In our last article, we talked about financing as one of the things that a car dealership can do to improve their customer relations and as a result, improve their bottom line. With the same thing in mind, toady we are going to talk about service contracts.
Service Contracts
Anytime there is a new vehicle sold in the US, it comes with some form of warranty that is offered by the manufacturer. Beyond that, it is the responsibility of the customer to make sure that the vehicle is covered in terms of mechanical issues. While service contracts might cover one or two things that a manufacturer's warranty will cover, many times they differ entirely.
Service contracts will generally have a deductible just the same as any insurance would. Because of the great differences between service contracts and what they each cover and exclude as well as how easy or difficult it is to get a claim paid, it is crucial that a customer understands the terms of the contract before purchasing one.
In general, this type of service contract does not cover things that are considered to be regular or preventive maintenance services such as fluids, brakes, filters, etc. It should be noted that in certain states, this type of contract and the cost of such is very heavily regulated by law.
In general, there are three types of contracts like this.
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The first type is one that is offered through a dealership by the manufacturer and in general is good at any other franchise dealership in the States. Whit this type of agreement, any time there is repair work required that is covered by the warranty, the dealer will submit a claim directly to the manufacturer and will be reimbursed for the repair.
The cost of the deductible that is paid by the customer will not be reimbursed to the dealer though. With this type of service agreement, there is no monetary incentive for the dealer to complete the repair work. However, the incentive for the customer's trust and repeat business is more than worth it.
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There is also a type of contract that acts as an insurance policy. Dealers purchase these contracts wholesale and they are administered by a third party that in essence works for the dealer. Often, this third party just happens to be a major insurance agency.
The money that the consumer pays for this is put into a sort of reserve fund. If there is a repair that needs to be completed, the dealer will have to authorize it with the third party who will then pay for the repair with the money in the reserve fund.
This can profit the dealer because when the term or length of the contract is up, what is left in the reserve fund will revert to the dealer. However, this will also serve to build the trust of the customer and whenever they need a repair, they will come straight back to the dealer.
To read about the third type and some of the other services that dealers need to offer, catch the next installment.