WASHINGTON - Independent service contract companies say their revenues this year are up as much as double what they were a year ago.
Administrators attribute the surge to:
Price increases for competing factory-backed service plans.
The rise of late-model, used-vehicle certification.
Stronger used-vehicle warranties.
Although administrators lost business when short-term leasing became popular, they made it up by selling extended warranties on nearly new, off-lease vehicles. 'Thirty-five percent of our growth was used-car contracts,' said Larry Dorfman, president of Automobile Protection Corp., a publicly held Atlanta administrator.
The independents offer a less expensive alternative to the automakers' used-vehicle certification programs. Under the factory programs, certified cars come with a warranty. But dealers have to pay for that warranty, and they cannot pass the cost on to consumers.
'In some cases, the factories are charging (dealers) $300 to $350 apiece for a 12-month/12,000-mile or 36-month/36,000-mile warranty that precludes dealers from selling service contracts,' said Jim Ziegler, president of Ziegler Supersystems, an Atlanta sales consulting firm.
But under most of the independents' certified used-car programs, administrators waive the dealer's cost of the basic warranty if the F&I department is able to sell a longer-term contract.
Factory-certified used cars generally carry a 12-month/12,000-mile warranty. Some independent administrators let dealers offer cheaper, shorter-term warranties on certified vehicles - such as 30 days, 90 days and 180 days. The shorter terms give customers more incentive to purchase additional coverage, said Ziegler.
APPEALING TO BUYERS
Automakers argue that their programs are more appealing to consumers.
'You have to step back and look at the compelling argument for a factory certification program,' said Louis Carrio Jr., director of mechanical products for General Motors Acceptance Corp. 'Customers are willing to pay as much as 10 percent more for a factory-certified used car.'
Typically, dealers sell additional contracts on one-third of certified used vehicles, Carrio said.
General Motors is treating certified used vehicles as a separate brand. Customers who buy a certified used car can qualify for the same special financing GM has on new vehicles, he said.
But administrators say recent price increases on some automakers' service plans make them uncompetitive.
'Pricing on a five-year/100,000-mile contract can be more than twice the (dealer) cost of most independents,' said David Hopkins, national manager of vehicle service contract division for American Financial Automotive Services in League City, Texas.