Motor Trader Survey: Warranties and the bottom line

Just how important are extended warranties to dealers? That was one of the crunch questions we put to respondents in the Motor Trader Warranty Survey sponsored by WMS Group. Over 200 readers of Motor Trader took part so it gives an accurate picture of the state of the market in 2020.

We asked dealers what aftersales products made the most money for them. Dealers at the sharp generally have to sell at least two add-on products to boost the profitability of their business. There is certainly enough choice with warranties having to compete with service plans, GAP insurance and paint protection, to name but a few.

We asked dealers to rate their top add-on product. Here service plans came top of the list with 40% saying it was their best performing aftersales product followed by warranties (35%) in second place. GAP, a product that has come under scrutiny from the Financial Conduct Authority (FCA) in recent years with sales falling as a result, came in in third place, accounting for 13% of participants. Paint protection was in fourth place with 12% of dealers putting it in top slot followed by MoT protection, which was cited by just 1% of dealers.

In order to boost warranty sales, dealers need to know their product inside out but they also have to know the sales obstacles they need to overcome with customers. So, we asked dealers what was the biggest hurdle to overcome?

Perhaps, not surprisingly, price was the biggest obstacle, cited by 51% of dealers with a third (36%) saying confidence in the product was a factor while 31% said there was a lack of demand for warranty products. Pressure of time was mentioned by 16% of participants.

We asked dealers whether their currant warranty provider offered the flexible option of a monthly payment plan. Customers are now so used to spreading the finance burden of the products and services they use, over an extended period, whether it be mobiles phones, utilities or cars. Usage rather than ownership is the new mantra for consumers.

When it comes to warranties, the results are clear. The majority of dealers surveyed (61%) said their current provider did not provide a monthly payment option. For those 40% of dealers who do offer a monthly payment plan for warranties, we asked just how important are they to their business? Almost half of dealers said monthly plans accounted for up to 20% of their warranty business and almost a fifth said it accounted for between 20% and 29% of their warranty business. So, there is clearly demand for payment option plans from customers.

A key trend in recent years is for dealers to offer longer warranties on used cars and this is reflected in the survey findings. Six-in- 10 dealers now say that three-month warranties account for just 10% of their warranty business. Dealers are now offering longer warranties in order to compete in a used car market that is getting more competitive by the day with the supermarkets getting bigger and franchised dealers targeting the sector as never before. Standards have risen as a result and warranties are longer and of superior quality.

Light commercial vehicle sales are critically important to dealers but often get overlooked. We wanted to understand how warranties fared for both cars and vans. Of  the 200 dealers who replied to the Motor Trader questionnaire 99% said they sold cars and 42% said they sold vans.

For dealers selling cars, the 12-month warranty was the top seller for 62% with just 15% citing the 6-month warranty as their best seller. Nine per cent said the 18-month warranty was their best seller while 15% of dealers said that a 36-month warranty was their best seller.

For dealers retailing vans, the picture is not dissimilar with 63% saying that the 12-month warranty was their best seller followed by the six-month product (17%), 18-month (10%) and 36-month product (10%).

Warranties need to be promoted at various times in the car ownership story so we were interested to see how satisfied dealers were with the promotional materials used at the point of sale (PoS) on the forecourt and in the showroom. A clear majority of dealers (58%) were satisfied or very satisfied with their warranty PoS. Just 4% were dissatisfied or very dissatisfied with the materials, which is a positive outcome.

Warranties have, on occasion, come in for criticism for not being clear enough for consumers. So, we asked dealers how satisfied they were with the clarity of warranty information provided to customers. A majority (79%) were satisfied or very satisfied with the clarity of the warranty product they were selling, just 4% were dissatisfied or very dissatisfied and 24% were neutral.

Claims handling is another important issue for dealers selling warranties. We asked dealers how satisfied they were with the handling of complaints. The outcome on this was positive with 72% satisfied or very satisfied while just 7% were dissatisfied or very dissatisfied on the issue and 22% were neutral on the issue.

What can we learn from the survey’s findings? First of all there is growing demand for longer warranties and the best-selling warranty by far is the 12-month option. There is also more potential to sell warranties in monthly payment options. And there is scope for improvement in the clarity of warranties and promotion at the point of sale. On this point Karl Davies, managing director of Coachworks Consulting, has argued convincingly that in many cases warranty sales are not given the focus they should by managers and sales staff in dealerships.

He advises dealers not to overwhelm a customer during the sales process and believes extended warranties are often best sold by the aftersales department after the car has been purchased. If a car still has a manufacturer’s warranty, or is covered for 12 months by the dealer’s used car scheme, then the best opportunity to sell an extended warranty is four to six weeks before the cover runs out. That contact should be made automatically by the aftersales department through the dealer management system (DMS) with a personalised letter, email or text.

Being innovative is the key

Ian Tallent | Head of Marketing | WMS Group

The WMS Group is one of the UK leaders in the field of warranty provision and has been supplying extended warranty cover and other motoring products to more than 4,500 dealerships across the UK for over 20 years. Everything the WMS Group does is geared towards helping dealers attract and retain customers, increase workshop revenue and maximise profitability.

With this ethos of treating customers fairly and providing an award-winning warranty product has meant that the WMS Group continue to lead the way within the warranty market, culminating in the recent news of the AA appointing the WMS Group as their new warranty provider.

By offering a competent, warranty solution to your customer that provides a high level of cover not only gives customer confidence, but if something should go wrong, they are covered. Also, it gives the selling dealership an additional opportunity to make profit on each vehicle sale.

This is not something new, but with dealer margins continually getting squeezed dealers can’t afford not to get it right when it comes to add-on products.

With price of warranty still being a barrier to sales, dealers need to continue to highlight the benefits and protection that a warranty gives the end user.

Many dealers still do not offer the option of offering a monthly payment scheme for their warranty, and with the next generation of car buyer used to paying monthly direct debits for most items such as mobile phones, gym membership and Netflix subscriptions to name but a few, it makes sense that offering a warranty that offers a similar payment model is a natural evolution, which WMS Group warranties do.

Finally, with customers holding onto vehicles longer it makes sense that the traditional option of only offering a 12-month warranty is no longer sufficient and dealers should be looking to upsell warranties that are two and three years in length.