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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Prepaid Maintenance Drives Retention, Profits Daryl K. Tabor T he service department is the lifeblood of your dealership, driving receipts and carrying you through those dicey periods when car sales suffer under the weight of a weak economy. Even in good times, the profit margin from new-car sales is likely overshadowed by that of service and parts. Including staff behind the parts counter, the service department probably employs as many people as all other areas of the dealership combined. Without it, your store is simply a car lot where customer retention is based on little more than the price on the windshield and a friendly handshake. Despite their importance to auto retailers' survival, it's only been in the past few years that service departments have been taken seriously as a way to not only drive retention but also capture the most coveted prize in any business: customer loyalty. While fidelity cannot be bought, many automakers and dealerships have found that retention, the unemotional cousin of loyalty, can be bargained for. Retention often begins with a simple invitation to visit your service drive every 5,000 miles or so. And who knows, it might even be the start of a long-lasting relationship. Prepaid maintenance (PPM) plans and courtesy service packages have started to blossom as customer retention tools for automakers and individual dealerships, whether they be franchise or independent lots. Today, nearly one-quarter of Americans are driving with some type of service plan, which generally covers routine maintenance as prescribed in the owner's manual. "It's one of the most powerful loyalty tools at a dealer's disposal," said Mike Martinez, chief marketing officer at DMEautomotive (DMEa). Dealers have been slow to embrace the retention and income possibilities of PPM, claims Mike Gorun, CEO at Performance Loyalty Group a subsidiary of MediaTrac that provides myriad customer retention tools for numerous industries, including UltraCare for the automotive sector. However, the implementation rate of PPM plans has begun to improve in recent years, driven in part by the rise of technology that allows dealers to more efficiently administer, manage and customize programs. A quarter-century ago, maintenance programs were troublesome to implement, requiring the use of analog methods like books of coupons redeemable for specified services. The plans were virtually all run at a high cost to retailers by third-party administrators, Gorun said. "The way that it was packaged was very cumbersome for the dealer," he said. "In the last 10 years, everything has gone electronic and is integrated into the DMS (dealer management system)," he continued. "It's all automatic on the back-end side. It makes it very easy for the dealer." Ash Bauer, vice president of Resource Automotive, a financial services, consulting and training unit of The Warranty Group, which offers its own PPM product, added he also thinks it is an increased focus on retention that is fueling the rise of maintenance plans. "The manufacturers are starting to see the benefits," he said. DMEa's Martinez also suspects dealers are waking up to the fact that keeping customers through retention tools is more important—and less expensive—than finding new ones. The survey says Last August, DMEa, a marketing analytics firm specializing in the automotive industry, released the findings of a nationwide consumer study focused on maintenance plans. The survey results illustrate the correlation of maintenance packages to customer retention and loyalty—the ultimate prize sought by auto retailers. According to DMEa's data, 22 percent of car owners in America have a maintenance plan for their vehicle that augments its warranty. Of these, 15 percent are covered under free original equipment manufacturer (OEM) plans like ToyotaCare, with the balance having purchased PPM at the dealership. The study, which polled 2,194 vehicle owners who had had their car serviced over the course of the previous 12 months, found that 56 percent of those holding such a plan are likely to return to the dealership for service after their package expires. That figure climbs to 62 percent for those who used their plans for all maintenance during the term of the contract. "Our survey provides fresh evidence that both prepaid and OEM-provided maintenance plans have a powerful impact autodealermonthly.com 19