Would you like your service department to gross tens of thousands of dollars more each year? The answer seems like a no-brainer, but many dealerships aren’t taking advantage of additional profits that can be had by selling service contracts on the service drive. Chuck Fairbanks Chevrolet’s service department, however, is grossing an extra $7,000 a month by doing just that.

The DeSoto, Texas-based dealership has been actively selling service contracts on the service drive since March 2008, when the dealership’s General Motors Protection Plan (GMPP) representative approached Service Manager Mike Breaud. Of course, given that he’s been a service manager since 1981, Breaud was no stranger to selling service contracts to service customers because it was a product of value for his customers, and it would keep them coming back. However, his process has changed over the years so that the service department reaps more rewards from the contracts it sells.

When Breaud came to Chuck Fairbanks Chevy five years ago, he introduced selling service contracts on the service drive, but said it was a “half-hearted” effort like it had been at the previous service department he managed. “We never really got it going good, and I didn’t push it real hard. So, it’s kind of my fault. As good as it’s working for me now, I kick myself for not doing it earlier,” he added.

Before 2008, said Breaud, “If a customer expressed some interest in a contract or we talked to them about it, we’d just send them to F&I, and they would hopefully get them sold.” Sometimes, however, the F&I department, which consisted of two managers, was so busy that service customers would have to wait for an available manager or come back at another time.

Many service customers who might have bought a service contract left the dealership without one. When contract sales to service customers were completed, which Breaud said were few and far between, the service advisor who referred the customer to F&I would get a spiff of about $50, and the F&I department would keep all profit from the sale.

So, when the GMPP representative spoke to Breaud about selling more service contracts through the drive, he was all for it but wanted to do it on his terms. “I said, ‘I’ll do it, but we’ll sell it here. I’ll keep the profit on my side. I won’t intermingle with F&I at all. They can have all the perks for it, and all the totals and numbers can go to F&I. I don’t care about that.’” It was set  up so that the F&I department wouldn’t  be  charged any chargebacks (there have only been two through the process).

While dealers might think training the service advisors on the process would be tedious, according to Breaud it’s anything but. Training them to sell and write up the contracts actually took very little time. Breaud said he coordinated it so his GMPP and Service Payment Plan (SPP) representatives came in on the same day and his advisors were completely trained in about an hour. He said, “It’s really not that difficult. It’s a one-page contract for GMPP and a one-page contract for SPP.”

Now, when one of his three service advisors sells a contract, they receive a $75 spiff, and an additional $540 – the average profit per contract – goes on the service department’s ledger. For the nine months in 2008 the new sales process was in place, the service department averaged 13 contracts sold per month, which grossed the department about $62,000. That’s pure additional profit because the F&I department’s contract sales haven’t been affected by the service department selling contracts.

Over and above the fact that the department is now giving it a whole-hearted effort, Breaud thinks the department’s success selling contracts is also due to a couple other factors—the relationships the advisors have already built and their ability to provide customers with a customized contract. “With my guys writing them, they’re familiar with the customer. They’ve got a good rapport with them, and [their customers] trust them … so it’s really worked well for us.”

Since the advisors have access to their customers’ vehicle histories, they can structure service contracts to match a customer’s driving habits. Breaud said, “If a guy needs more miles than time or vice versa, we know that. In F&I, it’s basically a [36-month/36,000-mile or 24-month/24,000-mile] contract because they don’t have that history we have. I think we can tailor [the contracts] a little bit better ... since we have the history of the car.”

They can offer customers contracts for anywhere from 12-month/12,000-mile contracts to 72-month/100,000-mile, and they can offer them options for deductibles. “If a guy wants two years and 36,000 [miles], there’s a plan for it. If he wants three years and 24,000 [miles], there’s a plan. There are multiple plans with different deductibles.” The service advisors always suggest the zero-deductible contracts, and Breaud estimated that 97 percent of customers who purchase a contract opt for a zero-deductible contract.

The advisors present the contract to customers once service has been completed, which gives them a chance to establish whether the vehicle qualifies for the program, determine which plan is the best fit and look at the vehicle history so they can make the best contract suggestions. Then, they begin to sell the customer by creating value in the product. Breaud said, “Generally, they start by telling the customer, ‘Hey, do you know how much this repair is going to cost you when you’re out of warranty? It’s going to cost you X amount, or you can extend the factory warranty.’ … You can tell pretty quickly if they’re interested.”

And when they are interested and purchase a contract, setting up payment is simple. Most customers opt to set up automatic monthly payments on their credit or debit cards. Breaud said he’d like to say 100 percent of his customers who qualify are being presented with the option to purchase a service contract. “That’s the plan … Everybody in sales gets a little fear of rejection sometimes, I guess. We like to think we’re presenting it to all of them, but I’m not standing there for all of it, so I can’t tell you 100 percent.” However, he’s pretty confident that the advisors are trying their best to sell the product.

Of the service advisors, he said, “It’s a good deal for them [to sell the contracts]. There’s no reason not to. They’re selling a good product that the customer can use.” He also thinks the spiff does a good job of motivating them to present customers with the product. “It’s worth their time. Plus, it’s worth it for [the dealership] … because, let’s face it, new car dealerships as a whole work mainly on new cars. As they get out of warranty, you tend to lose some of them, so I think it helps us retain those customers.”

During a time when vehicle sales are down, retaining service customers and increasing service revenue can help offset a drop in sales and keep a dealership in the black. Dealers who only sell service contracts in the F&I office might want to consider mirroring what the service department at Chuck Fairbanks Chevrolet is doing. An hour’s worth of training and a nice spiff for advisors could lead to tens of thousands of dollars (or more) in additional annual profit.

Vol. 6 Issue 8