Making free oil changes pay off

Starting in 2007, Lester Glenn Auto Group touted its service freebie: Buy a new or used car or truck, and get free oil changes for as long as you own the vehicle.

But as the group's dealership count and customer base grew, the company knew more than oil needed changing, said John Perillo Jr., 40, director of variable operations for the Toms River, N.J., group.

There was no system to track how often vehicles were brought in for oil changes. Freebie-seekers clogged the group's service departments but didn't become loyal customers. Costs soared.

In January 2015, the group reduced the number of free oil changes to four over two years. A year later, its finance and insurance staff began using the two years of free oil changes to promote prepaid maintenance coverage that features services such as tire rotation and key-fob replacement at no additional charge and discounts on future services and vehicle purchases.

The restructured program generates about $150,000 in incremental revenue for the group each month and still hasn't reached its potential, Perillo said.

"It just became pushing oil changes through," he said of the former "oil change for life" program.

"This way, we can account for it, we can manage it. If you [the customer] don't want to use it after two years because it isn't free and we haven't earned your trust and your respect to keep using us, then that's our fault. See you later," Perillo said.

Lester Glenn Auto Group includes seven dealerships representing 13 brands, up from two dealerships with three brands in 2007. In 2016, it retailed 8,739 new and 3,164 used cars and trucks, and handled about 147,000 service jobs. Its retail new-vehicle sales made it No. 108 on Automotive News' list of the top 150 dealership groups based in the U.S.

Lester Glenn customers who opt for a prepaid maintenance plan are upgraded to synthetic oil for their four free oil changes and receive 15 percent discounts on major services such as brake jobs and 30,000-mile transmission service. They also receive an additional $500 off the price of their next vehicle. A three-year plan retails for $399; a five-year plan sells for $747.

About 15 percent of the group's customers buy the maintenance plan. Of the customers who come in for free oil changes under the new program, 40 percent spend an average of $275 on other services per visit.

Perillo believes the program has room to grow. The take rate should more closely mirror the group's service warranty penetration of 35 percent, he said.

The 15 percent penetration for prepaid maintenance "isn't terrible," he said, but if customers are willing to trust the dealership for repairs, they should also trust it for maintenance.

He said at least part of the challenge is to better present to his F&I managers the product's value and its relationship to customer retention.

"You have F&I guys that make their living off of gross and we pay a flat $50 or $100 for selling one of these products," he said. "I need to do a better job at motivating them and helping them see the value in the product and the big picture."

Ryan Williams agrees on the importance of staff motivation. He's president of Fidelis PPM, the Scottsdale, Ariz., company that developed the program, which includes tools that measure customer pay dollars and return on investment.

Dealerships that couple prepaid maintenance with free oil changes typically are more focused on enhancing customer retention by delivering superior customer experience and satisfaction, Williams said.

"It's a total store culture," he said. "It's not just a sales-minded culture, not just a service-minded culture. It's a total store effort where everybody buys in to the same notion that a retained customer is a profitable customer. That benefits everyone in the store."

Williams said about 650 dealerships, most of which operate new-car franchises, use the product.

Perillo initially was surprised that customers who received free oil changes coupled with prepaid maintenance were more apt to return for oil changes and spend money on other parts and services than were customers who got unlimited free oil changes under the previous program.

"We didn't believe it at first, but it's 100 percent true," Perillo said. "When they've got skin in the game, they say, "Hey, I paid for that. I've got to go back and use it.'"

He added, "I believe the free oil changes hurt us more than helped." Paying customers were turned off by the backlog in his service departments created by people who came in for free oil changes only, he said, though that belief is not shared by all managers in the group.

The program is producing desired results in terms of more service business, but it is too early to gauge its customer-retention impact, Perillo said.

Though the program is equally attractive to new- and used-car buyers, Perillo said it especially appeals to new-vehicle lease customers. They already are getting two years of oil changes free. The plan's additional years can cover the entire term of their lease.

He said buyers of certified pre-owned vehicles see value in the prepaid upgrade, too, because they are coming back to the dealership for warranty work anyway.