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Car dealers measuring warranty profits 'incorrectly'

Car dealers don’t always put sufficient emphasis on warranty sales because they fail to recognise the way in which they provide not just a margin at the point of sale, but create an uplift in aftersales for as long as the next three years.

RAC Warranty says that for every £100 a dealer spends on a warranty, a significant proportion will find its way back to the dealer’s workshop in claims as long as that dealer is successful in capturing the work from the customer – achieved by the vast majority.

Ian Simpson, sales and marketing director, said: “A surprisingly large number of both franchise and independent car dealers often measure returns in terms of only the margin they receive when they sell a warranty along with a used car.

"They simply don’t recognise the other benefits to their business that heavily promoting warranties will bring.

“The simple fact is that warranty profits also include what happens in the workshop in subsequent years.

"The warranty helps to strengthen the link between the customer and dealer in the medium and long term because they are likely to return to where they bought the car to make any future claims, as well as for servicing and other maintenance.

“Also, the longer the warranty, the greater the potential for workshop profits because claims have a propensity to increase over the life of the vehicle and. It is no accident that new and used car dealers who are good at selling warranties also tend to have thriving aftersales operations.

"The warranty creates an almost umbilical link to the dealer.”

Simpson added that dealerships measuring warranty sales to include aftersales returns as well as other customer retention benefits tended to promote them more heavily as a result.

He said: “Where the full profit potential of a warranty is recognised and exploited within a car dealership, managers go to greater lengths to ensure that there is a warranty sales infrastructure in place with proper training, marketing materials and incentives.

"In this type of environment, both the dealer and their customer tend to reap the best results.”

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