AM Online

How Honda plans to double its dealers’ profits

Boosting retention with a five-year Honda service plan

The first of those foundations is Honda’s five-year service plan, introduced at the end of 2013. Subsidised by Honda UK at considerable cost, it is a transferable product, which costs the customer only £500, yet will guarantee the dealership five years’ service retention on that car at full retail recovery rate, unlike some other brands, which require their dealers to discount their rate. Brannan said the length of the plan secured the crucial fourth and fifth service for Honda dealers. These allow additional work to be sold, such as replacing worn brakes and tyres.

Service plan penetration with new cars has reached 93% already. Service penetration in the five-year Honda retail car parc has risen from 53% to 63% in 12 months, despite its flagging new car registrations. Brannan is proud of this  improvement, given that Honda was already identified as number one for service retention by independent researchers Trend Tracker. His aim is to take this up to 90%.

“We’ve been seeing more and more customers and held service revenue static, when really it defies logic that that would be the case,” he said.

“Not only will we get more penetration, but as that parc starts to build on the back of our new car line-up, we’ll get the double effect and off we go, all at full retail rate. There will be 100,000 more customers in dealerships in 2017 than there were in 2013 because they have pre-paid service plans.”

 

How Honda got rid of hire purchase

The second foundation is Honda’s PCP finance offer. There had long been a perception that Honda buyers, who traditionally have bought with cash or hire purchase, had no need for PCP. At the end of 2013, Honda’s PCP penetration was 23%, far from the 80% industry average. Worse still, those cash and HP purchasers were holding on to their cars for five years on average. Meanwhile, the rest of the motor industry has moved on to providing low deposits and low monthly payments that make higher priced cars more affordable, and require customers to change more frequently.

The carmaker’s management team decided it needed to catch up in preparation for 2015’s launches.

In Q1 2014, Honda added PCP targets to dealers’ business terms, but that took penetration to only 30%.

“It has taken a year and a quite heavy-handed approach to force the network to embrace PCP,” said Brannan. That “heavy-handed approach” was to drop hire purchase completely from July 1 last year, requiring the dealers to embrace PCP sales to earn bonus.

“That went down like a bucket of sick,” Brannan said.



Click here for manufacturer best practice and procurement insight

If you are not a registered user your comment will go to AM for approval before publishing. To avoid this requirement please register or login.

Login to comment

Comments

  • ICEAGE - 29/01/2015 14:53

    So more jam tomorrow boys!!!..... If they wanted to resolve the dealer profit problem they could do it tomorrow, anything else is just a yarn

  • AW - 07/07/2015 18:33

    Interesting read. As a long term (25 years) customer of a Honda Dealer in Rochdale (Swansway) I can sense a real change in attitude. I first noticed this when on the day I picked up my new CRV (the latest car I bought from them) I was soundly reprimanded by the salesman as I had made the "mistake" of during the follow up call saying that he was excellent instead of good. Apparently this meant he didn't get his bonus.....that took the shine off delivery day for me. Now having had to pay for a new battery ...two and a half years into ownership and today ...fifth year of ownership that battery failed too, although apparently there is nothing wrong with the battery, the dealer contact was abrupt to say the least. Needless to say if this is a product of Honda UK's pressure on dealers then as a customer I won't be parting with any more money i.e adding to their profits. There are other car manufacturers! and dealers.