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Service plans increase profit and retention

Dealers that offer service plans to customers who buy new or used cars are seeing improvements in customer retention and profitability, according to a recent study.

Motor retailers that sell service packages were asked about their performance and impact on their business. The major benefit was not the growth in aftersales business, but the upturn in their overall customer retention.

More than eight in ten of the dealers reported that, for new car sales, the penetration of service plan sales exceeded 50%, as customers sought the convenience of paying for future servicing in monthly instalments.

Penetration in the used car sales segment was lower, with half the dealers achieving between 6% and 49% of take-up, and only a fifth achieving penetration in excess of 50%.

Angela Barrow, sales and marketing director of service plan provider Emac, which commissioned the research, said consumer buying habits, in automotive and other retail sectors, were increasingly moving towards a combination of convenience and a strong brand. “The brands on the march are those that embrace quality, convenience and value. Aftersales should be no different.”

Barrow added: “We know dealers are far more comfortable selling a new car service plan. They are confident in the make and model, which may not be the case with used cars.”

Emac has developed a web-based quotation mechanic catering for 99% of new and used cars with mileages below 100,000 miles. Its service plans cater for all manufacturer service schedules.

Barrow said the opportunity to increase penetration was significant, since Block Exemption had de-restricted dealers from servicing only their franchise’s models.

Almost seven in ten dealers found the main benefit of service plans was in increasing customer retention. Other benefits included creation of additional workshop activity and increased residual values of cars for future part-exchanges. Almost one in ten saw selling service plans as an additional profit centre in its own right.

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