High-tech toys drive service contract sales

Car buyers appreciate the value of electronics

Mercedes store F&I Director Trisha Winski: A navigation system can cost $3,000 to repair.

In-vehicle, high-tech toys and consumers' urge to protect them are driving sales of extended service contracts, some finance and insurance professionals say.

That's because consumers recognize the high cost of repairing or replacing smartphones, tablets and laptops and how quickly technology changes. It's rubbing off on their attitudes about insuring the electronic components and gadgets in the vehicles they purchase.

"With the new Chevy vehicles for 2015 -- they are going to be hot spots -- the level of technology is unbelievable," says Mike Kapla, business manager at Kupper Chevrolet in Mandan, N.D., near Bismarck. He adds: "I think that's what's actually driving sales for extended service contracts."

Kapla says 33 percent of his customers purchase service contracts, up from about 28 percent in 2010. He attributes the increase, in part, to vehicle technology.

In the not too distant past, most extended service contract pitches were limited to a vehicle's mechanical components, such as its engine and transmission.

But the merger of consumer electronics and automobiles in features such as Bluetooth phone connectivity and radio and navigation systems controlled by touch screen and voice command build value in service contracts, dealership F&I experts say.

Matt Woods, the director of training solutions at Service Group Academy in Austin, Texas, agrees. During his 31/2-day classes for novice and veteran F&I professionals, Woods teaches students, as part of their sales presentation, to ask their customers how much they paid for their smartphones and their phones' protective cases.

Woods says it's sometimes easier to sell longer warranties for electronics than for the powertrain. The auto industry has pretty well perfected powertrain technology and offers new-car powertrain warranty coverage for up to 10 years in some cases.

But in-vehicle electronics are newer, more fragile and less predictable, he says. That makes them an excellent focal point of service contract sales, he adds. "I tell them: 'Think about all the technology in your car that you've just spent $30,000 for. Wouldn't it make sense to spend less than 1 percent of that amount to protect all the technology?'"

Trisha Winski, finance director at Mercedes-Benz of Westwood in Westwood, Mass., says Mercedes vehicles are well-made but first-time owners often are surprised at how much it costs to repair them compared with the cost of repairing nonluxury vehicles.

Among its F&I product offerings, Mercedes-Benz offers a service contract that if bought at the time the vehicle is purchased offers buyers a lot of value, Winski says.

The contract is 100 percent refundable if the customer sells or trades the vehicle before the contract's effective date, which is after a vehicle's 4-year/50,000-mile new-car warranty expires.

"Even little things -- a navigation system in a car can cost you $3,000," Winski says. "The two guys that work for me -- I always tell them you never want to scare somebody into a [service contract] because these cars are made really well. But at the end of the day, it's a car. It's still metal that somebody put together."

About 40 percent of her customers, excluding lease customers, buy extended service contracts, Winski adds.

Ralph Larson, corporate F&I director at Dick Hannah Dealerships in Vancouver, Wash., and Portland, Ore., says customers who finance their vehicles with contracts running six years or more intend to keep them longer than they kept vehicles before the recession.

Larson says the likelihood that those customers will exceed the miles on their new-car warranty within a couple of years or so, plus the keen awareness of how complicated vehicles are, makes service contracts easier to sell. About 60 percent of his customers purchase service contracts.

"People understand that a car is a high-tech item these days," Larson says. "They're expensive to purchase and expensive to fix. It's not a large investment to protect yourself."

You can reach Arlena Sawyers at asawyers@crain.com

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