Creating marginal gains
Many dealers rely on more than just the margin they make out of the cars they sell to achieve a reliable and rewarding profit. We explore the different options available and look at why they make sound commercial sense for dealers.
With the margin made from the vehicle itself increasingly coming under pressure, add-ons are becoming a powerful weapon in the dealer’s sales armoury.
As used car values continue to drop – latest industry figures show a 2.1% drop in June, adding to a 7.5% decrease overall in the last three months – and as margins are squeezed, the old adage of ‘not putting all your eggs in one basket’ has never been more apt.
Against this backdrop, dealers prepared to seek extra margin through additional products such as warranties, GAP insurance, service plans, paint protection kits and tyre protection can, therefore, boost their profits.
It’s a message that certainly seems to be reaching the forecourts, judging by our latest dealer sentiment survey results. Of those surveyed, nine out of ten dealers said they promote or sell at least one additional product or service.
Extended warranties are the most popular with four out of five dealers saying they offer this product, while three quarters promote paint protection and service plans. Both extended warranties and paint protection were also considered by dealers to offer the best margin.
So, with dealers in agreement about the value of add-ons, what is it about these products that make them such an attractive proposition?
First and foremost, they offer a good profit opportunity. When fully integrated into the sales process and delivered by a well-trained staff team, add-ons can yield decent returns.
Extended warranties are a good example of this, with various aspects of the customer journey offering an opportunity for sales. A first visit, at the time of vehicle delivery and as part of the 30 day follow up procedure are all good touchpoints for introducing warranties into the customer conversation.
However, dealers might also want to consider starting the process even earlier in the promotional stage by including warranty information on their sales website, in newsletters and on other forms of customer communications.
With consumers increasingly going online to assess their car, having dealer and finance options before visiting the showroom, as well as including warranty information in the online offer can also help make a compelling case to the customer when considering their purchase.
Integrating additional products into the sales process is also about good customer care. Offering add-ons can provide an opportunity to showcase good dealer practice. This is particularly the case with products such as GAP insurance, where unscrupulous sales practices in the past have made consumers wary.
However, with the Financial Conduct Authority (FCA) introducing new rules in 2015 governing the sale of GAP products, dealers doing things the right way can earn both customer trust and a good margin. Those dealers conducting appropriate due diligence, getting the paperwork right and delivering an affordable product are best placed to claim the rewards on offer.
Building up trust is important as it paves the way for selling additional products such as service plans. While our dealer survey placed less importance on service plans, they do still offer a good opportunity for customer retention and long-term customer relationships for those with aftermarket facilities.
Additional revenue with add-ons
Although service plans scored quite low, by contrast, paint protection kits were highly favoured by dealers, with around three-quarters of those surveyed offering them. With respected consumer brands such as Diamond Brite and Guardex available, they offer an easy sell to the customer and are another example of how good customer care can go a long way. Integrating these additions to the sales process, by a well-trained sales team, can deliver good margin, in fact, not offering add-ons is a margin for error that few dealers can afford to make.
In a market where vehicle margin is coming under increasing pressure, dealers must look elsewhere to generate additional revenue. It’s why the most effective dealers offer additional products or services – are you?