How to play it smart on smart key coverage
In a recent survey, 29 percent of responding dealerships said they offer key-replacement coverage.
Key-replacement coverage could be on its way to unlocking more profits for dealerships.
Consumer interest in the coverage is growing as more vehicles get programmable smart keys, which can cost $185 to $700 to replace. At the low end are keys that incorporate door-opening buttons previously found on key fobs. At the high end are keys that a driver can leave in her purse, and a push of the car's start button will turn the engine over while adjusting the seat to that driver's preferences.
Key-replacement coverage is offered by 29 percent of the dealerships responding to a recent unscientific Automotive News online survey.
But it's more than a new key that attracts dealerships and their customers. It's a package of aftermarket products that often includes coverage of not only replacing the key but other costs that may arise at the same time, such as towing.
Larry Dorfman: Key replacement can be sold as part of road-club packages
And in some states there are legal reasons why dealers should sell key-replacement coverage as a part of other plans and be careful how they present it to customers.
KeyCare, a five-year, unlimited coverage program offered by the EasyCare unit of Atlanta's Automobile Protection Corp., retails for $299. The program will replace keys multiple times and includes roadside assistance, alternative transportation, towing and as much as $200 to cover replacement of other keys, such as house keys. It will even send a locksmith to a consumer's house.
Between 350 and 400 dealerships offer the key program, says Larry Dorfman, CEO of Automobile Protection.
Among them is the Jeff Schmitt Auto Group near Dayton, Ohio, which has offered it for about a year and a half. Penetration averages 40 percent, says Steve VanGorder, general manager of the six-store group.
Each of his finance managers decides how to sell it, but VanGorder says those who bundle it have the best results. KeyCare with dent-and-ding coverage, the most popular package, offers about a 20 percent cost savings vs. buying the products separately, he says.
The dealership group pays $50 to $150 for a key program, depending on the number of years it covers, and typically charges customers about a 100 percent markup.
Morris Nissan of Charleston, S.C., sells the Safekey program from Safe-Guard Products International of Atlanta. The program generates the most interest from owners of Murano, Altima and Maxima smart-key vehicles, says Mike Smith, the dealership's finance director. The dealership offers Safekey as a stand-alone product for five years for $240, which includes key replacement and reprogramming. The dealership's cost is $98.
More than half of the 300 to 400 dealerships offering Safekey sell it as a bundled option and customers generally buy it bundled, says Kitty Haas, vice president of marketing for Safe-Guard. She says it's usually grouped with tire-and-wheel, dent-and-ding and windshield protection.
Dealer markup and profitability on key-replacement products can be similar to those for GAP and tire-and-wheel products, Haas says. She declined to be more specific, but that implies markups of 50 to 100 percent.
'A service benefit'
Key-replacement coverage is always bundled at Borgman Ford-Mazda of Grandville, Mich., and sometimes customers get it for free in a package. "It's more of a service benefit to the customer," says Caryn Knapp, finance director.
Bob Corbin, president of Innovative Aftermarket Systems of Austin, Texas, says his dealership customers sell key-replacement coverage more often when it's bundled. It's often combined with dent-and-ding and windshield protection.
Dorfman says key-replacement contracts aren't covered by vehicle service contract statutes or laws in most states, so the only way to be compliant is to sell them as part of road-club packages, without calling it insurance per se. He recommends that dealers offering a key product check to make sure they are compliant.
Road-club coverage typically includes such items as fuel delivery and emergency roadside assistance.
Marketing the product, he says, can be as simple as asking customers in the service drive if they still have or know where their second set of keys is. Dorfman often asks this question. His finding: "Fifty percent don't."