasty repair bill – the cost is obviously factored into this.”
David Parrondo, deputy managing director of Mapfre Warranty, said some dealers look to sell extended warranties on new cars, especially where local competitors represent brands that offer longer than normal new car warranties.
“They’re giving the customer the opportunity to match the four to seven years now available from some manufacturers by buying that additional peace of mind.”
Liz Grindell, head of warranty and insurance products at Allianz Global Assistance UK, said “switched-on dealers” see the correlation between extended warranty, customer retention and increased profits.
“To create USPs and sell warranties effectively, some of our clients are adding value to the traditional offering by enhancing component coverage and including elements such as MoT test failure cover. This helps dealers to differentiate their offering and generate aftersales business,” she said.
“Selling an extended warranty has the same fundamental elements as selling a car – explaining the features and how they’ll benefit the customer, linking the product to the customer’s driving and so on. Salespeople use these techniques every day, which should make it easier to extend them to warranty packages.”
Tim Heavisides, chief executive of Car Care Plan, said there were two main opportunities for selling an extended warranty: when an existing manufacturer/dealer warranty was due to expire; and at the point of sale of older vehicles, when cover was not included in the sticker price.
No silver bullet in selling warranties
However, he said there was no “silver bullet” on sales success, which is dependent on the brand, the type of model, the dealer and ultimately the customer.
“The most effective dealers are those who have robust processes to cover all fronts – presenting the offer at order, purchase, through the business manager when discussing finance, post-delivery contact and service work,” said Heavisides.
Parrondo said with so many variants of cover – including those packaged with other products such as MoT and tyre and alloy insurance – dealers had “a very strong proposition” to offer used car customers.
“The most important thing is that it is the right product for the consumer and providers need to work with dealers to analyse their customer and stock profile.”
Hodges said matching cover to individual customer needs was much more effective with the increasing sophistication of IT systems.
“With DealerNet, for example, it’s simply a case of entering the vehicle reg and mileage to view the permutations, including cover for things like multimedia and air con. Dealers can also see the margin, leaving them to decide whether to include cover in the sticker price or sell it as an add-on.
“Just as important as cover are procedures: What happens if the car breaks down? What happens if it breaks down in Europe? Is the customer covered for a courtesy car, any hotel expenses?”
Like Heavisides, Stone said sales opportunities extended to all “touch points” within a dealership.
“If a customer wants finance, that’s an especially good point of contact – adding £15 or £20 is a no-brainer.”
Parrondo added: “If dealers don’t feel warranty is a product that they want to add to their point-of-sale product mix, then selling it through the aftersales or service teams is an option worth considering.”
However, the Co-operative Motor Group in Lincoln said one stumbling block was financial regulation that imposed FCA authorisation on individuals within a dealership.
“We used to offer warranty at the service desk, but now it’s restricted to point of sale,” said service manager Phil Witts.
Take-up of cover from The Warranty Group, via its partnership with the RAC, was “surprisingly good, at around 40-50% of dealers who actively promote it”, said divisional sales and marketing director Ian Simpson.
It's not about the commission, it's about repeat custom
For those yet to be convinced, Simpson said “the conversation” was not about the £100 commission per sale, but the greater likelihood of the customer returning for a further two or three services, with the extra income that generated.
“Also, the claims frequency over two years is 50%, with a severity of around £320, so again there’s a margin to be earned.”
Richard Roberts, managing director of Trident Garages, with Honda outlets in Surrey selling about 700 used cars a year, also emphasised the service plan opportunity: “It’s all part of the reassurance message to minimise risk.”
Trident sends reminders to customers whose warranty is due to expire and Grindell suggested adding warranty messages to MoT reminders.
The value of a strong relationship between provider and dealer is illustrated by the Retail Automotive Alliance, which offers Ford Protect, backed by insurers QBE.
“It just rolls on because it works and that’s what members buy into,” said group purchasing manager Dean Bradford.
For those among its 21 members who opt for self-funded cover, paperwork is carried out by Warranty Administration Services.
Savilles, a Renault and Dacia dealership in the West Midlands, has always preferred self-funding, with co-director Jim Sword explaining: “Because our part-exchange stock is so well prepared, any claims work out at around £46, so it makes no sense to be paying a warranty company more than £200.
“With enough experience, you get a nose for a bad car and sticking a warranty on it doesn’t make it a better one. They’re traded on to keep our reputation nice and fresh.”
Heavisides believes that tighter regulation has played a key role in improving customer perception of warranties.
“They are now more clearly defined, but that’s not to say that customers may understand the nuances of Product A versus Product B. It’s the job of providers to explain these to dealers so that they are fully aware of what is covered and, more important, what is excluded.”
Because of these intricacies, he said the convenience of online training “should complement, rather than replace, on-site sessions”.
Parrondo said Mapfre’s product training, by field-based account managers, was supported by website modules “to maintain competence and provide a robust audit trail”.
As well as on-site training, Allianz offers online quizzes covering product knowledge and FCA regulations for sales managers who want a ‘quick fix’ for new sales staff.
Simpson said that although GAP cover was viewed as more of a “profit centre” than warranty, a forthcoming change in FCA rules would see a four-day cooling off period.
“With many used cars being turned round in less than four days, it opens up a degree of emphasis on warranty, again not from a commission, but from a holistic view.”