F&I managers get creative in selling service contracts

Most extended service contracts are still sold at the same time a new car is sold. But now dealerships are finding a new place to market service contracts - and a way to cut down on possible buyers' remorse and cancellations.

In selling extended service contracts, F&I managers are going beyond vehicle buyers to service customers. And to bolster their business, they've made peace with credit unions, which formerly were often at odds with the F&I department.

"There's a real opportunity on the service drive. That's where we pick up a lot of business," said Bob Hymen, president of Service Payment Plan Inc. of Chicago. He said the company's business grew 30 percent last year while service contract sales fell overall.

Remberto Del Real, director of sales and marketing for Service Payment Plan, said service customers are in a receptive frame of mind to buy a service contract in part because people are keeping their cars longer.

"The economics have changed," Del Real said. "Leasing is down; people are flipping cars less often. They don't want big repair bills, but it gets expensive because things on cars today get replaced. They don't get fixed.

Automatic debit

Service Payment Plan's business isn't the service contracts themselves, which come from 40 vendors. The company's niche is to set up 0 percent financing for extended service contracts, coupled in every case with a payment plan in which the customer's account is automatically debited electronically every month.

Hymen said the average amount financed through Service Payment Plan is about $1,750.

"We found that customers with monthly billing had a much higher cancellation rate," Hymen told Automotive News at the National Automobile Dealers Association convention in Orlando. "When the customer has to write a check every month, in effect they're making that buying decision again every month."

It's also important to have financing for the extended service contract that's separate from the vehicle finance contract, he said.

That's because auto lenders have lowered ceilings on how much they will loan vs. the value of the car. That can make it impossible to roll the cost of aftermarket products such as extended service contracts into the finance contract.

Learning to get along

He said that credit unions in particular have a reputation among dealers for making it tough to finance service contracts along with the vehicle.

But in a separate interview in Orlando, Forrest Heathcott, president of JM&A Group, an insurance unit of JM Family Enterprises Inc., the Southeast regional Toyota distributor in Deerfield Beach, Fla., said dealers and credit unions are learning to get along.

"Credit unions will always have a very important role," Heathcott said. That became especially true over the last two years, when credit was tighter.

"The credit unions know they need the dealers," he said. "We don't find credit unions shy away from our products at all."

You can reach Jim Henry at autonews@crain.com

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