Dealers who sell a van or truck and leave it at that are missing out on a whole host of profit opportunities.
Arranging the necessary finance gives you another chance to make a margin, as can the sale of so-called ‘gap’ cover; insurance that bridges the gap between a vehicle’s write-off value if it is wrecked in an accident, and the amount the owner may still owe, under a finance agreement.
Persuading the customer to sign a maintenance contract at the time the deal is being completed will generate regular revenue and ensure your workshop is kept busy.
Then there are the profits that can be gained through conversion work; everything from equipping a van with a roof rack to organising a customised paint job for a tractor unit.
Nor should the sale of insurance-backed warranties be neglected. “Selling warranties can most certainly be worthwhile,” says Eric Stone, Business Development Director at warranty company WMS Group.
The longer warranties now offered on new vans and trucks as standard do not appear to have killed off the demand for extended warranties that kick in once the manufacturer’s warranty expires. However, the legalities must be observed by any business selling insurance-backed products.
Any dealer doing so must be authorised by the Financial Conduct Authority (FCA) – a route that, in practice, may only be open to the major dealer groups – or be acting as the appointed representative of a business that is itself compliant. That is also the case with any other insurance-backed product the dealer may market.
The FCA regularly publishes the names of firms that have broken the rules, and has the power to prosecute offenders.
Dealers who offer insurance-backed warranties can buy them from a warranty company then include them in the purchase price of the used van or truck they are selling. This gives purchasers some reassurance that if there is a problem with the vehicle then they are covered and will be able to get it sorted out without incurring additional expense.
“Provide a warranty and you’ll attract customers,” Stone says.
Guarantees Aren’t Always Guaranteed…
The alternative is for the dealership to offer a guarantee that is not backed by insurance. Under those circumstances, the dealership itself stands by the guarantee and has to deal with any resulting claims.
While this may in some respects work out cheaper for the dealership because warranties do not have to be purchased, a claim for a replacement engine or gearbox can have a significant impact on its bottom line.
Furthermore, such an arrangement does not provide customers with the level of protection they may think they are getting and will evaporate if the dealership goes out of business; the harsh truth is that dealers are more likely to go bust than insurance companies.
Dealers who sell used vans and trucks with a warranty included in the price will typically provide one that lasts from three to six months. If the buyer wants more protection then they can sell it to him by, say, increasing the three-month warranty to one that lasts for three years, and profiting accordingly.
How much of a margin the dealer makes is up to him. Opt for too large a margin however, and you may end up pricing yourself out of the market.
Forming Relationships with Warranty Companies
One option is to refer any customer who requires a warranty to the warranty company’s direct-sales operation. A dealer who does so will earn a referral fee.
Forging a relationship with an instantly-recognisable brand-name can of course help make your vehicles more appealing; and none is more instantly recognisable than that of the AA.
AA-branded warranties are available that cover commercial vehicles, and are administered through Motorway Direct under licence. The company also administers warranties for vehicle manufacturers.
Any dealer providing a customer with a warranty would do well to ensure that the warranty company responds rapidly in the event of a claim. An extended period of downtime could result in the owner losing a considerable amount of income, and complaining loud and long to the dealer who supplied the vehicle.
Working in Partnership
“At WMS Group we operate a 24-hours-a-day 365-days-a-year claims and help line so we can get repairs carried out quickly, and the vehicle up and running again,” says Stone. “We work with a network of repairers based all over the UK.”
Call handlers can authorise roadside repairs if required, which are carried out by a network of approved recovery operators.
“We have helped a huge number of customers, dealers and repairers who would have otherwise needed to wait until the following day for assistance,” says WMS Group Marketing Manager, Steph Newbery. “We want to take as many problems away from the dealer as possible, and our opening hours have enabled us to do this effectively.”
Hauliers often have their own workshops, which might on the face of it suggest that they would be uninterested in a warranty given that they have the ability to execute repairs themselves. Yet many of them do pay for extended warranties says Motorway Direct; profit margins in haulage are tight after all, and the cost of replacing a blown engine can knock a big hole in your bank balance.
Wide Choice of Warranties
Warranties vary considerably in what they do and do not cover; a basic package may simply protect key major components such as the engine and gearbox. At the other end of the scale a bumper-to-bumper warranty will cover everything – a benefit that will be reflected in the price – with some products including wear-and-tear in the cover they offer.
There may be an excess on the warranty to discourage frivolous or fraudulent claims, and the warranty provider will expect the vehicle to have been serviced in line with the manufacturer’s recommendations.
Warranties are available for older vehicles. Warranty Direct for example will cover vans up to 12 years old that have covered no more than 120,000 miles.
Warranty work can of course help fill the workshop of the dealership that sold the warranty in the first place. It may not necessarily be as lucrative as other service and repair work, but is better than staring at empty bays and idle technicians.