ACV Auctions Inc.
09/05/2024 | Press release | Distributed by Public on 09/04/2024 16:34
What is a Vehicle Service Contract? A Guide for Dealers
As an auto dealer, offering vehicle service contracts (VSCs) can be a valuable way to boost profits and provide customers with peace of mind. Similar to a warranty, a VSC helps cover the costs of unexpected repairs or breakdowns after the manufacturer's warranty has expired.
But many customers are hesitant to purchase these extended protection plans. Do they really need it? What does it cover? How much does it cost?
Helping overcome the objections and educating customers on the benefits of a VSC can lead to increased sales and satisfied customers. Let's take a closer look.
What is a Vehicle Service Contract?
A vehicle service contract, often referred to as an extended warranty, is an optional protection plan that covers specific repairs and services after the manufacturer's warranty expires.¹ Unlike a true warranty, a VSC is a paid agreement between the customer and a third-party provider.
VSCs typically cover major vehicle components such as:
- Engine
- Transmission
- Drive axle
- Electrical system
- Air conditioning
- Fuel system
Some plans offer more comprehensive coverage, similar to a manufacturer's bumper-to-bumper warranty. The level of coverage and duration can vary significantly between providers and plans.
Added Benefits of Vehicle Service Contracts
What can help some customers to choose a VSC is the added benefits that come with it. These can include roadside assistance, rental car coverage, and trip interruption services.² While these may not seem like major perks at first glance, they can make a big difference in the event of an emergency or breakdown.
- Roadside Assistance: Drivers can get 24/7 help for breakdowns, lockouts, and other emergencies.
- Rental Car Coverage: Reimbursement for a rental while the covered vehicle is being repaired.
- Trip Interruption Protection: Compensation for lodging and meals if a breakdown occurs far from home.
- Transferable Coverage: The ability to transfer the contract to a new owner, potentially increasing resale value.
Highlighting these added benefits can help customers see the full value of a VSC beyond just repair coverage.
Common Exclusions in Vehicle Service Contracts
While VSCs can provide valuable protection, it's important to understand and communicate what they don't cover. Common exclusions include:
- Wear-and-Tear Items: Tires, brake pads, and wiper blades are typically not covered.
- Routine Maintenance: Oil changes and other regular services are usually excluded.
- Pre-Existing Conditions: Issues present before the contract starts are not covered.
- Damage: Damage caused by accidents or environmental factors are typically covered by auto insurance, not VSCs.
- Modifications: Aftermarket parts or modifications may void coverage for related components.
Being upfront about these exclusions can help build trust with your customers and prevent misunderstandings down the line. After all, the purpose of a VSC is to provide peace of mind and financial protection for unexpected repairs, not to cover every possible car expense.³ By setting expectations and educating customers about what is and isn't covered, you can ensure that they are making an informed decision when purchasing a vehicle service contract.
How to Pitch Vehicle Service Contracts to Customers
While the benefits are there, not all consumers are ready to commit to a vehicle service contract (VSC) right away. That's where your pitch comes in.
Introduce VSCs Early
Don't wait until the end of the sale to bring up protection plans. This is a pivotal moment to plant a seed in the customer's mind, making them more likely to consider purchasing a VSC later on.
Explain the Coverage Clearly
Many customers are unaware of the full extent of what a VSC covers. Take the time to go over each type of protection offered and give real-life examples to help them understand its value. For example, roadside assistance can save you hundreds of dollars in towing fees, while rental coverage can prevent you from being stranded without a vehicle while yours is being repaired.
Customize Pitches for Each Customer
Not all customers will have the same concerns or priorities, so it's important to personalize your pitch accordingly.⁴ For example, if a customer has a long commute to work, emphasize how a VSC can provide peace of mind for unexpected breakdowns on the road.
Emphasize Value Over Cost
Break down the potential savings over time compared to out-of-pocket repair costs. You can calculate the monthly cost of the VSC and compare it to a single major repair. Similarly, highlight the added benefits and convenience of having roadside assistance and rental coverage included.
Address Common Misconceptions
Some customers may have heard misinformation about VSCs, such as they are scams or do not cover certain repairs. Use this opportunity to educate them on the truth and address any concerns they may have. Explain the specific coverage options available and how they can benefit from them.
Leverage the F&I Menu
Integrate VSCs into a comprehensive F&I presentation - this will help customers understand the value and importance of having extended coverage for their vehicle.
Highlight any manufacturer warranties that may expire soon and how a VSC can provide continued protection. Emphasize the peace of mind and financial security that comes with having comprehensive coverage.
Overcoming Objections to Vehicle Service Contracts
Even with a strong pitch, you'll likely encounter objections. Here's how to address common concerns:
"It's Too Expensive"
When faced with this objection, break down the cost over the contract's life, showing the daily or monthly expenses. Compare it to the cost of potential repairs using real examples from your service department. Remind the customer that it's better to be prepared and have coverage than to face unexpected, costly repairs.⁵
"I Don't Think I'll Need It"
Highlight the unpredictable nature of vehicle breakdowns and remind the customer that even well-maintained vehicles can experience issues. Use statistics or customer testimonials to show how a VSC has saved them from financial burden in the past.
"What About Pre-Existing Conditions?"
Explain that most VSCs cover pre-existing conditions after a certain waiting period. Emphasize the importance of getting coverage now before any potential problems arise.
"I've Never Heard of This Before"
Use this objection as an opportunity to educate the customer on vehicle service contracts and their benefits. Share information on how other customers have been satisfied with their coverage and how it has saved them money in unexpected situations.
"What If I Never Use It?"
Emphasize that having peace of mind and protection against potential vehicle breakdowns is worth the cost of the VSC, even if it is not used. Present statistics or customer testimonials to show that most customers end up using their VSC at some point during their coverage period.
Accelerate Your Dealership's Growth with ACV Auctions
While selling Vehicle Service Contracts is an excellent way to improve your dealership's bottom line, you also need premium used car inventory to attract customers. ACV Auctions can help you source high-quality used cars, trucks, and SUVs to stock your dealership.
Our comprehensive condition reports leave no surprises, providing detailed information on each vehicle's condition, including: tire measurements, paint meter readings, and much more
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Sources:
- Budco Financial. "Pitch a VSC in Terms They Can Understand." Budco Financial, www.budcofinancial.com/automotive/blog/pitch-a-vsc-in-terms-they-can-understand. Accessed 5 Aug. 2024.
- Carver, Alex. "What Is a Vehicle Service Contract?" MarketWatch Guides, updated 2 Aug. 2024, www.marketwatch.com/guides/car-warranty/what-is-a-vehicle-service-contract/. Accessed 5 Aug. 2024.
- Collier, Teia. "Here's What You Need to Know About a Vehicle Service Contract." Capital One Auto Learning Center, 27 Jan. 2022, www.capitalone.com/auto-learning-center/what-you-need-to-know-about-vehicle-service-contract/. Accessed 5 Aug. 2024.
- Finlay, Steve. "How to Sell Extended Car Warranties to Tough Customers." WardsAuto, 20 July 2010, www.wardsauto.com/dealers/how-to-sell-extended-car-warranties-to-tough-customers. Accessed 5 Aug. 2024.
- H., Patrick. "The Best Way to Get More Extended Warranty Sales From Uneasy Customers." AutoRaptor, 1 Jan. 2018, www.autoraptor.com/blog/the-best-way-to-get-more-extended-warranty-sales-from-uneasy-customers/. Accessed 5 Aug. 2024.