USA: Car dealers prefer independent to factory service contracts
Automotive dealers in the United States who offer their customers optional service contracts, including extended warranty plans and mechanical breakdown protection, capture a higher share of buyers when selling plans from independent service contract providers than factory providers, according to the JD Power and Associates 2004 dealer service contract satisfaction study.
The study, in its second year, measures dealer - rather than customer - experiences with the service, products, and financial administration and fees of their primary service contract provider.
The study finds that dealers who use independent service contract providers as their primary provider have penetration rates of 32% among new vehicle buyers and 40% among used vehicle buyers. By comparison, dealers who favour factory providers have penetration rates of just 28% among new vehicle buyers and 33% among used vehicle buyers.
"Service contracts can be a highly profitable product for dealers, which is why dealer F&I departments place a higher emphasis on them compared to other aftermarket products they offer vehicle buyers," said Dennis Galbraith, senior director of research at J.D. Power and Associates. "Despite the advantage of the financial strength behind factory-sponsored service contract programmes, in nearly every case, overall dealer satisfaction is higher for independent providers of service contracts than it is for factory providers."
While dealers place a heavy emphasis on selling service contracts, this emphasis generally does not translate into consumers feeling pressure to purchase these products. According to JD Power's 2003 sales satisfaction index, 71% of all new-vehicle buyers report feeling no pressure to purchase a service contract and only 5% report feeling a great deal of pressure to do so.
JM&A/Fidelity ranks highest in dealer satisfaction with service contract providers, receiving particularly high ratings from dealers in the areas of service and financial administration and fees. JM&A/Fidelity is followed in the rankings by Universal Underwriters Group, CNA National and Honda/Acura Care, respectively.
The 2004 service contract study includes responses from more than 3,100 dealer principals or general managers who operate more than 4,500 new-vehicle retail outlets in the United States.