Market Report 2019: Warranty Trends

As one of the maturest of mature products, it might seem like there’s nothing more to know about warranties. Sales of extended warranties have to compete for time in the showroom with other up-sells including paint protection and GAP insurance, and time is limited. But what can dealers do to ensure they promote warranties more effectively and ultimately maximise their sales and indeed profits?

First of all, Autoguard’s CEO Rob Dockerill is keen to point out that unlike other perceived add-ons, warranties stand apart.

“They’re a different class of product compared to GAP insurance and paint protection, as a dealer has a contractual obligation under the 2015 Consumer Rights Act to warranty the vehicle it is retailing,” he said.

“GAP and paint protection are optional additional purchases. While the dealer may choose to ‘warrant’ the vehicle in-house, the approach to the customer about the warranty should be the foundation of the vehicle sale and therefore the ‘extension’ and  upgrade of that warranty cover should form part of the early discussions about existing car ownership, cost of ownership and customer peace of mind.”

Sean Kent, sales director at the RAC Dealer Network, which partners with Assurant in the warranties and aftersales sector, also believes in the special importance of warranties.

“It is worth underlining, that of the value-added products and services commonly sold by dealers, warranties are the most important, simply because they help you to build a long-term relationship with the customer and offer an important revenue stream,” he said.

“Therefore, they should be given a primary position within the sales process. In terms of structuring the process itself, it is a question of communicating the advantages and benefits to the customer as clearly as possible. There is no magic bullet.”

Kent goes on to say that the RAC spends a lot of time with their dealers providing training, advice and marketing materials to help them achieve these goals.

Adam Head, AutoProtect northern zone director, believes the key to good warranty dealer profits should be the logical consequence of understanding your customer better. Then there’s no need for a rushed sales pitch.

“I’m not entirely convinced by the notion that time is limited. Showroom traffic has continued to fall over recent years as would-be car buyers undertake much of their initial research online.

“Today, there are fewer ‘tyre-kickers’. Instead, most customers are genuine buyers who want trusted advice and great service. We must also recognise the importance of treating customers fairly.

“Online, during a test drive, on the telephone and helped by clear and concise point-of-sale information in the showroom, there are ample opportunities to highlight the full portfolio of services that could be of value to the car buyer.

“There will be exceptions, but overall we see plenty of evidence of dealers overcoming what is arguably a cultural issue – added-value services are not just about dealer profit, they are also about creating

a better and complete vehicle-buying experience.”

Indeed, given the wider economic uncertainties in the UK and further afield – from upcoming Brexit to the ongoing effect on residual values in the aftermath of the dieselgate emissions debacle – are some customers seeking more robust warranty packages compared to a few years ago?

Liz Grindell, head of warranty and F&I, within the automotive division of Allianz Partners, believes it’s possible.

“Uncertainty over Brexit could be a contributor as consumers take on board news around potential parts’ cost increases,” she muses, before offering a solution, “but purchasing warranties now, at today’s prices, could limit this risk.”

Grindell said extended warranty purchases have continue to rise, with Allianz Partners reporting a 6% increase over 2017. The RAC’s Kent concurs, and although he reckons the trend has been underway for some time, believes it has likely been accelerated by the current economic conditions.

“In terms of customers choosing to upgrade to longer and more comprehensive warranties, there is a correlation between this happening and car buyers feeling that their personal finances are less secure. Over the last 12 months, we have seen a 10% drop in sales of three-month warranties and a corresponding 10% increase in six-month versions. We believe longer standard warranties will be an important part of the market during 2019 and are seeing a marked move towards longer warranties provided as standard.”

Autoguard’s Dockerill reports a similar effect, which, in part, he puts down to the currently booming used car market.

“Of course, with over eight million used cars being sold annually, consumers are more aware of the longer-term benefits of good warranty coverage, just as much as they are aware of the long-term costs of running a used vehicle,” he said.

“Sales of our 15-month and 24-month products have increased by

over 15% year-on-year. While some of that increase can be put down

to market trends, the improvements we have made to our products such as including full UK recovery as standard has improved the customers’ view of buying into longer-term products.”

Stephanie Scott, dealer manager of Warrantywise, has also witnessed more longer-term warranties being purchased. “We have seen an increase in six-month warranties being bought, and also longer levels

of cover,” she said before adding a note of reality to the debate too, “but the shorter-term ones remain the most popular.”

