Used Car Dealers: How to a Overcome a Customer Objection to Buying a Service Contract on a Finance Deal

OCAuto-8-2Service 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.

Now most of the time a customer likes the fact that a service contract is added into the deal and that it is built into the payment. A customers main concern is the amount of their monthly payment and that they’ll be able to factor it in to their monthly budget. Sometimes they don’t want to spend any additional money on a service contract and just want to take their chances which isn’t a really good idea when buying a used car. Their investment should be protected.

So when a customer objects to purchasing a service contract I offer to remove the two points I added off of the interest rate if they buy it. The profits a dealer can make off of a service contract are far greater than the commission a dealer makes from the dealer participation so it’s worth removing the extra interest points. The customer is happy they are saving money by getting a lower interest rate and now the payment is being protected with the service contract.

Now all parties involved are satisfied. The lender is happy because the payment is protected, the customer is happy because they are saving money in interest, and now the dealer is happy because they’ve made a larger back end profit by adding a service contract into the deal.

I can tell you from experience that this is the most effective strategy in selling a service contract when the customer at first objects so I want you to try it the next time a customer objects to buying a service contract in a finance deal. If you are used car dealer and would like to schedule a free strategy session with me on how I can help you raise your profits you can do so by Clicking Here

 

1 Comment

  1. Dee on at

    What’s best way to achieve this with in house financing? (no back to get points from)

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