It’s a situation that plays out at auto dealerships every day: A customer brings in a vehicle for service or after minor damage, only to find that the estimated charges are more than he or she was prepared to handle.
Just four in 10 U.S. adults would be able to pay for an unexpected $1,000 car repair, according to a well-publicized 2020 survey by Bankrate, a consumer financial services company.
To help consumers manage unexpected costs, dealership service departments are offering more F&I products. Besides traditional insurance products such as vehicle service contracts and extended warranties, an increasing number of point-of-sale lending options can help customers cover their service bills. And at many dealerships, the customer doesn’t even have to leave the service department.
Industrywide, about half of new- and used-car buyers complete their initial purchase without signing up for upfront insurance products such as vehicle service contracts and prepaid maintenance plans.
“When folks purchase their vehicle, a lot of times they don’t know how long they’re planning to keep that vehicle,” says Roger Mesiemore, vice president of service for Hendrick Automotive Group. “But then they drive it, decide they really like it and start to think about extending a warranty or budgeting for maintenance.”
Hendrick’s Autoguard line of F&I products includes lots of choices: extended service agreements, a tire and wheel program, flexible maintenance, paintless dent repair and more. Hendrick Automotive Group service managers and service advisers are trained to offer and handle these products in the service lane.
“We want to make it easy for customers to buy them. We don’t want customers to have to wait for a finance office to open up,” Mesiemore says. “We train our service team to make customers aware of these products, allow them to create quotes and, if the customer wants to proceed, fulfill and execute the contract in the service drive.”
Hendrick’s newest consumer repair financing solution is an initiative with Ally Lending. Service customers can pay for their vehicle repairs over time with a personal installment loan. Customers are prequalified quickly, then can view financing offers and monthly payment options. Finalizing the loan can be done in person at the dealership or on the phone with the service adviser—including the option for remotely and securely signing paperwork.
“This program puts us in a great position with customers,” Mesiemore says. “Even buying a set of new tires is a huge purchase these days. A lot of folks would prefer to break that up into installment payments, but most people don’t have an appetite for another credit card.”
When a customer visits one of the Hendrick Automotive Group’s dealership websites to make a service appointment, digital banners promote the Ally Lending financing program. The customer can click on a link to get prequalified and view their available rates and monthly payments.
“We want to make sure the awareness is created from the first touch point,” Mesiemore says. “Then when the customer arrives at the dealership, we also have point-of-sale materials and banners in the service drive.”
Says Hans Zandhuis, executive director of Ally Lending, “It makes so much sense to have lending in the service lane.” Zandhuis, a veteran of programs providing similar point-of-purchase loans in health care, says, “It’s been proven not just in auto but in all markets that providing this sort of lending at the point of purchase increases sales.”
Providing on-the-spot loans can help customers who might have walked away without making needed repairs—and also those who might have chosen to defer a portion of recommended service, Zandhuis says. “It’s a financial opportunity for dealers to make money and gives people safe solutions for their cars,” he says.
Zandhuis agrees with Mesiemore that many consumers prefer this type of finite, short-term installment loan to a credit card. “Consumers are moving away from open lines of credit,” he says. “People want to say, ‘I’m taking this loan, and it’s paying for this specific item.’ They want a loan that’s one and done. They want to use their credit card for day-to-day purchases, not necessarily for a new transmission.”
Hendrick Automotive Group piloted the lending program with Ally and recently rolled the program out to all its stores.
Service lane financing options fit Hendrick Automotive Group’s mission to offer one-stop shopping to customers.
“We want to be there for our customers, for the entire ownership experience,” Mesiemore says. “That means not only keeping the vehicle running but also making sure it’s looking good—our dealerships provide everything from clear paint shields and window tinting to dent repair and cosmetic touch-ups. We work really hard to be customer-friendly and focus on customer satisfaction.”
The side effect of these F&I efforts, of course, is that the service department not only serves its traditional role in building long-term relationships with a dealership’s customers but also can be an F&I profit center.
“Fixed ops is more important than ever to a dealer’s bottom line as revenue streams change,” says Kerri Koellner, Ally’s executive director of insurance operations. She points out that fixed ops currently account for about half of an average dealer’s profit.
“And research shows that the vast majority of customers who have been in for service in the past 12 months—more than 70%—are likely to come back to that dealership for their next vehicle,” Koellner says.
The service department, she says, “can play an even more important role by offering a VSC (vehicle service contract) or protection products to customers who might not have bought them at the time of their vehicle purchase. Those products keep owners coming back to the dealership, leading to longer-term retention of customers.”
