Frank Pohanka, a Cadillac dealer in Fredericksburg, Va., had had enough.
General Motors wanted to force dealers to pitch its extended service contract to every customer. "It's hard enough to do business as it is," Pohanka says. "If one manufacturer does something and gets away with it, others follow. We had to nip this in the bud."
So Pohanka and other Virginia dealers successfully lobbied the state legislature this year to prohibit automakers from dictating which service plans dealers can sell.
Dealers across the nation say automakers are pressuring them to sell factory service contracts. They say factories are turning up the heat even as customers are buying fewer extended service contracts for new cars and trucks.
Carmakers always have nudged dealers to tout service contracts. But in the past year, dealers say, the pressure has been ratcheted up.
Many dealers prefer independent service contracts because they are more profitable than factory plans. The question is, who reaps most of the profit - dealers or automakers?
Service contracts are lucrative for automakers. A six-year service plan for a full-sized Chevrolet pickup sold to a dealer for $1,410 generates $610 in profit for General Motors, according to an executive of a reinsurance company who asked not to be named.
Dealerships make money, too. They can mark up the price of that service contract by several hundred dollars when selling it to a vehicle buyer.
Automakers charge dealers 25 percent to 30 percent more for factory contracts than independent insurers charge, the executive estimates. But automakers say factory service contracts pose less risk to dealers.
In recent years, several major insurers of independent service plans went out of business. Reliance Insurance Co. failed in 2002 and National Warranty Insurance Co. failed in 2003. Dealers paid many of the claims those insurers left behind.
"We think we offer the best product, and we stand by it," says Tim Dean, national sales director of the General Motors Protection Plan.