Auto Dealer Monthly Magazine is the daily operations publication serving the retail automotive industry. This automotive publication serves dealer principals, officers and general managers with the latest best practices.
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industry expert / service Prepaid Maintenance Plans Profit Driver or Loss Leader? Don Reed is the CEO of DealerPro Training Solutions. Reed has 26 years of success in the automobile business as a dealer, general manager, sales manager, parts and service manager, service advisor and salesperson. DealerPro Training specializes in dealership service and sales solutions. He can be reached at 888-553-0100. DReed@AutoDealerMonthly.com P repaid maintenance plans (PPM) are nothing new to the auto industry. They have been around for many years, so let's start by reviewing the reasoning behind offering these plans in the first place. Obviously, one good reason is to keep the customers coming back to the dealership for all of their service needs versus going to the aftermarket or competing dealers. To accomplish this, we try to build value in the PPM by showing a customer the benefits of paying for their maintenance up front. This will not only save the customer some money, but it also provides a positive increase in a dealer's cash flow. However, you want to ensure that your pricing for your prepaid services will drive your profits versus simply being a loss leader. Here is an example of my point: You price your services at dealer's cost or—even worse—at a loss to encourage the customer to buy your plan and return to your service department for all of their services, so that you can do what when they actually return? When I ask this question to dealers and service directors, the most common response is, "So we can upsell the customer something." My problem with this answer is that in reality, the exact opposite is happening. In the real world, the customer returns to your service department, signs a one-item repair order for their oil change or other service and nothing else is presented, let alone sold by their advisor. Why? After training in hundreds of dealerships with several thousand advisors as well as conducting workshops with advisors, managers and dealers all across the United States, Canada and the United Kingdom, I think I have found the answer: Most service advisors do not understand their job description, if they even have one, and have not been properly trained on how to accomplish their primary mission. The primary mission of a service advisor is to provide the advice required to ensure that each and every customer drives out of the dealership in a safe and reliable vehicle, period. Have you trained your advisors to do this? To ensure the customer is driving a safe vehicle, it must be inspected on every visit by a factory-trained technician. Then the advisor must advise the customer of the results of that inspection and make recommendations for both repairs needed now as well as those that will be needed in the near future. In other words, they must do what their job title implies: advise. Let the customer make the decision on whether or not to spend the money for the needed repairs and stop allowing the advisor to make it for them by not advising. My dentist does this on every visit. complimentary original equipment manufacturer (OEM) maintenance plans. I found the following to be quite interesting: To ensure the customer is driving a reliable vehicle, advisors must again advise the customer of the manufacturer's maintenance requirements and recommendations based on time and/or mileage in addition to whatever the prepaid item might be. This must be done at the time of reception. Again, let the customer decide, not the advisor. This is how to make sure your PPM is a profit driver and not a loss leader. Anyone with an ounce of common sense understands that if more customers are given the opportunity to say yes to driving a safe and reliable vehicle, you will increase your closing ratio in any type of sale. • Next-generation servicers (under age 35) are more likely to have a plan (31 percent) than those over 35 (18 percent) and are more likely to have all maintenance done under the plan at their dealer (72 percent) than those over 35 (61 percent). OK, so let's assume we get our advisors properly trained on how to advise. What else can we expect to gain by offering PPM? I recently read a national consumer survey conducted by DMEautomotive on both PPM sold by dealers and • Fifty-six percent of consumers with a prepaid or complimentary maintenance plan are likely to continue servicing at their dealership after expiration. • Roughly 1 in 4 American vehicle owners have either a plan through their dealer or OEM. Sixty-two percent of those who use plans for all maintenance are likely to stick with their dealer. Doug Van Sach, vice president of strategy and analytics at DMEautomotive, said, "these programs can more than double service business that typically bleeds to the aftermarket" Obviously, service retention matters and pays huge dividends to those dealers who are committed to an ongoing plan for bringing their customers back to the dealership for all their service needs. Part of that plan should be PPM coupled with properly-trained staff members who will provide customers with the highest level of service by ensuring they are driving a safe and reliable vehicle. 13