Extended Warranties and the Impact upon Retention

Dealers retailing used cars can benefit from an interesting trend identified in the franchised sector between extended warranties and retention.

The negative trend in falling levels of retention experienced by franchised dealers is starting to improve, or at least the rate of fall has slowed down. This is the conclusion of auto industry research experts Trendtracker. Extended warranties have been central to this improvement. It is a factor that dealers selling new and used cars need to be focusing upon. Certainly manufacturers already see the value of such an approach.

Kia, Hyundai and more recently Toyota now offer five to seven year warranties and it is having a positive impact upon both retention and lifetime value. Nearly 70% of interviewees selected “to keep the car under warranty” as the main reason for selecting their dealer for servicing purposes in Trendtracker’s research. Retailers of used cars now have a great opportunity to enjoy the same positive benefit.
AutoProtect’s Nick Wake observes;

Warranties provide a very real benefit in creating buyer confidence and enhancing retention. They represent a key tool to differentiate a dealer, engendering higher levels of confidence.

Leveraging an existing manufacturer warranty or providing a three month warranty with a used car remains popular among many dealerships. Yet, the trend established by Trendtracker, based upon long-term research, favours the provision, or upsell of a far longer warranty. It is something that has a clear benefit upon retention.

Building a one year warranty into every used car sale should be considered a minimum. It immediately tells the customer ‘we are confident about the quality of our used cars.’ It also provides a perfect springboard for the promotion of a longer extended warranty that statistically customers clearly value. It’s time to seize the moment and take a fresh approach to extended warranties

concludes Wake.