Buyers of high-mileage vehicles do present special challenges to F&I managers.
Those customers often pay cash or have limited loans. They typically cannot afford to tack on pricey aftermarket products.
"Some of those products are really hard to sell because of the mileage of those vehicles," says Danny Burns, special finance manager at Mac Haik Dodge-Chrysler-Jeep in Houston. "But theft protection is just as important to someone buying a high-mileage vehicle as a low-mileage one."
At Mac Haik about 20 percent of the 1,000 used vehicles sold annually are high-mileage vehicles that cost several thousand dollars, says Nancy Lambert, general manager at the dealership. The store sells about 1,000 new vehicles annually, too.
Lambert says it's typical for a 5-year-old diesel pickup with 100,000 miles to sell for $15,000. So many of her customers purchase vehicles with financing that enables them to roll aftermarket products into that loan, she says.
"The peace of mind to buy coverage for two years on a vehicle is not that hard to sell," Lambert says. "The customer wants to buy it, and the payments are low enough that it would fit into their budget."
But many service contracts are among the priciest of products. A 3-year/36,000-mile comprehensive warranty with a $100 deductible on a 2006 Chevrolet with 80,000 miles, for example, would cost around $2,900, Krejci says. That price includes a $1,000 profit for the dealer. Even a 12-month/12,000-mile warranty with a $100 deductible with more limited coverage on that same vehicle runs about $1,600, he says. That includes a $600 profit for the dealer.
"By the time the dealer puts a profit into it, that's $1,500 to $3,000," Krejci says. "It blows you away. That's more than what the lender is often going to advance."
But over the past several months, many lenders are loosening credit restrictions on the sale of service contracts and other aftermarket products, says Jimmy Atkinson, COO of AUL Corp., a service contract provider in Napa, Calif.
"Lenders are still limiting these products more than in the past," Atkinson says. But he adds that outside funding for service contracts through premium finance companies gives customers an option aside from financing with their loan.
But often buyers of high-mileage vehicles hesitate to take out a second loan, and F&I managers do not push it because it's added paperwork for them, Krejci says.