The saying ‘better to have it and not need it than to need it and not have it’ has become increasingly prevalent in the world of vehicle service contracts. According to the latest industry trends, more and more car buyers are opting to add protection coverage to their vehicle purchase in preparation for worry-free journeys in their new and pre-owned vehicles.
According to the Colonnade’s VSC Industry 2017 Market Commentary, the amount that consumers are spending annually on vehicle service contracts has risen to an estimated $33 billion, which currently represents approximately 24% of total dealership gross profit. There are a number of factors that contribute to this major trend: the complexity of modern technology, longer span of vehicle ownership, limited funds available to cover rising repair costs and, most prominently, the increased amount of time that travelers, commuters and rideshare drivers are spending on the road. Road trips represented a whopping 39% of vacations taken by United States travelers in 2016.1 And traffic congestion is forcing the average urban commuter to spend about 42 hours a year stuck in traffic jams.2
In other words, the need to protect customers’ vehicle investments has never been more imperative for dealerships than it is today. But providing customers with various coverage options and the ideal buying experience is what’s going to ultimately set dealerships apart from the rest.
THE IMPORTANCE OF STARTING THE WORRY-FREE EXPERIENCE AT THE DEALERSHIP
In order to capitalize on the rising need for vehicle coverage and cater to each specific customer, it’s vital for dealers to provide a full suite of driver benefits beyond a standard VSC, including: GAP, tire and wheel, appearance protection, dent repair and more. The proof of value is in the numbers: 69.4% of customers need to have repairs on tires and wheels, 58.3% on windshields, and 47.2% on exterior components such as paintless dent removal. Repairs are needed primarily due to road hazard (39%), accidents (17%) and parts replacement (11%).3
Consumers who do not buy VSCs typically believe they are already covered by the OEM warranty; 36% of those who don’t buy a vehicle contract don’t feel it is necessary or believe that their vehicle is already covered, and 29% indicate that a VSC is not worth the money.4 Educating them about the limitations of OEM warranty coverage and the cost of vehicle breakdown can help them make the right decision. According to cars.com, the average auto repair costs between $500 and $600, which is a 61.92% increase from the year 2000—and there’s no sign of a slowdown as vehicle technology continues to advance.
Luckily, dealers have the home advantage. Customers often purchase vehicle service contracts based on the minimal monthly payment, not the lifetime cost. This gives dealers a substantial leg up on competitors like direct-to-consumer marketers. With the ability to add in-house monthly payment plans to the vehicle loan, providers can lower their customer’s payments by extending terms based on customer preference. Because of these equated monthly installments, dealerships typically experience a low 5%-10% VSC cancellation rate; direct-to-consumer marketers, on the other hand, experience 40%-60% cancellation rates, and their contracts are generally priced higher to combat these cancellations and steep marketing expenses.5
But it’s not just about offering F&I benefits during the vehicle purchase. The market for VSCs post-OEM warranty is increasing, estimated at 85 million vehicles in 2016 and growing to 108 million vehicles by 2024.6 If dealers leverage these revenue opportunities by offering vehicle protection near or after the factory warranty’s expiration, and at vehicle resale, they’ll be providing customers with the solutions they’re looking for—at every stage of their journey.
EasyCare provides a full suite of the industry’s only Motor Trend recommended F&I benefits, along with a complete range of innovative dealer solutions—get more information at www.easycare.com/dealers.