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Warranties: Boosting the bottom line

New peace-of-mind products for motorists are starting to help beleaguered car dealers survive Britain’s toughest trading conditions since the recession.

Designed to take advantage of a shift towards longer periods of vehicle ownership prompted by the gloomy economic outlook, the so-called ‘lifestyle’ warranties are making a significant contribution to bottom-line retailing figures, claimed Warranty Group sales and marketing director Ian Simpson.

“The second half of this year has become probably the toughest point for used car retailers since 2008.

It is difficult to get hold of attractive stock and, even if it can be acquired, tricky to move it on in good time at a windscreen price that delivers a worthwhile profit.

“Because of this, dealers simply cannot afford to ignore products such as warranties that offer additional profit opportunities.

“Lifestyle warranties deliver additional profit for the dealer at the time of the sale, improve the possibility of ongoing aftersales’ relationships with customers and even create the potential for further used car sales when the guarantee periods come to an end,” he said.

Simpson said the ‘lifestyle’ packaging has been made possible by recent developments in IT platform technology that allows fast and easy tailoring of product and includes all dealer administration.

“The tough economic climate continues to affect the warranty market in two key ways: dealers facing reduced margins want to sell more warranties and used car customers who want to avoid unexpected motoring bills are more receptive to buying them.

Structured approach

“This year we are on target to sell something like 20% more warranties than in 2010.”

Simpson said a more structured approach to selling warranties is now being adopted.

“This trend has been filtering down from the highest to the lowest reaches of the used car retail sector since the recession as all dealers aim to increase profitability per unit.

Dealers of all kinds are now taking the time to ‘walk’ their used car customers through their options in a structured fashion designed to maximise sales.

“In the past, extended warranties would be mentioned almost as an aside. But now dealers want – and perhaps need – to acquire the skills necessary to put an infrastructure in place that covers everything from point-of-sale material to staff training and incentive schemes. They’re now serious about the whole issue,” he said.

Quality of product has become a key requirement in the current climate, according to Mapfre Warranty chief Dennis Foley.

“Car buyers want clear, trustworthy products and a warranty provider that won’t let them down when they need help and the simplicity and flexibility of our new Black and White warranty reflects trust at its heart.

“All our recent research shows us that protection from unnecessary financial expenditure in the form of potentially expensive car repairs is high up on the agenda for customers,” said Foley.

Crystal clear benefits

Forty per cent of survey respondents said that a warranty would feature in their next car purchase and even though Foley reported that 12 and 24-month products continued to be popular, 36% of car buyers questioned said the length of the warranty would be a factor in their next purchasing decision.

“Customers must be made aware of the quality and value of the warranty and that benefits are crystal clear so there are no hidden surprises in the event of a claim. If the conversation about warranty and other insurance products starts early in the sales process, a dealer can get a good feel for the customer’s needs.

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