Dealer vs. Third-Party Vehicle Service Contracts: Which Is Right for Consumers?
When a customer is buying a new or used vehicle, they are offered a vehicle service contract as an extra option for protection. About 60% of consumers don’t buy a service contract when they purchase their vehicle. This could be for a few different reasons, including the customer not understanding what a VSC entails and if the cost is worth it. Read on to learn about the benefits of a VSC and working with dealers versus third-party vehicle service contracts.
Vehicle Service Contract Facts
Vehicle service contracts are an extra layer of vehicle protection that is separate from insurance policies. A VSC covers mechanical components in the event that they break down or do not operate properly. A VSC picks up where a factory warranty leaves off, and is an add-on consumers can purchase when buying a vehicle.
Consumer purchasing a VSC should read the terms and learn what components of the vehicle are covered by the contract offered. When working with a dealership, F&I will find a contract that fits the consumer’s driving behaviors and needs through a process of learning about the customer and the vehicle.
Consumers also need to be aware of the cost – more expensive doesn’t correlate with better coverage. Coverage costs will depend on factors like the model, make, milage, and many other factors. Consumers need to know that they are getting good value for the money. They shouldn’t pay thousands of dollars for a plan that doesn’t have all that much coverage.
Another factor is the length of coverage being offered. Each contract defines different terms, including different service dates. Consumers should think about how long they want coverage on the vehicle and how long they plan to drive that vehicle. They should also determine if the coverage remains and is transferrable after the vehicle has been sold.
What is Covered by a Vehicle Service Contract?
Not all vehicle service contracts offer the same level of coverage, and many only cover certain repairs or services with limitations imposed.
Consumers should consider:
- What sorts of repairs and services are covered under the contract?
- Will the contract pay for the full value of the part? Some contracts will pay less when the car has more milage and may only partially pay for certain parts.
- Does the contract include car rentals or towing when a vehicle needs to be repaired?
- What sorts of labor costs does the plan cover? For instance, if the engine needs to be taken apart to diagnose problems, does the contract cover the costs of the mechanic’s labor to take it apart and put the engine back together? Is the full cost paid or only partial costs?
Receiving Service on a Vehicle
Consumers should review contracts to see if they are required to use certain authorized repair centers. Many VSCs require customers to use the dealership where the car was purchased for service. This is a benefit since dealerships use manufacturer parts to repair issues, rather than third-party items that may not be high-quality.
Consumers also need to be careful about maintaining their vehicle so that if there is a break down, it cannot be blamed on the car not being serviced properly. A vehicle should be serviced with manufacturer’s standards to avoid this issue, and dealerships keep detailed data of when a vehicle is serviced. If consumers don’t keep up with standard maintenance such as oil changes, their contract may not cover repairs. Thus, working with a dealership keeps all servicing records and ensures consumers know what recommendations they must follow.
Consider the Seller
Consumers in the market for coverage from a VSC have many options. Some consumers call the dealership, and others do a Google search to learn about coverage options. How does a customer choose whether to buy through a dealership or a third-party? Read on to find out.
The best place to buy a vehicle service contract is almost always the dealership where the vehicle was purchased. Dealerships are held to a higher standard of service by association with the manufacturer and want customers to keep returning for vehicle purchases. Dealerships value their ability to service customers and keep them returning, and most third-party companies do not place high value on the level of coverage and service they provide.
When a consumer is buying a vehicle, it makes sense to purchase a vehicle service contract from the dealership because they provide reputable, reliable contracts. These contracts often have the least amount of hassle and worry, are streamlined and often comprehensive.
Many consumers receive robocalls and text messages about vehicle service contracts from third parties after purchasing a vehicle. The companies behind the messages may give the impression they represent a dealership or manufacturer – but actually have no association whatsoever. They use phrases like “Motor Vehicle Notification,” “Final Warranty Notice,” or “Notice of Interruption” to make the offer seem urgent — and to get consumers to respond.
These third-party companies:
- Aren’t working with your vehicle dealer or manufacturer and likely purchased your data from a credit reporting bureau
- Pressure customers to provide personal financial information and a down payment right away
- May not be in business when a customer needs to use their contract – it’s a high turnover business and not reliable
- Put limits and conditions on which repairs are covered, and who can provide the repairs
The Power of Dealership Post-Sale Marketing
Post-sale marketing vehicle service contracts to customers helps dealerships build lasting relationships keep these customers from buying subpar third-party VSCs. Learning how to effectively educate customers leads not only to better customer loyalty, but other benefits such as increased revenue, higher reinsurance reserves, and more vehicle sales.
At Automotive Product Consultants, we offer post-sale vehicle service contract marketing programs at no cost to dealerships. These programs market to dealership customers and educate them about the benefits of buying additional coverage from the dealership.
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