CARY, N.C. -

It doesn’t take much of a vehicle repair to surpass a cost of $400, especially with how complex vehicle systems are nowadays.

And for a notable segment of the U.S. population, that potential repair cost would pose a major problem on the family budget, reinforcing the value of products sold in the F&I office.

According to the Federal Reserve’s Report on the Economic Well-Being of U.S. Households in 2018 released in May, if faced with an unexpected expense of $400, 61% of adults say they would cover it with cash, savings or a credit card paid off at the next statement — a modest improvement from the prior year.

Similar to the prior year, 27% would borrow or sell something to pay for the expense, and 12% would not be able to cover the expense at all.

An inoperable vehicle can cascade into a myriad of other problems, including the individual being unable to travel to work, reducing income and even falling behind on retail installment contract payments.

But that’s when products offered through the F&I office can play a critical role.

According to 2018 survey orchestrated by Protective Asset Protection, 42% of respondents estimate their protection plan has saved them an average of $1,000 to $2,000 in savings on repairs or parts replacements.

The results showed that vehicle service contracts and ancillary products show great value for drivers, especially on specific aspects of a vehicle. The top areas most likely covered under a vehicle service contract include:

— Steering: 47.2%

— Technology feature service: 44.4%

— Brakes: 44.4%

— Electrical components: 41.7%

— Drive axels: 41.7%

Officials noted areas such as transmission and suspension repairs (27.8%) showed the smallest responses from drivers using protection plans.

More than half of those surveyed (51%) said they have purchased a protection plan for their vehicle. And of those opting for a vehicle service contract, more than half (53%) said they have needed to use their benefits on their current vehicle.

The majority of respondents (34%) said they currently drive a small CUV/SUV for their vehicle. Most said they’ve used their benefits on general repairs (58%), while another 22% said they’ve used benefits on parts replacements.

Regarding ancillary protection programs, 69.4% said they’ve needed to have repairs on tires and wheels, 58.3% said windshield repairs and 47.2% said exterior appearance products such as paintless dent removal.

Respondents said they’ve needed to use ancillary benefits due to road hazard repairs (39%), accidents (17%) and parts replacement (11%).

“Vehicle service contracts can be extremely valuable to drivers, especially since there are so many reasons out of the driver’s control that cause them to go into effect,” said Rick Kurtz, senior vice president of distribution at Protective Asset Protection.

“With high-performance tires more sensitive to road hazards, and increasingly complex vehicle technology, there are a bevy of reasons why extra protection can equate to thousands in savings over the life of a vehicle,” Kurtz continued.

“And for a dealer, these F&I products offer help with shrinking margins, as well as improved customer satisfaction,” he went on to say. “We find these benefits to dealer and car-buyers are amplified when the dealer can brand them as their own, with more control over the administration of the protection programs.”

Ally survey: Millennials & Gen Z spending more on vehicle repair & maintenance

Younger consumers are paying more for vehicle repairs than their older counterparts, according to a survey orchestrated by Ally Financial, which also reinforced the value of vehicle service contracts.

A recent Ally survey conducted online by The Harris Poll among 2,012 U.S. adults determined that, on average, Americans spent $1,986 on vehicle repairs and maintenance during the last five years.

Millennials and Generation Z (individuals ages 18-34 for this survey) paid an average of $2,334 for vehicle maintenance and repairs in the past five years — a significantly higher financial burden than Baby Boomers and older adults.

In comparison, the survey indicated adults 55 and older spent $1,654, on average, during the same timeframe.

Ally’s survey results come on the heels of research from the Federal Reserve that found that nearly 4 in 10 adults would not be able to cover unexpected expenses of $400 without selling something or going into debt.

“Many Americans rely on their cars to get to work, and losing access to your vehicle can be a major disruption and huge source of stress — particularly if you can’t cover the repair cost,” said Mark Manzo, president of insurance at Ally Financial.

“The financial strain can be even more daunting for young people who are early in their careers and may be paying down student loan debt as well,” Manzo continued.

And when it comes to savings, younger adults are at a disadvantage. Another recent Ally survey found that two-thirds of 18- to 24-year-olds have not established any type of emergency savings fund, compared to approximately half of all other adults.

Ally’s latest survey findings uncovered significant differences in expenses by age and family size, suggesting that not all Americans share in repair costs evenly:

Younger people paid nearly $700 more in car repairs and maintenance, on average, than Americans aged 55 and older during the last five years. The survey found that, on average, U.S. adults:

— 18-34 spent $2,334
— 35-44 spent $1,978
— 45-54 spent $2,135
— 55 and older spent $1,654

On average, households with children under 18 paid $347 more in car repairs and maintenance over the past five years than households without children ($2,201 versus $1,854), suggesting that the expense of raising a family may be compounded by additional repair and maintenance costs.

“Unfortunately, there are too many Americans who are just one unexpected repair bill away from being forced to make tough financial decisions,” Manzo said. “What’s more, many of these drivers aren’t aware of options, like vehicle service contacts, to make their repair costs more predictable.”

The Ally survey also found that only 21% of Americans have purchased a vehicle service contract (VSC) or extended warranty in the last five years. VSCs are protection products that can cover expenses such as repairs and replacement parts.

Ally Premier Protection vehicle service contracts can cover more than 7,500 vehicle components and offer additional benefits including rental reimbursement, roadside assistance and reimbursement for trip interruption caused by a breakdown. Levels of coverage vary by plan.

“Additionally, VSCs can be used to manage repair costs over an extended period of time, making these expenses more predictable and easier to fit into a household budget,” Ally reiterated.

