Auto dealers say they are boosting sales and service business by offering customers a free lifetime powertrain warranty that covers new and used vehicles.
The service contract, called Auto4Life, costs dealerships $189 per new vehicle and $219 per used vehicle. There is a $100 surcharge for coverage of some luxury vehicles.
Auto4Life, of Reston, Va., has 20 U.S. dealership customers.
Some dealerships that self-insured the lifetime warranties they offered underestimated the cost of coverage and lost a lot of money. But Kolleen Koons, national sales director of
Auto4Life, says that her company, not the dealership, is financially liable if the plan's primary insurer should fail to pay claims.
Imagine Insurance Co., of Barbados, insures the contract.
Restrictions in the warranty also help limit the dealership's risk, Koons says. The contract requires that the dealership that sold the vehicle must perform all covered repairs and maintenance. Auto4Life customers must keep receipts that show they have followed the manufacturer's recommended maintenance schedule.
Dave Robertson, executive director of the Association of Finance and Insurance Professionals, warns that Auto4Life's tough maintenance requirements could anger customers who are denied claims. When customers sued other service plan administrators over what they said were excessively strict rules, he adds, courts have tended to favor the plaintiffs.
Jim Giddings, general manager of Lustine Toyota-Dodge in Woodbridge, Va., says the dealership has offered the warranty for three years. During that time, he says, the store's sales of new and used cars and trucks have nearly tripled, to about 600 vehicles a month.
The share of customers who return to the dealership for service has increased from 9 to 42 percent, Giddings says. Auto4Life's maintenance rules encourage 60 percent of the store's customers to buy maintenance plans. The dealership sold few such plans before it offered the Auto4Life warranty, he adds.
"All of a sudden we started seeing trade-ins with 100,000 miles on them," Giddings says. Such customers, he says, are attracted to the prospect of a lifetime warranty.
Bob Hobbs, a Toyota and Dodge dealer in Laurel, Miss., says the warranty appeals especially to used-vehicle buyers. Since he introduced
Auto4Life in December 2004, Hobbs says, the dealership's service revenues have increased by half, to about $75,000 per month, he says.
"As long as you are priced right," Hobbs says, "this program will tie the customer to the dealership."
Vehicle owners cannot transfer the Auto4Life warranty to future owners. The contract includes a $100 deductible. The plan does not provide towing or loaner vehicles.
You may e-mail Donna Harris at [email protected]