Special to AuSM
As independent auto dealers look to bolster their competitiveness and strengthen their performance, many are turning to practices franchised dealers have been using for some time to increase their service business and retain customers.
One practice, which automotive consultant Ed French of AutoProfit says “builds the cadence of turn” is to offer buyers prepaid maintenance services to establish the independent dealer’s service center as a “known commodity.”
Prepaid maintenance programs (PPMs) can help dealers bring buyers back for regular oil changes and other discounted services that build with them a habit of servicing their vehicle with the selling dealer.
Customers who develop a habit of maintaining their car at your store are 60 times more likely to purchase their next vehicle from you, DMEautomotive has noted.
Ryan Williams, president of prepaid maintenance program company Fidelis PPM, says independent dealers providing these plans to buyers can help them turn cost-centered service facilities into break-even operations and for many, profit centers.
“Independent dealers using PPMs to drive service and purchase retention are enjoying repair order upsell advantages of $70 per repair more and retention of 68 percent or more of customers whom the dealership has given to or sold prepaid maintenance,” Williams says.
These advantages are similar to what franchised dealers who are employing these plans enjoy, Williams says. According to NIADA data, half of all independent dealerships operate up to five service bays. Using dealership-branded prepaid maintenance programs is a proven way to help keep those bays productive.
A recent report from J.D. Power, Automotive Analyst Note, Satisfied Service Customers Likely to Remain Loyal to the Future notes, “complimentary maintenance and prepaid maintenance also drive more visits to dealers.” Customers that indicated they either prepaid for a maintenance package or that their vehicle included complimentary maintenance when purchased in the 2015 study made 88 percent of their service visits to dealerships in 2017; those who did not have this benefit in 2015 made 75 percent of their service visits to dealers in 2017.
These plans typically feature a package of discounted oil services, tire rotations, fluid service or other routine maintenance functions. Plan holders are encouraged to use these services several times a year to better maintain their investment and develop a habit of returning to the dealer not the aftermarket for these services.
The current market favors dealers who promote their business to retain customers, French says.
“The market is changing rapidly, and the answer is yes, PPMs are right for it for three basic reasons,” he says. One is the average miles on preowned cars that independents are selling are less than ever; they’re newer than ever; and the average transaction price for used vehicles at franchised dealers is $19,000 and $16,000 for independents.
“These factors make service contracts attractive to buyers at independent dealerships to help mitigate the risk that comes with cars that are more expensive. I look at PPMs as a complement to service contracts because PPM use establishes a pattern of owners returning to their independent dealer’s service facilities to have these routine services done there,” French says.
Independent dealers who link customers back to their dealerships by using PPMs continue a retention strategy those cars original dealers and owners started.
“The cars that are now flowing into independent dealers’ lots these days are off-lease cars in superb condition because they have been well taken care of, and many were placed into service with the lessee holding a PPM from the leasing dealership to keep those customers returning to that dealership,” French notes. “If you’re selling cars having already been enrolled in prepaid maintenance plans why not keep it that way because it’s going to extend the second half of the vehicle’s life.”
Buying vehicles having previous PPM coverage can help independents build value into their inventory. French notes that Carfax reports indicate regularity of service visits, which he says suggests those vehicles in their earlier lives where benefits of more routine maintenances promoted by preventive maintenance. Sharing this report with prospective buyers is a great way to build confidence in that vehicle and the reason to continue that level of maintenance that a PPM can drive.
PPMs for used-car buyers
Putting PPM coverage into the hands of used-car buyers helps connect them to the dealership after the sale. Consider these points from the Fidelis PPM report; Loyalty is Elusive, Customer Retention is Measurable, about used-car buyers:
- Risk-avoidance consumers who want peace of mind about future vehicle maintenance needs. They have grown up watching OEMs give PPMs away with the purchase of new cars and come to expect similar treatment for the used vehicles they purchase.
- Cash-flow-strapped consumers whom Bankrate.com notes cannot meet even a $500 emergency expenditure.
- Leading busy lifestyles with little tolerance for inconveniences like vehicle maintenance -- prepaid plans help smooth the bumps
- Deal shoppers whom retailers report that 85 percent of consumers look for coupons before visiting a dealer. PPM packages convey value to these buyers.
PPM best practices
Dealers using prepaid maintenance programs to increase store retention build a culture around these benefits.
- Extend equal responsibility to F&I and service for promoting the plan to keep them involved, cooperative, and invested in program success
- Link pay plans and spiffs to plan-based production goals and targets
- Use a program offering automated marketing, claims reporting, and other features
- Reminder mailings, especially those that show savings occurred through plan use, keeps usage above 65 percent
- Make it mobile, as 53 percent of consumers likely to schedule service appointments will use a mobile device
- Be sure the plan mechanisms provide reliable performance and ROI reporting for management
“Margin squeeze, competition, and unusual market factors mean every dealer — franchise and independent — must use whatever measures possible to improve R.O.I. and retain customers. The prepaid maintenance product is an excellent product that used-car buyers find exceptionally useful these days as they seek to protect both their vehicle investment and their budget,” Williams says.