It's understandable that with slimmer margins on new-vehicle sales these days, dealers and factory execs would want to maximize revenue from other sources such as the sale of service contracts to retail customers. But some captive finance companies have stepped over the line by unfairly pressuring dealers to sell factory-backed extended-service contracts.
Service contracts have been a good source of income for dealers and automakers for three decades. But competition among the various plans is tougher today because fewer consumers want to buy extended-service contracts. Dealers say the result has been more pressure from the factories in the past year.
Some dealers prefer selling independent service contracts because those contracts usually generate more revenue for dealerships than factory plans do. But other dealers prefer what they consider the security of a factory-backed plan, even if it is less profitable, especially after the recent failure of companies that insured some of the independent plans.
Automakers apply pressure in different ways. Nissan requires some dealers to meet a sales target for service contracts. The Chrysler group requires dealers to tell customers when they're buying nonfactory plans. GM tried to force dealers to offer the GM plan to all customers. Ford Motor Co. and its credit arm are being sued because an insurer of independent service plans claims Ford is trying to monopolize service contract business at its dealerships
This is not the first time automakers have used questionable tactics in a grab for the lion's share of aftersale or aftermarket products, such as crash parts, wheels and radios.
It's time for the factories to play fair. It is wrong for them to violate the tenets of fair competition by leaning on their dealers. And it is wrong for factories and dealers to foist service contracts on consumers who may not want or need them.