Other macro factors affecting the warranty business come from the product and technology side. Electric vehicles (EV) – from plug-in hybrid PHEVs to fully-electric EVs – are rising fast up the sales charts, albeit from a very low base. Set against a backdrop of almost all the big carmakers planning many more EV models in the next five years and a charging infrastructure due to expand dramatically, EVs are set to become a key part of the market. What steps are the big warranty players taking to provide extended warranties for these cars?

AutoProtect’s Head is well aware that not only is EV technology a different proposition for the end-user to adjust to, but that it also needs to be looked after differently and may yet be purchased in a different way too. “While we have already developed a product to cover plug-in hybrid cars and EVs, we are currently reviewing our proposition for alternative fuel vehicle warranties,” he said. “Typically, manufacturers already offer extended warranties for battery repair or replacement, so our development process is concentrating on how and whether to cover this critical component plus a wider recognition that there are fewer mechanical parts to go wrong. I believe the development of this product will be a rapidly evolving one and this may also tie-in with the shift towards usage, rather than ownership of a vehicle.”

As a manufacturer warranty partner, Allianz Partner is in an advanced position regarding EV-related warranties. “We are able to work with their technical teams to assess PHEV and full EV data to ensure our extended warranties evolve to reflect the latest technologies,” said Grindell. “The focus of the Allianz Partners’ Munich-based Automotive Innovation Centre has helped deliver a Europe-wide extended warranty programme for Tesla Model S and Model X customers, who are supported by a fully digital sales and support journey.”

Beyond being armed with the right products, it’s ultimately down to your sales teams to persuade the customer of the right level of cover for them and also explain how much cover that actually means, in real terms. Allianz’s Grindell said it is key to remember that “good extended warranties cover not just the core mechanical and electrical components of the car but much of the tech and gadgets customers love about their car too,” she said. “Highlighting to customers that cover may extend to bluetooth, satellite navigation, heated seats, parking sensors and cruise control can really help bring the warranty to life and make the sales conversation more engaging.”

Once your dealer sales team has successfully persuaded the customer of the need for a decent extended warranty, but the customer is perhaps baulking at the cost or some other detail, are there ways in which one warranty provider might be able to help over and above another? RAC’s Kent believes its current interest-free package is having a direct impact in this regard. “Our option gives buyers the opportunity to pay for their RAC warranty over 10 months of equal payments via direct debit,” he said, “and is all about increasing the affordability of our products for used car customers, especially at a time when we are seeing an increasing appetite for longer warranties. Where this kind of offer has been made previously, we have found that it has allowed more buyers to access the level of cover they desire.”

 

One question most of the experts we spoke to didn’t want to be too specific about was the level of profitability that warranties can provide to a dealer’s bottom line, although – unsurprisingly – all said they were an excellent source of extra revenue. “This type of benchmarking is complicated,” AutoProtect’s Head concedes. “Some dealers wrap a high quality extended warranty into the car price, while others prefer to try and upsell the product. The dynamic can also be impacted by the existence of a manufacturer-extended warranty time that might still be available on used stock. Our best advice to dealers is always to start their benchmarking internally, assessing sales executives against one another and introducing business-wide records focussing upon continuous improvement. As well as product sales, this benchmarking should extend to customer satisfaction, something that is often overlooked.”

WMS Group’s head of sales, Keith Pipe, breaks things down a little, and stresses that his business is there to help dealers sell not only warranties but also GAP insurance and paint protection too. “Training and development via our 40-strong UK sales team consistently supporting our dealer network achieves results for dealers in reducing their warranty costs. In addition, when a dealer is selling additional products such as GAP, we are seeing through our up-selling solution greater profits achieved within our network. Dealers that upsell to a longer-term warranty are achieving on average, a 50-60% success rate.”

All of which suggests there’s good extra revenue in warranties and indeed a more willing customer base than dealers might think, as AutoProtect’s Head concludes: “Across the board, people are far more interested in extended warranties than the trade often believes, however, they are sometimes less keen to pay for it!” he says. “But in today’s diverse environment, every customer deserves the opportunity to understand how a good warranty can benefit them.” Wise words.