How tech pitches boost service plans
Stressing the high cost of computer repairs helps some stores sell more vehicle protection
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"You're driving a spaceship."
That's what Megan Jacoby tells customers when she pitches an extended-service contract to them.
And when Jacoby, the finance director at Bob Smith BMW in Calabasas, Calif., shows customers a cutaway drawing listing the computerized parts in their car and the costs to replace those components, an extended-service contract sale is likely, she says.
Jacoby says she started aggressively pitching the costs to replace all complex technology on cars in March 2011. Since that time, she says, the dealership's per-vehicle finance and insurance revenue is about $1,120 compared with about $920 before she started emphasizing technology replacement costs.
While most dealerships have not reported an increase in extended-service contract sales directly related to vehicle technology, some stores say pitching the complexities of technology has helped them sell more of the high-profit policies this year. The array of new technologies -- and the worry that something could go wrong -- prompts some customers to buy an extended-service contract for peace of mind, they say.
Customers' worries about technology range from basic computer chips crashing to navigation systems and in-vehicle telematics systems going bad, dealerships say.
"Technology is the most asked-about issue. That is the driving factor for people looking into extended-service plans," says Aaron Jones, finance manager at Haydocy Buick-GMC in Columbus, Ohio, which sells about 1,500 total cars annually.
High-priced chips
Jacoby and her colleagues in the finance office at Bob Smith BMW each keep computer chips encased in plastic on their desks. When a customer sees it, they inevitably ask, "What's this?" Jacoby says.
"That gears our conversation toward computer issues, costs and extended-service contracts," she says. "I tell them BMW isn't going to just fix the chip, they'll have to replace the whole computer."
A navigation system or computer module costs more than $1,000 to replace, Jacoby says. A power-steering pump could cost over $2,000 to replace, she says. Both of those include labor.
Bob Smith BMW sells about 2,400 new and used vehicles annually. But because 72 percent of its new vehicles are leased, selling extended-service contracts is challenging, which is why noting the technology concern has helped boost sales.
At Bob Smith BMW, to get coverage on electronic components, including navigation, customers pay more, Jacoby says.
Service contracts are lucrative products that can carry as much as a 100 percent markup for some dealers, industry sources say.
At small, rural dealership Big Sky Ford in Torrington, Wyo., through September, the per-vehicle revenue for F&I products for new vehicles is $960 compared with $560 a year ago. Owner Martin Gubbels credits the big gain largely to more customizing of F&I products and explaining the complications of technology, which has boosted sales of service contracts.
"It's helped us focus on keeping our customers happy with MyFord Touch," Gubbels says. "But you have to look at the total technology on a car."
Gubbels sells about 300 new and used vehicles annually. The typical independent extended-service contract he offers to cover everything is 4 years/60,000 miles, which the dealership sells for about $1,100. That's $400 to $600 more than what customers pay for a 4-year/60,000-mile plan that covers only the powertrain.
Dealer Mitchell Dale, owner of McRee Ford in Dickinson, Texas, says his penetration rate for extended-service contracts for new and used vehicles combined is about 68 percent through September, up about 5 percent over the year-ago period. His overall vehicle sales are up 17 percent through September compared with last year.
"There is an awareness that there's more technology, and when presented properly, the consumer understands that an extended-service contract is a good investment," Dale says.
At Ed Morse Automotive Group in Delray Beach, Fla., sales of extended-service contracts are up 1 to 2 points in sales penetration, says Randy Hoffman, senior director of the group. The group sells Chevrolet, Cadillac, GMC, Buick, Fiat, Honda, Mazda, Scion, Suzuki and Toyota vehicles.
Hoffman says complex vehicle technology has made customers more willing to listen to sales pitches about the benefits of an extended-service contract.
"We have five Cadillac stores, and a Cadillac vehicle is really a giant computer," Hoffman says.
A downside
But dealers warn there's a downside to emphasizing that technology can go haywire: It could cause customers to worry about overall product quality.
"You have to be careful to not make it sound frightening, like these things are going to fall apart tomorrow," Haydocy's Jones says.
He says sales of extended-service contracts at Haydocy have grown for both new and used vehicles but are greater on used cars because the store is stocking more late-model used vehicles with advanced technology. His sales of extended-service contracts on used cars are up 15 percent over the past two years, he says.
When selling the contracts, he says, he tells customers: "There are 25,000 parts on a car" so even if there is only a 1 percent chance of something going wrong, "that's 250 parts affected."
"You don't typically drop an engine or a transmission," he says. "It's the little things that get you."
You can reach Jamie LaReau at jlareau@crain.com. -- Follow Jamie on 
