Channel | Industry

VSCs Are a Win-Win-Win

Customers, dealers and agents all benefit from a proper presentation and increased sales of vehicle service contracts.
By: Rod Heasley

VSCs Are a Win-Win-Win

Mr. Agent, I would like to challenge you to find a product that provides more benefit to your automobile dealers than a vehicle service contract — without mentioning the vehicle itself.

If you are working with reputable dealers, you know they are genuinely concerned about their customers. They probably offer some type of VSC now on their own. The new-car manufacturers keep extending warranty terms and have experienced huge success with certified pre-owned (CPO) programs for their used cars.

Why? Because they realize that the typical consumer is “warranty wise” and they know it is important to help sell the vehicle and obtain extra profit. So why does the number of vehicle service contracts sold keep increasing every year? I believe there are many reasonsbut let’s focus on the top three:

First, automobiles are much more complicated and much more costly to repair nowadays. Obviously, you cannot take that vehicle to Joe’s Corner Garage to get proper repairs, so customers need to take their vehicles to certified repair garages. If you sell an extended vehicle service contract, it can keep the customer’s cost down to a small and manageable deductible.

Second, the industry is conditioning the consumer to expect warranty coverage on their vehicles. If there isn’t any, or the original factory warranty is going to expire while they own the vehicle, they will generally be positively receptive to purchasing one — when properly presented by the selling dealer.

Third, most of the smaller dealers who are happy with their realized profit on vehicle service contract penetration are offering these warranties as part of the asking price in states where it is permissible. They are not offering it as an “aftermarket” product that can be negotiated as a separate part of the transaction.

Let’s be realistic about the process. Ask yourself the following question: “Whom does the customer fault when the vehicle goes down with a problem?” The dealer, of course! So however you sell it, a quality (and fully insured) vehicle service contract is definitely a win-win-win situation. Let’s take a closer look at how VSCs benefit customers, dealers and you, the agent.

1. Benefits to the Customer

The benefit of securing a vehicle purchase is threefold:

  • Limited out-of-pocket expenses for repairs: A service contract usually represents a very small percentage of the total sale, typically about 5% to 10% of the price of the vehicle. Deductibles can range from zero to $200. The customer usually has little or no cash to outlay toward major mechanical breakdowns. For about $25 per month (when financing), a customer can protect themselves from large repair bills, and the number of claims they have during the contract period doesn’t matter.
  • Fixed monthly payments: When a customer fully understands the benefits of getting an extended warranty, he or she knows the monthly cost upfront. Without it, the monthly payment will be lower, but the outlay of their own hard-earned money can vary according to the type of repair needed. Do not forget about the various labor and parts rates one can encounter when traveling away from home.
  • Quality service: It will usually cost more to visit a dealership service department or a national chain than an independent garage. It costs an enormous amount of money to invest in the sophisticated, brand-specific equipment, tools and training that is required to properly repair today’s vehicles. A customer that has a good service contract from a reputable agent and provider will, in most cases, enjoy fixed costs, regardless of who works on the vehicle.

2. Benefits to the Dealer

If the benefits to their customers don’t persuade them, remind your dealers of the various ways they will benefit from increased VSC sales:

  • Income: The service contract can provide income for numerous areas of the dealership, especially if your dealer has their own repair facility.
  • Customer Satisfaction: Your dealers cannot afford to have a customer buy a car from them once and only once. A VSC ties the car buyer to their dealership and helps enhance customer loyalty. After all, doesn’t your dealer want to know when their customer has a problem so they have an opportunity to stay in the loop when a claim has been filed?
  • Fewer complaints: Agents should encourage dealers to keep things upbeat to maintain positive attitudes and make their dealership a great place for people to buy their cars. The last thing your dealers need is for a complaining customer on the lot or in the office, especially when they are trying to conduct normal daily business. You cannot eliminate repairs or mechanical breakdowns, but you can limit them by offering to protect every unit they sell.
  • More repeat business and customer control: We all like to hear positive and successful sales references from satisfied customers. Dealers and sales managers should look for customers in the service area or be alerted whenever one of their customers has a mechanical breakdown. That is a golden opportunity for another sale, and it wouldn’t exist without the service contract.

3. Benefits to the Agent

If you train your dealers and staff to really and truly believe that your VSC program is a benefit — and an exceptional value — I guarantee you that you will increase in your total overall VSC territory sales, increase your overall personal income, and increase new dealer enrollments.

Your agency will grow because your reputation depends on your ability to partner with your dealer base by offering ways to help them succeed. After all, aren’t bigger territories, higher incomes and more clients what we are all striving for on a daily basis?

3 Steps to an Effective VSC Presentation

  1. Qualify the Customer’s Needs.

Once you have determined the financing term, find out how many miles the customer drives each year and how long they plan to keep the vehicle. Train your dealers to ask about repairs to their previous vehicle, especially if a trade-in is involved. Ask whether a warranty was purchased on their last vehicle and explain how it would have added value to their trade-in!

  1. Overcome the Customer’s Objections.

Remind customers that major and minor repairs tend to come at the most inopportune and unexpected times. Ask them if they need their vehicle every day and whether their monthly household budget can withstand an extra $750 or $1,000 for that unexpected repair bill. Finally, ask whether they have ever used their homeowner’s insurance. Don’t they agree they are much more likely to have a claim on their vehicle?

  1. Get the Customer to Make a Decision at Point of Sale.

Your dealers’ presentation should describe the program to the customer so that, when it’s time to ask for the order, they see the need and the benefits in purchasing the contract. It should also uncover each customer’s “hot button,” the specific benefit that they cannot afford to be without. Once your dealers have created enthusiasm for the product and its obvious benefits, it is now time to make them render a decision on the upgraded term.

We can safely assume that about half of the people who actually purchase a service contract or extended warranty initially objected to the idea. That is why it is important for you to have an effective presentation to obtain your total profit goals on each and every sale.

Good luck and good selling on that VSC program!

This article was written by:

- has written 6 posts on Agent Entrepreneur.

Rod Heasley is the President of KISS Concepts Group a relationship based Automotive Dealer Services Agency with headquarters in Fairmont, North Carolina and offices in Fort Worth, Texas. KISS Concepts is an agency of talented automotive professionals specializing in BHPH operations. Heasley most recently served as the executive vice president of sales and marketing for Peritus Portfolio Services (PPS). He was responsible for training, certification and immediate supervision of 123 business development managers nationwide. He is the author of How to Build a Successful Territory© for outside sales field agents. Heasley has over 30 years in the automotive retail sales & ancillary products industry. He is a contributing international writer with numerous articles published in the US and Canada. Heasley is a highly sought out speaker and presenter for national auto industry conferences. He regularly conducts sales training seminars and motivational workshops for NIADA state dealer associations and is the author of the national NIADA Best Practices dealer training series titled: Regulation & Revenue After the Handshake and “Street Level”- Bankruptcy 101. His upcoming book entitled Back to Basics-Relationships not Transactions is a hands-on guide to operating a successful independent auto dealership, and is expected to be published in late 2014 or the first quarter of 2015.

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