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ReprintsDealer profits may dwindle from tire, wheel policies
 | Costs for wheel and tire policies are soaring for dealers as claims increase, especially for some luxury brands. Photo credit: HONDA |
Dealer costs for wheel and tire policies are soaring as claims increase, especially for some luxury brands. As a result, dealers may have to settle for thinner profits on the policies, according to interviews.
Dealers are reluctant to pass along the higher costs to customers for fear of hurting retail demand. And lenders impose what amounts to a ceiling on retail prices by limiting how much they are willing to lend for add-ons.
Jim Polley, president of Vanguard Dealer Services, an independent agency in Fairfield, N.J., says dealer costs for some luxury brands can range from $600 to $1,200 per policy, more than double a couple of years ago.
"Prices have gone up considerably over the last two or three years," he says.
Experts say a number of reasons are to blame for the increase in customer claims, which has led to higher dealer costs.
• The popularity of large-diameter alloy wheels and high-cost, low-profile tires that are vulnerable to damage
• Generous policies, some of which allow customers to make an unlimited number of claims
• Relatively loose standards for verifying claims
Specific numbers on the size and frequency of claims are not disclosed, but experts say the upward trend is clear.
Although costs have increased for administrators and for dealers, retail prices have risen less, topping out at around $1,000 to $1,200 per policy for some luxury brands, says Michael Reth, executive vice president of Vehicle Administrative Services Ltd. in Addison, Texas.
That's partly because lenders won't finance much more than that, as part of the same finance contract as the vehicle, Reth says.
The stakes are high. Mercedes-Benz Financial Services USA of suburban Detroit reported that at one major dealership group, close to 30 percent of retail customers are buying its branded wheel and tire policies.
Meanwhile, Shaun Bugbee, vice president of sales and marketing for BMW Group Financial Services of Woodcliff Lake, N.J., says the captive finance company expects to sell around 70,000 wheel and tire policies in 2011. He said that represents sales penetration of about 22 percent of new and certified pre-owned BMW sales combined. He wouldn't disclose specific dealer costs, but he said the captive raised some dealer prices in September for its branded wheel and tire policies, based on different models and different regions.
"Replacement costs for a 6 or a 7 series are going to be higher than a 3 series or an X3," he said. Claims are also high in the Northeast where the weather is bad and the roads are rough, he says.
Says Bugbee: "It's definitely in reaction to higher-than-expected loss ratios."
You can reach Jim Henry at autonews@crain.com.
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