Used-car dealer Bob Morgan depends on Manheim Auctions Inc. for vehicles. When it comes to Internet services, he puts his trust in Manheim's AutoConnect system.
But when Manheim rolls out its Manheim EasyCare vehicle service contract program next year in Colorado, the Denver dealer says he won't be signing up.
Atlanta-based Manheim, the world's largest auto auction chain, has the name and experience to make Manheim EasyCare - a program for independent used-car dealers - a success. However, Manheim is entering a crowded market where independent dealers such as Morgan can choose from a variety of established warranty companies and upstarts.
The largest player is Wynn's Oil Co., an Azusa, Calif.-based provider of product warranty contracts. Wynn's has a high profile as the preferred warranty contract provider to the National Independent Auto Dealers Association and most of that group's affiliated state associations.
Through that relationship, Wynn's contributes a percentage of warranty revenue to the national association and state associations. Since 1992, dealer associations have received about $2 million from Wynn's, said R.B. Grisham, executive vice president of the National Independent Auto Dealers Association.
Grisham says the Manheim EasyCare program will help independent dealers compete with franchised dealers. But at the same time, Manheim EasyCare will cut into the funds the associations receive from Wynn's.
Manheim, an associate member of the National*Independent Auto Dealers Association, needs to look at how it can support the associations better, Grisham said.
Mark Waldrop, national sales manager for Manheim EasyCare, said the program is considering contributing funds to dealer associations on a state-by-state basis.
MORE TO LOSE
Members of one dealer association have more to lose. Last year dealers in the Northland Indepen-dent Automobile Dealers Association, which represents dealers in Minnesota, Wisconsin and North and South Dakota, opened their own service contract company.
Nationwide Auto Dealers Group is a nonprofit company that serves 250 dealers, mostly Northland members. Revenue from service contracts sold by those dealers goes in a trust fund; money not paid in claims by the end of the year is returned to the dealers as dividends.
Allen Lentsch, Northland's executive director, oversees the program and believes dealer-owned warranty companies are the way of the future because they allow dealers to keep more of the profits.
Lentsch said the dealer-owned group does not mind the competition from Manheim. 'Competition is always good,' he said.
Morgan, an independent dealer who owns Family Trucks & Vans Inc. in the Denver area, also wants to retain more profits from selling service contracts.
Through a program offered by Dallas-based First Extended Service Corp., Morgan pays the company a management fee to run his service contract program. But like the Northland program, the revenue from the contracts stays in an escrow account under Morgan's control. He expects to make $100,000 a year on the program.
Morgan said it is no wonder Manheim wants to enter the lucrative service contract business: 'They saw the writing on the wall, just as I did.'