The trend is clear. More and more franchise dealers are retailing higher mileage pre-owned vehicles that, in the past, would have been destined for the auction or a local wholesaler. This trend has created several new opportunities for dealers and the agents that serve them.
One is increased F&I profitability:
High mileage vehicle sales offer a wide array of back-end profit opportunities for both dealers and agents alike. Adding a quality vehicle service contract to the sale of a high mileage vehicle not only offers a significant F&I mark-up opportunity to the dealer and agent but there are also programs available that allow the dealer to share in any underwriting profit from the sale of VSCs sold on high mileage vehicles. As we all know, most dealers are very careful not to do anything to jeopardize their primary reinsurance/retro positions and many of the vehicles being retailed these days are not ideal for reinsurance. Therefore, it seems to make perfect sense to keep these higher mileage and inherently worse performing vehicles out of their primary reinsurance/retro pools while still maintaining the ability to share in underwriting profits. A program to participate in the upside of favorable performance, even on high-mileage vehicles through a dividend (or retro) program would provide each dealer a sliding scale portion of the excess reserves, even at very low monthly contract volumes.
Second is increased front-end gross profit:
Many more dealers are realizing the significant financial benefits of retailing rather than wholesaling these vehicles as they may have done in the past. To help customers get over any concerns they may have about purchasing a higher mileage vehicle, many dealers are choosing to partner with service contract providers that specialize in higher mileage vehicles. Providing customers with the right coverage options at a fair price gives them the confidence to purchase a vehicle that they may otherwise be hesitant to buy. In most cases, the average customer who walks on to a franchise dealer’s lot is not expecting to purchase a vehicle with 80,000 plus miles on it. Dealers continually tell us that offering a quality vehicle service contract on their high mileage inventory dramatically increases the customer’s confidence in those vehicles and ultimately turns car shoppers in to car buyers.
Last but certainly not least is customer satisfaction:
No dealer I know intentionally sells vehicles with existing mechanical issues. However, we all know that vehicles, especially higher mileage vehicles, will likely have a mechanical issue at some point. To ensure that these mechanical breakdowns are addressed in a timely manner and the customer’s financial impact and inconvenience is minimized, many dealers choose to sell a VSC provided by companies that specialize in handling claims on higher mileage vehicles. Many of these companies have years and years of experience adjudicating claims on these higher mileage vehicles and know the best way to get the customer back on the road as quickly as possible thereby eliminating any post-sale dissatisfaction or CSI issues.
When choosing a higher mileage VSC provider, several factors should be considered.
The first is pretty obvious. Find a financially sound provider that delivers on their promises. Look for a strong history of paying claims as well as a solid financial profile. You also want to choose a provider that is positioned well for the future. They need to have the resources to invest and grow with you.
Next, you want to be sure that you’re going to get a partner, not just a provider. Your business is unique so you want a partner that has the ability to offer personalized support and training. You want someone that can tailor an agreement for your needs and that will help you as those needs change.
Finally, what does the financial opportunity look like? Consider companies that offer competitively priced products and aggressive back-end profit sharing opportunities.
If you focus on these key areas, you should be able to find a great partner.
