By Debbie Kirlew
Has the extended car warranty come of age? Many would argue the climate could not be better: used car sales hit an almighty 7.1 million units in 2012, accompanied by a record high in terms of value, at £38.1 billion*, and dealers are putting a greater focus on older used cars to combat stock challenges.
However, the promise of a new era of consumer credit regulation under the Financial Conduct Authority (FCA), from April 1, 2014, has sent a few ripples through the industry. Promising to create more competition and offer more protection for consumers, the FCA has demonstrated it has teeth and is willing to use them.
Andrew Binns, who recently joined AutoProtect after three years at BMW promoting F&I to its dealers, believes following the FCA philosophy wholeheartedly – including reviewing commission-focused pay structures for sales executives – is likely to increase warranty penetration for vehicles up to five years old.
He justifies his argument by the increased sales of added value products within motor retailers since the inception of the FCA’s predecessor, the Financial Services Authority.
Which comes first – customer need or profit?
“Historically, sales executives have offered a 12-month warranty plus other value-added products, such as paint protection, to boost their own commission rather than an extended warranty that actually matches the customer’s requirements,” said Binns.
“Dealers need to question whether they are truly qualifying the customer’s needs ahead of profits. The responsibility of our industry is to ensure customers truly receive best advice and best value possible on a consistent basis.
“There needs to be a shift in the psyche of how we sell warranty products. The warranty should be viewed in the same way as a sales accessory like mud flaps, this natural extension of the sale of the vehicle is quite unlike other insurance products.
“The culture change is already apparent in many of the top 20 dealer groups and that’s backed up by robust processes on the showroom floor. These businesses have typically experienced a 20-30% increase over previous penetrations in warranty sales over the past three years.”
Ben Lillywhite, sales director of Global Insurance Management, believes as long as dealers follow FCA guidelines, customers will naturally be offered the products most suited to their needs.
“The commission isn’t that great. As long as the customer is being well looked after, retention should follow,” he said.
“The first step to increasing sales of extended warranties for used cars is ensuring that they are offered to every eligible customer as a part of a well-rounded sales process.
“Some salespeople are wary of pushing extended warranties on used cars as, if they are explained incorrectly, the consumer may believe the car they are looking to buy is likely to fail in the near future.