CHRYSLER TOPS IN SERVICE CONTRACTS

Sell 'em a DaimlerChrysler service contract or "convenience package" and the boost in customer loyalty translates into 12% more sales of Chrysler-branded vehicles.

That's what R.L. Polk Co. determined in sustaining the automaker's Service Contracts division's nine-year record as the industry's leader in sales of home-brand agreements on Chrysler vehicles.

"We're forecasting another 1.1 million Chrysler-vehicle-brand service policies will be sold this year to keep us champion again," says Christopher Ott, internal sales and training manager for the Service Contracts division. "We've managed to exceed the 1-million mark every year since 1996, without private-label agreements and not counting Mercedes-Benz."

He adds, "Considering the difficulty in selling contracts on leased units, Service Contracts and the Chrysler dealers have performed admirably and, what's more, added significantly to profit returns.

"About 57% of Chrysler owners who had a DaimlerChrysler service policy last year bought another Chrysler vehicle because they know we'll stand behind the product."

Service Contracts is unique in that, unlike the setups at other automakers, it is an autonomous operation reporting not to the financing arm but to the MOPAR parts and service division.

Service Contracts conducts its own training programs and focuses strictly on sales of home-brand service agreements in its relationships with dealer F&I managers.

"Being a separate operation enables our 104-person headquarters team and 37-person field force to focus exclusively on one product," says Brian Halliday, manager of product development and analysis. "That filters down to dealer F&I managers who have responded year after year with great results because of that."

A newly enhanced self-study guide for Chrysler dealer business managers, broken into eight modules that are designed to help boost service-contract volume and penetration levels, leads off with a display of J.D. Power and R.L. Polk charts proclaiming Service Contracts' industry-leading feats.

With a 55% penetration overall rate for 1999, including all types of after-sale agreements, the division achieved a 32% service-contract rate, sharing that roster-topping mark with Kia and Saturn.

The Chrysler brands bunched in or near the top gave the corporation a 32% share last year in an industry that has seen strong growth in total contract sales since 1997.

What excites Service Contracts executives even more than sheer penetration, as vital as that has become, is the spike in repeat vehicle sales and the attendant profits inherent in so many Chrysler-brand customers continuing to buy service agreements and/or maintenance and convenience packages.

DaimlerChrysler dealers last year averaged $426 profit on both direct-lender and indirect-lender sales of service contracts, with providers getting an average of $429. This compared to industry-wide dealer profits averaging $376 and providers getting $416, according to J.D. Power.

Even high were dealer profits with retailer-assisted (indirect) financing lenders such as Chrysler Financial. These averaged $597 for DC dealers and $544 for the total industry.

"Our count shows that more than three million Chrysler vehicles have an active DC service contract and more than 12 million have been sold since 1979," says Mr. Ott.

He adds, "What's more important for the future of the Service Contracts' business is that we've conducted 120 meetings in 1999 and 2000 and trained more than 1,800 F&I managers from some 1,200 dealerships to sell contracts on new and used vehicles, as well as convenience packages for trip interruption and road aid.

"Being an industry leader is something that really motivates the F&I troops, 100 of whom constitute our `Inner Circle.' The Circle meets every year to advise us what to add to the contracts, such as first-day vehicle rental with every repair. That's new for 2001."

Mr. Halliday foresees opportunities for re-leased vehicles whose basic warranty coverage has expired and on pre-owned vehicles bought at auctions or traded in.

Service Contracts is de-emphasizing efforts to boost coverage on "certified" pre-owned vehicles. Chrysler "certified" vehicle sales are only so-so, and buyers seem less prone to buy service contracts.

The division, based at MOPAR headquarters in suburban Detroit, is planning an aggressive Internet strategy as well as a close connection with Chrysler's year-old Five Star awards program.

"Five Star dealers are exempt from fees to engage in our training and other programs," says Mr. Ott. "Non-Five Stars pay for those programs. But the key goal for all is one and the same - to help sell and re-sell Chrysler products."