By: Jim Leman
Dealers who offer customers affordable service contracts to cover older and higher mileage vehicles can hit a sweet spot in the market not easily replicated by competitors.
These vehicle service contracts are enticing to consumers and dealers. Here’s why:
- They offer significant protection for major mechanical and electrical components of older vehicles, providing peace of mind for buyers.
- They remove or reduce risk to dealers, who can now retail these units with confidence, earning a profit rather than a wholesale loss.
- Affordability means loan values are more likely to include them.
- With reasonable margin, plans are a good deal for F&I and buyers.
- They help drive plan holder business to the service department.
This opportunity is huge.
In fact, 200,000-mile vehicles may be the new norm. In 2017, the average aged unit on the road is 11.5 years. By 2021, the average age will be 16 years, when 20 million vehicles on the road will be more than a quarter-century old, notes IHS Markit.
A recent Cars.com article noted some of the 200,000-mile cars, trucks, and SUVs still on the road:
- Toyota Sequoia SUV, 5.6 percent
- Ford Expedition SUV, 5.7 percent
- Toyota Avalon sedan, 2.6 percent
- Honda Accord sedan/coupe, 3 percent
- Ford F-150 pickup, 2.1 percent
An Autotrader.com article noted this perspective, for consumers considering an older vehicle and its miles (there’s a sales tip in this): “The biggest problem with older low-mileage cars [italics added] is that they haven’t had much exercise. Cars are full of plastic and rubber parts that get brittle if they’re not used regularly.
“We suggest cross-shopping that low-mileage older car with a higher-mileage specimen, especially one that’s a few years newer. Low miles aren’t always your friend, and newer often means better, even if the miles are considerably higher,” the blog notes.
For a high mileage VSC to be valuable to consumers, it must be affordable and provide valuable protection. Dealers often want to shy away from these plans because their cost is equal to a high percentage of the money the customer will have paid for the vehicle, making them hard to sell. Components and systems covered are often minimal and often limited to two years and 24,000 additional miles.
Recently, some third-party providers have designed and released VSC plans for higher mileage vehicles to address these and other concerns. One of these newer providers, First Choice Car Care, for instance, offers greater coverage – up to five years, and 100,000 miles, on top of the miles indicated on the odometer when sold. Components coverage can vary, depending on the plan level chosen.
Many consumers want to drive higher mileage and older vehicles. Some like the styling, and their prices compared to newer models are significant. Fortunately, better manufacturing quality, corrosion protection, and maintenance products and services are keeping more vehicles on the road longer.
Don’t move older, higher-miles cars to the wholesaler without considering if a little maintenance and the offer of a high-mileage service agreement on them won’t make them attractive retail products for your dealership and its market.