Extended Warranties Remain Popular

Extended-warranty plans remain a favorite product sold at car dealership finance and insurance offices.

Robert Gault, F&I director at Classic Chevrolet in Grapevine, TX, says it is the job of his department to sell extended-warranty contracts to almost every customer and offer 15 different products. These include security solutions, road-hazard protection and prepaid maintenance.

The consistent message: If customers are working to make ends meet, they can better afford a nominal cost upfront than a big repair bill for something like a broken transmission that no longer is covered by the manufacturer’s warranty.

Sales of extended-service contracts and other packages sold by American Auto Guardian are up 38% from last year, says Tim Brugh, executive vice president.

Any number of manufacturer-subsidized credit companies and large banks are offering up to 110% financing on leases and vehicle purchases. With that additional 10%, customers can finance F&I products.

Consumers with relatively low credit-bureau scores are getting financed, Brugh says, noting that more lenders are offering subprime loans.

“Banks definitely are loosening up in lending; we are out of that lockjaw market,” says Fawad Ofmani, F&I manager of Rosenthal Fairfax Honda in Fairfax, VA.

Aftermarket products can be tailored to meet high-mileage car owners who drive for a living and frugal customers who could encounter potholes and unmarked construction sites even on short jaunts, Brugh says.

Some dealerships such as Earl Stewart Toyota in West Palm Beach, FL, provide their own extended-warranty contracts and work to get every customer covered by plans that help tie them to the service department for years to come.

Just how many customers buy F&I products such as extended warranties?  Realistically, about half of them, regardless of economic conditions, says Ofmani.

“The F&I products remain steady; 50% of the people believe in them and opt for a policy and 50% don’t.”

F&I experts note it can be particularly challenging to sell extended warranties at Honda stores because the brand has a reputation for quality vehicles that rarely break down.

“Honda buyers think God made their cars,” says an executive from a firm that provides F&I services and products.