How a Honda dealership excels at selling service contracts

Honda North of Danvers, Mass., claims a sales penetration rate for extended-service contracts of more than 50 percent. That's well above an industry average of around 30 percent, as measured by the Power Information Network.

Honda North is part of employee-owned International Cars Ltd., which has Porsche, Audi, Chevrolet and Honda franchises in three locations in New Hampshire and Massachusetts.

Last week International Cars CEO Jack Donachie spoke with Special Correspondent Jim Henry about Honda North's success in selling extended-service contracts.

Are you doing anything new in F&I?

Over a year ago we partnered with JM&A. We were struggling. I mean, we were respectable, but we wanted to do better by Honda standards. We have a standard menu, which DealerTrack set up along with JM&A.

We do a ton of training in F&I. When we have new business managers we send them to JM&A school for one to two weeks. When they come back, a JM&A manager sits with them, and at first we limit their deals to 50 percent of what they can expect when they're up and running on their own.

So you have a standard operating procedure for everything.

It's process-driven education. If you stick to the process you'll be successful. We do an interview process with the customer, a customer-needs assessment. Then we provide them with a menu based on their needs. From that point, it's a more typical "gold, silver, bronze" [different prices and levels of service] type of thing.

How much volume do you do?

As a company, last year the total was 3,043 new and 1,539 used cars. We increased used 10 percent from 2010. In 2010 we did 3,417 new and 1,836 used. So how did we do more used cars [even though we sold fewer units in 2011]? That's on a per-store basis. We had two Saturn stores before [in New Hampshire], one in Manchester and one in Nashua.

What's your extended service-contract penetration?

For new cars for Honda it's 54 percent. That's 2012, through February. For all of 2011 it was 49 percent. For used cars, it's 57 percent year to date, vs. 55 percent.

For all of International Cars Ltd., it was 35 percent year to date in 2012.

Do you have a quota for F&I products?

We don't put a whole lot of focus on that. We want to make money, but we don't want to gouge people. Honda North has a one-price value policy, which means if you get quoted a price, you get the same price at any other one of our locations. That's the same for all our operations.

Fifty-four percent is pretty high. Why is the Honda number so much higher than those for the rest of your stores?

Honda North is where our most experienced business managers are, with three of the four managers being promotions from within. I expect that all our stores will be at the same level in 2012.

Will you spread best practices from the Honda franchise to the rest of your group?

Yes.

Are you taking other measures? Discounting? Advertising?

We do not discount or advertise service contracts. Our success is due to the rigorous training process and the support we get from JM&A. Also, we include the International Cars Ltd. Assurance Package on all eligible used vehicles sold. That is, 10 or less years old, and up to 100,000 miles that are not in a factory certified-used program.

Our Assurance Package is comprehensive coverage far beyond powertrain. It's for up to 3,750 miles or 90 days, and one year of roadside assistance. Many used-car buyers upgrade from that coverage.

Whose service contracts do you sell primarily?

JM&A's

Do you reinsure service contracts? Do the reinsured ones dominate your service-contract sales?

Yes and yes.

What's a range of customer pricing on service contracts?

The range is from $800 to $3,000. It varies based on the terms of coverage -- time and mileage -- which are determined during the needs assessment; the amount of deductible; the make and model of the vehicle; and new vs. used.