Pegasystems consumer survey reiterates 3 hurdles about extended warranties

Pegasystems revealed results of a consumer study late last year about extended vehicle warranties that likely reinforce the value proposition finance managers present to their customers, but also probably reiterate store frustrations over sales penetration rates for these products not being higher.

Pegasystems, a software company, said its survey revealed the majority of drivers (63%) do not have active extended warranties despite seeing their value. In fact, the survey showed 60% of participants agreed that warranties provide value, and 62 percent of consumers with active warranties reported benefitting from them within the past year.

The survey included more than 1,000 U.S.-based consumers with Pegasystems trying to answer a question that’s perplexed F&I professionals for decades. Why are so many consumers driving without extended warranties?

The company explained that its survey results reveal a clear disconnect between appreciating the importance of an extended warranty and actually purchasing one. Results showed the biggest barriers to consumers purchasing a warranty are:

— Cost (35%)
— Not thinking they need one (32%)
— Lack of availability at the time of purchase (29%)

Furthermore, Pegasystems noted that nearly half of those individuals surveyed (48%) only somewhat understand their existing manufacturer’s warranty, and 7% say they don’t understand it at all.

“It’s imperative that manufacturers and dealers understand these factors to better educate buyers and provide appropriate recommendations on how they can protect their vehicle purchases, as well as what’s included with that protection,” survey orchestrators said.

While it’s important to understand why people do or do not purchase extended warranties, Pegasystems suggested that dealers also should understand who is making these purchases and how they can provide more personalized recommendations.

According to the survey, younger consumers are the primary buyers with 54 percent of 16- to 24-year olds having an extended warranty, while only 25% of those 55 and older have an extended warranty.

Survey orchestrators mentioned generational differences also surfaced when respondents were asked how well they understand their existing manufacturer’s warranties.

Nearly 40% of 16- to 24-year-olds said very well, while only 22% of those participants 65 and older said the same.

“By understanding buyers’ needs on an individual level, manufacturers, their captives and dealers can provide better education on the warranty options that will provide the most benefits,” survey orchestrators said.

Pegasystems emphasized a suggestion perhaps already familiar to dealerships and finance companies — a collaborative approach to creating more loyal customers.

When it comes to loyalty, 54% of those surveyed are loyal based on a past experience with a brand, and 47% are loyal because of a positive experience with a dealership.

Only 28% answered they are loyal because of price or vehicle performance, with Pegasystems noting that the level is revealing just how much rides on the combined experience the manufacturer and dealership provide.

“A strong product combined with a quality in-person dealership experience are almost equally responsible for a customer coming back,” survey orchestrators added.

Pegasystems added that another opportunity for manufacturers, their captives and dealers lies in vehicle-data sharing.

The survey indicated that 54% of respondents either agree or strongly agree that they see value in a connected app experience using data from their vehicles to enhance the overall in-vehicle experience. However, many (45%) remain concerned about how their data will be exploited.

Combined with product quality, Pegasystems went on to note a key element consumers want in aftermarket experiences — transparency — whether it’s transparency from a dealer on what a warranty covers or how to purchase one, or transparency about how their data is used for better in-vehicle experiences.

“When it comes to aftermarket owner and user experiences, there is an urgency for auto manufacturers, their captive finance divisions and dealer partners to intelligently orchestrate the fragmented channels, processes, decisions and data necessary to cultivate more loyal customers – whether it’s helping consumers with extended warranty purchases or providing more seamlessly-connected ownership and user experiences,” said Steven Silver, vice president and industry market leader or manufacturing at Pegasystems.

“By understanding buyers’ experiences on a deeper level, the industry can provide more personalized recommendations and effortless interactions that protect customers’ automotive purchases long-term, as well as better experiences every time consumers use their vehicles and dealers service them,” Silver added.

3 suggestions to reverse challenges of selling VSCs

In light of Pegasystems’ study, GWC Warranty compiled a trio of recommendations to help dealerships and their finance offices turn that trend.

“The good news is that dealers can easily clear these hurdles with the right program in place,” GWC Warranty said.

The company took a deeper look into the hurdles that stop customers from buying a vehicle service contract and how F&I professionals can overcome those obstacles.

1. Cost
While 35% of customers said they can’t afford a service contract, GWC Warranty suggested this approach.

“If you talk about the small increase in monthly payment as compared to what a major repair could do to a tight monthly budget, it’s easy to paint the picture that allows you to ask which scenario is easier to withstand,” the company said.

“With so many used car buyers on tight monthly budgets, a service contract’s monthly investment can easily pay off in the long run,” GWC continued.

2. Not thinking they need one
GWC Warranty reiterated that the Pegasystems research found 32% of customers think they’ll never encounter the need for service contract. GWC Warranty recommended that dealership ask the simple question of how long the customer plans on owning the vehicle he or she is purchasing.

“With the average length of ownership on the rise, chances are your customers will be in their vehicles for a long time,” GWC Warranty said.

“Used cars are inherently more likely to break down, especially as they approach and surpass 100,000 miles, making it more likely than ever before that a customer will need a VSC at some point during his or her ownership,” the company added.

3. Lack of availability at the time of purchase
To solve for the 29% of customers who aren’t offered a VSC at the time of purchase, GWC emphasized that dealerships should follow what it called the 300% rule.

GWC Warranty explained the first step is having a service contract provider that offers the product versatility — from both a vehicle and term perspective — that fits your inventory.

“Once that’s in place, it’s vital that you present 100% of your products to 100% of your customers 100% of the time,” GWC Warranty said.

“You’ll never bat 1.000, but you’ll get better at your presentation as you continue to get real-world practice, and you’ll inevitably see the results in your F&I profits,” the company went on to say.