It’s OK to admit it. After a while, it’s easy for agents to let F&I professionals go through the motions when presenting a service contract. They follow the 300% rule (100% of the products, to 100% of the customers, 100% of the time), they showcase all your products, the customer accepts some, declines others, and everyone goes about their days happy with the products that did land. Business is good, your dealer clients are happy, and that’s enough, right?
But what if business could be better — for you and your dealerships? And if business can be better, how do you get there with out confusing dealership personnel with a new process, technology or any other experience other than what they’re used to?
The answer is simple: a renewed focus on high-mileage vehicles.
If you think about it, it’s a logical next step for dealerships going through the motions in the F&I office. They can apply the same principles, the same tactics and reap the same rewards. However, what many agents and dealerships alike may not realize, is that the rewards from a high-mileage service contract can be even greater than your run-of-the-mill new-car F&I business.
Let me explain.
If you step back and take a look at all areas of your dealerships’ businesses, you could be surprised by how many areas a quality high-mileage vehicle service contract can touch. Let’s take a look at a few areas of importance that could benefit from inserting a process around a topnotch high-mileage vehicle service contract program.
It may seem obvious that service contracts are profitable products for an F&I department, but have your dealerships taken a look at how they are performing with F&I products on high-mileage used vehicles? Are they reaping these benefits at all?
There’s a large opportunity for many franchise dealers, whether they are reticent to present a service contract on a high-mileage used vehicle because of the concerns on losses or they aren’t retaining high-mileage used vehicles to begin with. In either instance, having a relationship with a quality high-mileage service contract provider opens up doors to added F&I revenue on vehicles once only destined for auction.
Making sure a service contract partner is reputable and experienced should alleviate any issues about losses. A service contract provider familiar with the high-mileage space will understand how to reserve appropriately and protect both reinsurance pools and dealer reputations.
For dealerships who previously dismissed the thought of retaining high-mileage vehicles, a quality high-mileage service contract offering can help ensure that customer stays in the vehicle, enjoys the vehicle, and returns for a future purchase. And as we discussed earlier, dealerships who previously didn’t retain high-mileage inventory can now build a new stream of service revenue as these vehicles come back for larger, more frequent repairs.
The Service Department
The best dealerships understand that selling a vehicle is just the beginning. Getting that customer back into the dealership for service is the next step in creating a loyal, repeat customer. But let’s be honest. A service drive stands to generate much more revenue from used vehicles than new. It’s not rocket science. Used vehicles break down more often, are outside of factory warranty coverage and generally require more frequent repairs.
Insert a quality used-vehicle service contract here. If your dealer has sold a service contract on a vehicle with 80,000, 90,000 or even 100,000-plus miles on it, that customer isn’t just coming back for oil changes and tire rotations. They’ll be back for air conditioning, transmission and fuel system repairs too. These are all high-value repairs that a customer will be more willing to address with the dealership that protected them from the large out-of-pocket expense.
When a dealer can build trust with a high-mileage service contract, that customer will come back for repairs and that service department has now uncovered a new source of revenue that’s adding instant value to the bottom line.
Used (and New) PVR
It’s no secret that uncovering F&I revenue potential on a segment of inventory that historically wasn’t retailed can improve PVR on used vehicles. But have you or your dealer clients given thought to how these F&I products can improve a dealership’s overall PVR?
Applying the same tactics in the F&I office with high-mileage vehicles that are currently in use with new vehicles can provide an added boost in times of need. If competition, seasonality or other profit-compressing factors are pinching new PVR, making up those numbers on a new segment of used inventory could be just the financial jolt that a dealership needs.
Ideally, this should be an easier path toward closing an F&I sale. A customer in the market for a higher-mileage vehicle can’t deny the fact that their car is more likely to experience a breakdown in their term of ownership than a new car. These customers will also likely be more budget-conscious. By combining the truth about used cars with a tighter monthly budget, getting service contracts on high-mileage vehicles should be child’s play for savvy F&I managers at franchised dealerships.
Capitalizing on this low-hanging fruit can serve as the express lane for dealerships looking to make up for PVR compression on the new car side of the business. When you think about it in these terms, it’s almost a no-brainer to not only retain high-mileage inventory, but turn it into a high-profit opportunity with a quality service contract on the back end.
To bring this all together, it takes an agent and a dealer who share a holistic view of a dealership’s overall performance. In a time where margins on new vehicles are ultra-slim and dealerships are being judged on PVR and CSI, it’s no secret why more and more franchise dealerships are turning to high-mileage inventory to discover new opportunities for revenue and profit.
The dealers who adopt a smart, logical and successful approach to high-mileage service contracts are the ones who reap the rewards in all the areas of the dealership that we’ve covered here. The benefits might be easy ones to realize, like added F&I profitability, by uncovering a new back-end source of revenue. Some benefits might need a little more foresight to realize, like the effects on overall dealership PVR.
The immense opportunity on the back end of high-mileage deals presents a unique opportunity to make up for tight margins on new car business. It takes agents and dealerships with a special blend of savvy and creativity to pounce on this opportunity.
And when it’s all said and done in the F&I office, let’s not forget about the added service department opportunity. It’s not just new inventory coming back for service, it’s higher-mileage cars that require more frequent repairs that will be covered by the quality high-mileage service contract provider you sold.
Put this all together, and you’ve taken a process your dealerships are familiar with — service contract sales — and created a new profit opportunity that any F&I manager can master. And best of all, it’s a process that’s repeatable and brings additional profit to nearly every department within a dealership.