Lenders that require higher credit scores and larger down payments are making it "tough as hell" to sell not just service contracts but GAP insurance and other products that boosts a dealer's profit, says Mark Krejci, president of Continental-National Services Corp., a Tampa, Fla., provider of dealership F&I products.
Longer factory warranties also have hurt sales of extended maintenance contracts, Krejci notes. And he does not hold out much hope that dealers will be able to sell the contracts somewhere down the road.
"When you buy a new vehicle, the best time to buy a service contract is then because you have indirect financing," Krejci says. "You can put the service contract sale in there. When you can't do that, you are really limited."
If upside-down consumers can't fold the service contract into the car loan, they aren't likely to pay cash for it, says Bruce Foster, director of the Performance Development Center at JM&A Group, a division of JM Family Enterprises, the southeast regional Toyota distributor.
"Over the past several years, consumers were accustomed to being able to purchase vehicles with little or no money down," Foster said. "Unfortunately, those days have passed. Lenders are now asking consumers to come up with more money down."
Florida dealer Alan Starling, a past NADA chairman and owner of three stores, says the banks' caution is hurting business. Starling's salespeople always offer extended service contracts, explaining that the last thing a customer wants is to be making payments on a broken car they can't drive.
"People are saying to me ... 'I need to take that,'" Starling says. "So we call the transaction in to GMAC or the bank and they'll say, 'You are asking us to loan this guy $14,000, and $1,200 of that is a service contract. We'll loan you the money on a car, but we don't want to get the service contract,'" says Starling who sells several brands, including Chevrolet, Chrysler, Jeep and Dodge.
GMAC would not comment about sales of service contracts. But a spokeswoman says the company is offering consumers separate, interest-free loans to finance service contracts for up to 18 months.