My wife and I have been looking at the VW Atlas for the past few months. It’s stylish, safe and it looks great. One thing really stood out to me – 72/72,000-mile factory warranty that came with the vehicle. My wife is a low mile driver that could potentially keep the vehicle at least six years. We took advantage of VW’s special APR and financed the vehicle for 72 months. She would be covered under the factory warranty for the length of her loan since she drives approximately 6000 miles per year. The question I kept asking myself is, do we need a service contract? My wife typically leaves those decisions to me since I have been a F&I director for 16 years. I was hesitant at first.
To Buy the VSC or Not?
I purchased the vehicle from one of my clients in St Louis. I am the F&I product provider at this store, so I had already taken the liberty to price CNA, EFG for the longest term available resulting in the 10 year 150,000 CNA automotive preferred care being the most attractive option for us. When VW announced 72/72,000, dealers VSC penetrations dropped. They were having a hard time overcoming that type of comprehensive coverage that comes standard from VW. I kept asking myself, do I really need the VSC?
I took delivery on a Wednesday morning and the F&I manager (that I coach/mentor) was on her A game. Trying her best to close a closer, I knew I wanted the products and little does she know I was trying to decide how much over cost I wanted to price them LOL.
This is what I know about the Vehicle Service Contract
By purchasing a service contract, you get the greatest use and enjoyment, the least amount of aggravation, with the lowest total cost. The service contract is the only thing that combats depreciation. In my wife’s case, the service contract will give her an additional four years and 78,000 miles of coverage. With her current mileage, she would pick up four years. What if she changed careers and started driving 15-20,000 miles per year? What if she fell in love with this vehicle and wanted to keep it longer? I know this…. if we have a long-term service contract, we are in a position of strength when we trade it in or sell it out right. The service contract allows us to ask for more money for the trade, resulting in a lower cost. The service contract allows us to keep the car a year or two longer allowing us to save more money. This is what I call having an exit strategy!
Quick Math – Monthly Payment 750 X 12 =$ 9000
1-year $9000 in savings
2-year $18000 savings
3-year $27000 savings
4-year $36000 savings
As my mentor Johnny Garlich says, “The service contract is the engine that pulls this train. The service contract unequivocally is the most profitable vehicle in the entire dealership. The wealth that comes from the service contract is quite astonishing and the part is EVERYONE wins with a service contract.” Here is a small list of victors:
- Lending Institution (If any)
- F&I Manager
- Sales Manager (In stores paid on total gross)
- Service Department
A Decade Ago
I developed my exit strategy series in the mid 2000’s to sell more value to customers. I realized that repair scare and payment manipulating is more of a bully approach. As a former MMA fighter, I hate bullies. I wanted to develop a non-confrontational customer focus way of selling service contracts at a rate of 80-90 percent. This approach has not only worked for me but for hundreds of managers that I have personally trained. Let’s change the conversation in the F&I office. Let’s slow down and identify our client’s personality types and put together a package that works best for them.
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