Doing the math on Vehicle Service Contracts

By: Lloyd Trushel

Recently I bought a Kitchen-Aid mixer. This was to replace the one I had for many years. It didn’t fail, instead it was lost after a tornado hit my home.

The new appliance is not as sturdy or powerful. It has a 1 year warranty as opposed to the 2 year warranty my old one had. It also bears the name “Classic” on it’s body – something my old one didn’t have.

It got me wondering… What is a “Classic”? Did they begin making the machine differently with less quality and refinements? Are they using cheaper parts? Is it possible that with the emergence of a new economy in the US, they built a lesser quality product to cut costs?

I understand, all businesses have revenue goals. If those goals aren’t met, businesses fail.

The same thing happens at the dealership. We would like to believe that a certain make or model will have a certain level of quality, but the truth is that it changes each year.

Since the early 1900’s, people have been building cars. In fact, there were over 1,000 different automotive manufacturing companies at the turn of the century. It was the dotcom of the day.

These companies assembled vehicles. Notice I said assembled. They didn’t build a tire or make their own glass, they bought the parts. Today, it’s the same and manufacturers buy 1,000’s of parts, make a few of their own and a car is born.

And just like with Kitchen-Aid, all manufacturers have revenue goals.

If your company sold a hundred thousand less units last year than expected, you’d have to make up the profits, right? Well, if your customer base wouldn’t accept a price hike your only immediate option would be to cut costs. If you produced a high quality vehicle for years, you could probably source cheaper parts and get by on your reputation for a long time. Especially with longer trade cycles and longer lending terms.

The bottom line is that this is nothing new. Auto companies have been struggling with the quality/cost battle for years. It’s driven further by the consumer’s desire to beat a dealership out of any possible profit. Realistically, consumers need a strategy for managing their budgets against the unknown expenses of lower quality. My advice is to always consider your new car, cellphone, tv or etc, with the price of a comprehensive extended warranty. Then amortize your costs over the period of time you have coverage against the cost to replace if you didn’t choose the protection.

AAEAAQAAAAAAAAeJAAAAJDllNzJmNTZkLTMzZTgtNGJmOS04OTE2LTk5ZWVmMzQ0MzZiNwIn many cases our research shows extended warranties only cost between 1-2% per year for a new car and as high as 150% per year for a cellphone. So choose wisely.

Good Luck!

By: Lloyd Trushel

President / COO

The Consator Group

What makes Consator Group different?

We believe…   that there is a better way to conduct business than the status quo. In our experience, when transparent and intelligent communication occurs between F&I and their customers, profits and satisfaction go up for all parties. Conversely, when the communication is poor and dysfunctional, profits and satisfaction go down for all parties.

We are experts…  in the automotive industry, with each of our principal level consultants having over 20 years’ of automotive experience. Their areas of experience include automotive finance, all areas of variable operations, financial lending, process consulting, insurance, ancillary products, the study of social sciences and the understanding of consumer buying habits.

We create a better F&I experience…  by teaching F&I managers a deeper understanding of today’s buyers. We skip the typical sales cliché’s and antiquated methods. Our process is simple and straightforward. We dig into real consumer behaviors and purchasing habits so that we can educate your staff and consumers. The result is a more profitable transaction for the dealership and a happier consumer.



Originally Published on August 26, 2016

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.