COVID-19 Update: One Dealer Exploring Service Contracts

By Desiree Homer

And Exploring New Responses to Pandemic Conditions

Right now, dealers aren’t just trying to sell cars. They’re trying to sell peace of mind. One dealer shares this sentiment and has devised a new service contract offering to do just that. Smith Automotive Group, just outside of Atlanta, president, Scott Smith, discusses his latest idea with Automotive News. It addresses the consumer conditions in his market and proves just how important it is to continue to think outside the box to find attractive solutions for local customers, affected by COVID-19.

Peace of Mind Wrapped in a Service Contract

President of the Smith Automotive Group, Scott Smith, talks about finding peace of mind solutions for his Nissan dealerships. In response to skyrocketing unemployment rates and the continued pressures for households to find footing with jobs and pay, the Smith Auto Group is offering service contracts to its customers. Predicting that consumers’ warranties will be expiring and the idea of an expensive vehicle repair bill could break the bank, the service contract is a solution to help provide a layer of protection for those customers. The vehicle service contract is designed to start at the expiration of manufacturer warranties. Smith said he began exploring the idea when he recognized just how anxious the markets really are right now. And he said, “I’ve never seen so many CarShield commercials.”

Identifying a Need & Developing a New Business Segment

The Smith Auto Group took a closer look at the numbers. Scott Smith recognized that his Nissan dealership had nearly 24,000 customers, across his four Atlanta locations, that were driving on expired manufacturer warranties. Smith’s product is a $75/month service contract, based on a two-year commitment. And it’s proving to be an easy sell to consumers who want to avoid the possibility of a $5,000-$7,000 repair bill. The average consumer vehicle stays on the road for 12 years, according to IHS Markit. And auto repair costs are on the rise. Factor these conditions with an unstable financial footing at the consumer level, and this service contract is a no-brainer solution.

Why You Should Consider a Service Contract

According to NADA, new-vehicle buyers who bought a dealership-sponsored service contract increased by 10% up to 47.5%. Before COVID-19 conditions, the Smith Automotive Group already began sampling its service contract offering, albeit at an ‘afterthought’ pace back then, and still sold 40 or so each month. Of course, in today’s conditions, Smith is heavying up on his efforts and has reported having sold 107 contracts in May. He’s even planning to carve out a dedicated department to managing the service contract business segment and is already designing additional products to address more cyclical needs, like oil changes. It’s proving to be a game-changer for them, and it may be just the right time to expand your service contract offerings if you haven’t already done so.

The Smith Automotive Group isn’t the only dealer expanding into a community response connection. In episode 56 of the Dealer News Today podcast, Dave Cantin talks to automotive veteran and president of the Russ Darrow Group, Mike Darrow, about the importance of dealers responding to local needs. Darrow says, “there is nothing we can’t or won’t do,” and still participates in Friday fish fry events.