Service contracts are a product that Used Car Dealers should sell on top of every deal, especially finance deals. This way both the buyer and seller have piece of mind that the car is protected if it breakdowns.
When your customer purchases a service contract, they won’t come back to you and try to hold you responsible to chip in on a repair down the line.
They are also saving a lot of time and money if something were to occur.
I have learned over the years being a used car dealer to never rely on just the front end profit I am making off of the car. In order for us to survive in the used car business we have to make money on the back end too.
If you rely just off of the front end profits you’ve made on the car with never selling any back end products like Gap Insurance or Service contracts it is very unlikely that you’ll be able to survive in the used car business and I’m speaking from experience with my own lot. Back end profits consist of the profits made off of selling Gap Insurance, Service contracts, Etch theft deterrent, etc.
Now when it comes to selling Service Contracts there are many ways that have been taught to overcome a customer objecting to purchasing one but I have found the way I am about to share with you to be the most effective in my experience.
When a lender gives a credit approval they give the dealer an option to add extra points to the interest rate for a commission. For example the lender will approve the deal with a 11.99% APR but will pay the dealer a commission if they bump the interest rate up to 13.99% This is called dealer participation, otherwise known as dealer reserve. I always quote the interest rate to the customer with the dealer participation points added to it.
So I tell the customer the APR is 13.99% and I let them know the lender is willing to add a service contract into the deal to protect their car payment. The number one reason for a customer not making their car payment is the car breaking down and the lender would like to have the service contract added into the deal in case the car breaks down. Continue to article