Prepaid oil change plan called key to dealer's success

More than half of the customers who buy a new or used vehicle from Don Ferrario's dealerships return to his shops for all service needs.

Ferrario, president of the Ferrario Team, says he owes the high customer loyalty primarily to a prepaid oil change program he introduced four years ago. His four dealerships in Pennsylvania and New York sell Chrysler, Dodge, Jeep, Chevrolet, Ford and Lincoln vehicles.

Customers who buy vehicles from Ferrario can purchase the Ferrario 100K program for $269, entitling them to an oil and filter change for $9 every 3,000 miles for six years or 100,000 miles, and a service loaner for every visit. Service-only customers can buy plans with 12- to 36-month terms offering fewer services.

Staff Reporter Donna Harris spoke with Ferrario on the program's results.

How did you develop the program?

We developed the 100K program in-house. Our goal is increased vehicle purchase and service loyalty. After four years, we now have over 3,000 active customers enrolled.

What's the penetration rate?

Our penetration rate is over 40 percent of new- and used-vehicle sales, and the mix is about the same on both. Of course, we still have nonplan customers who service with us, so our total service retention is well above 50 percent. I don't know too many dealerships with 40 percent service retention on used-car sales. That used-car customer is actually a better service customer because his vehicle will need other maintenance sooner than a new-car customer.

Just how does the Ferrario 100K program work?

Customers get up to 33 oil changes for $269. At each service they get a complete service history review, a multipoint inspection and use of a loaner vehicle. They also get use of a loaner vehicle during any other mechanical repair-warranty, maintenance, whatever-anything except collision repair.

The time and mileage start on the day the vehicle was purchased. If the used car has 40,000 miles on it at the time of purchase, the plan goes to 140,000 miles.

What do you offer customers who just service their cars with you?

The full 100,000-mile program is only available for vehicles purchased at Ferrario. We offer short-term programs that run 12 to 36 months. The short-term programs do not offer as much content as the 100K but are still a good value. By taking an orphan owner and adopting him into the program, we now have a new service customer. The short-term programs are also a good option for lease customers, as the three-year/36,000-mile program is only $199.

The short-term plans are often sold in the service drive. We offer a 1-year/15,000-mile plan for only $99. If you are going to spend $30 for an oil change anyway, why not spend $99 to receive five services plus a loaner car? You can purchase the plan and use it at the same time.

You have a Ford Quick Lane fast lube. Does that help you handle the volume?

Plan customers make up two-thirds of the oil changes in our Quick Lane. Since the customers aren't being asked to pay for an oil change at the time of service, they have that much more money available for other needed services.

You've had the program in place for four years. How many of the people who purchased it are coming back to buy another car from you?

We don't have a way to track it precisely. It's impossible to say for sure why a customer purchased again. Our sales have consistently grown over those years. Even 2009 was a great year. Most repeat customers are eager to purchase the plan on their next car.

Do you make a profit on the plans?

We book a slight loss on each plan sold. Besides the oil changes, we have 20 loaner vehicles. But we eliminated the expense for mailed service reminders. It's just not necessary with our program. That expense alone had previously been several thousand dollars per month, which is more than it costs to keep the loaner cars.

How does it affect your service business?

We have over 50 percent service retention on both new- and used-car sales. If a customer is visiting our service department three to six times per year for oil changes, will they go somewhere else for maintenance, tires and other repairs?

Although the plan itself is a loss, its effect has greatly enhanced the entire dealership profitability. It's the single most valuable key to our success.

How did you set the price?

We set the price so that it would be so compelling it would be a reason to buy the car from us.

How many people who buy it actually use it?

Virtually all our plan customers use it. Occasionally, one of our vehicle manufacturers offers a vehicle purchase incentive that includes free maintenance. The percentage of customers who actually use the free maintenance is fairly low, certainly less than 50 percent. If the customer paid something for the plan, they are more likely to use it.

You've said any employee can sell the plan. How are they compensated?

Any employee can sell the plan and receives a $10 spiff for doing so. That doesn't sound like much, but the plan is easy to sell, so it can mean an extra $100 or $200 per month for an employee. The finance and insurance managers get an additional spiff based on entire dealership penetration for the month so that they will monitor sales, be sure that literature is available and process the paperwork.

Do you have a plan for truck buyers?

The Ferrario 100K is available on diesel engines for $599, with 6,000 mile service intervals. A diesel oil change if $80, so that's still a great value.