Business Trends Finance & Interest

GM’s New Warranty Program May Hurt, Not Help Dealers

According to the Department of Transportation, the average age of today’s cars and trucks is more than 11 years, up from 8.4 years in 1995. Despite this, having the right peace of mind in place to protect against unforeseen breakdowns, repairs and replacements remains a priority for consumers, particularly when it comes to the purchase decision for their next vehicle.

To help cater to this need, GM recently announced that they will now allow customers to extend basic warranty coverage for an additional fee.

Under their new offer, the standard factory bumper-to-bumper limited warranty on Chevrolet and GMC products today is three years or 36,000 miles, whichever comes first. On Buicks and Cadillacs, its four years or 50,000 miles, whichever comes first. The new program allows GM to allow drivers to extend the basic warranty to five years or 60,000 miles (whichever comes first) for Chevrolet and GMC customers, and six years or 70,000 miles for Buick and Cadillac customers. The cost will be between $1,000 and $2,000, and this can be added on to the vehicle’s financing at the time of purchase.

On the surface it seems like a win-win-win situation for customers, dealers and of course GM. However, a closer look reveals that dealers may have better alternate programs that benefit them more significantly while continuing to drive customer satisfaction.

Under this new program, dealer options are limited and GM controls critical branded program elements and, worse, limits profit potential for dealers.

Several dealers were recently quoted in the automotive press saying they are unsure of the new program. They are worried about the new program interfering with their existing offerings and believe it may benefit GM more than their dealership.

One unnamed dealer was quoted in an Automotive News story recently as saying, “I don’t think they like that dealers can make money on other extended warranties, it’s a way to make more money for them.”

 

Other alternate options show that dealers could generate more profits AND control their own program elements to better meet the needs of their customers under programs such as a Dealer Owned Warranty Company (DOWC).  

 

Under a DOWC, dealers own, market and sell their own branded F&I program. Besides greater profit potential on F&I sales, the great benefit here lies in the fact that dealers can actually tailor and customize their own F&I offerings to better align with the needs of their customer base. What’s more, this program is beneficial for non-GM vehicles. For example, a dealer can build a portfolio of F&I products that meets the coverage needs of their market and their inventory – new and used. These F&I products can range from service contracts to ancillary products. In addition, dealers can ensure they are providing an F&I program that aligns with the needs of consumers in the communities they serve.

 

Under GM’s program, limited profit margins will be a significant issue. This is important since more than three quarters (78.8%) of dealers recently surveyed said their current F&I products don’t offer enough margin for the dealership, and nearly half (48.5%) said their current F&I offerings are too much of an administrative burden.

 

A DOWC program has the ability to assist with both of these challenges while offering the customer exactly the peace of mind they seek in keeping their cars and trucks on the road for as long as possible.

Editor’s Note: Rick Kurtz is Senior Vice President – Distribution of Protective Asset Protection, a full-service provider of F&I programs offering vehicle protection plans, GAP, ancillary products, training and other services through vehicle dealerships. For more information visit http://www.protectiveassetprotection.com/

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