Tight household budgets have made extended service contracts a tougher sell, which in turn has made finance and insurance managers work harder to convince customers that the extra expense is worth it.
For example, menu selling -- where the F&I manager reviews the benefits of a service contract and other F&I products -- can help build up the customer's perception of the value of those products, says Ron Coombs, COO of JM&A Group in Deerfield Beach, Fla.
But it still can be tough sledding, he says: "We're working harder than we've ever worked because these are difficult times." JM&A is a major F&I vendor, with more than 2,500 dealership customers.
This year new-vehicle sales are off 24 percent through November compared with the year-ago period. With service-contract penetration steady, that implies extended service contract sales are also down about 24 percent for the year.
Mark Krejci, president of Continental-National Services Corp., another big F&I vendor in Tampa, Fla., says customers with limited budgets, combined with lower auto loan advances, are forcing F&I managers into a zero-sum game. For every product added to a customer's contract, something has to come out -- often at the expense of an extended service contract.
"You may have to choose between a service contract or GAP [guaranteed automotive protection] and a tire-and-wheel program, and most F&I managers would rather sell two products instead of one service contract," Krejci says.
Bryan Snyder, director of finance for Bommarito Automotive Group, says he's having more trouble with lower loan amounts than he is with customers' ability to pay. Lenders "will loan so much and no more," Snyder says. "You don't have any room to sell any additional products."
To help get around that, Bommarito Automotive offers 0 percent financing strictly to cover the cost of an extended service contract, Snyder says. He says the dealership group, which has 12 import and domestic franchises in the St. Louis area, uses menu selling to promote value "before we ever introduce any math."
Snyder says about 40 percent of the group's new-vehicle customers buy extended service contracts.