Service contracts have been a staple of the F&I department for as long as F&I has been around. The product is great for consumers, offering them more protection than a factory warranty could; it’s good for the dealers, giving them another revenue stream; and it’s been good for the providers and agents who offer it.
Today, the penetration rate for selling service contracts is roughly 35 percent, according to Robert Hymen, president, Service Payment Plan Inc. He would like to see that number increase to closer to 50 percent or more, and he sees it happening through the service department itself.
“Experience has been that the person who has the best rapport with the customer is the service advisor,” he noted. “Customers come to him/her with a problem and trust him; they don’t look at the service advisor as a sales person. And when they mention opportunity to buy a service contract and pay for it monthly interest free, they often do.”
The monthly, interest free payment portion is what Hymen’s business is — he is a service that agents offer to their dealers to allow them to set up the service contract as a payment separate from the main finance deal. At the moment, most of those are still through the F&I office itself – it is used to help customers who can’t get financing to cover a service contract, or a cash customer, for instance. But Hymen sees this ability to uncouple the service contract from F&I as an additional revenue stream for everyone in the cycle.
“F&I should continue to do what they’ve done, offering service contracts to customers. However, we find that customers who are coming back to dealership, are a separate profit opportunity. F&I is not losing anything, because it’s not business they ever had. The goal is to raise penetration rate going to these customers in another place.”
Right now, Hymen noted, his company is focusing on automating the process, so service managers can more easily set up the transaction without needing to pull the customer back into F&I. His software, he said, is Web-based, and just requires the service manager – or F&I manager, since the same interface can be used in either office – to input the customer’s name and vehicle information, and it will rate and create the contract, and then submit it to Service Payment Plan and the service contract company electronically. This opens up a powerful new potential revenue stream without needing to do anything except offer training to the service managers and advisors, Hymen noted.
A Service Industry
All of that stems from Hymen’s philosophy that automotive in general, and F&I in particular, are service industries – dealers, agents and providers who give a high level of customer service will have the most success. “Take care of customers, and they’ll take care of you,” Hymen said. “ That’s the basis of all business, and everyone has to remember that. If you take care of the customer, then they’ll refer people to you and it grows from there.”
He believes, in fact, that service departments shouldn’t just offer it outright. He trains the agents, who then train the service managers, to first take care of the problem the customer is in for, and provide outstanding service. Only then, does he think they should offer the product as a way to cover claims like this once the warranty runs out, and presenting it as an option designed to help the customer, instead of a hard sell.
Hymen admits that approach won’t work every time, but that his company has seen as many as 70 contracts a month come from service departments trained this way, to simply help the customer and then make them aware of the option if they’re interested. And those are contracts the dealership never would have sold otherwise.
“If you think about it, we’re having finance managers sell a contract to a customer who’s done a lot of research and is being told it’s the greatest car; and now they’re telling them they need a contract for when it breaks – it’s a tough sell. But they’re good at what they do and they sell some,” said Hymen. “Whereas if a customer is there for service on their vehicle, now they’re nearing the time when their manufacturer’s warranty, is up and they’re there to fix a problem, so they’re more likely to be interested – but today not given an opportunity to buy.”
He went on to note that it’s a matter of the industry not looking to find more ways to sell products only in F&I at the time of purchase, but to find ways to reach customers at additional points in their life of ownership, which sells more products long term and makes the dealer into more of a partner to their customer – who is then more likely to return for additional service and purchase another vehicle, as well as be more likely to purchase products in F&I the next time around.
“We have to educate dealers, and that’s the main challenge today,” Hymen said. “So many customers want products, but after the sale. Too many dealers don’t focus on the current customers – if you keep the ones you have coming back, then the likelihood of them buying more cars and more products goes way up.”
