CDK's purchase of Auto/Mate may create a major disruption in the dealer management system (DMS) industry. Here is our take. DOWNLOAD
Many dealerships allow their finance managers to price prepaid maintenance programs (PPMs) high enough to shatter success from the start. They overprice PPMs thinking that the real benefit comes from profit built into the plan and forfeiture. While some new buyers will take the bait, the typical consumer, when asked to pay $895 for three years of scheduled maintenance, simply adds up the cost of nine or ten oil changes and a half dozen tire rotations and says, “Thanks, but no thanks!”
Successful PPMs are priced in such a way that even if a customer pulls out a calculator and – looking at the service menu – adds up the pricing for oil changes and tire rotations, the total represents at least an equal amount to what the F&I manager is charging them for the PPM.
Dealers who understand the full purpose and potential of PPMs price them well below the actual retail value. Instead of trying to turn huge profits in the F&I office, these dealers focus on the long-term potential of each customer. When incremental upsell can average over $90 per PPM visit, dealers quickly see RO numbers increase – as well as revenue. Statistics also show that up to 83% of customers will repurchase a future vehicle if the dealer can keep them returning to their service lane for regularly scheduled maintenance. With these two factors alone, even a PPM given away for free would more than pay for itself by the end of its contracted term.
With this type of program properly priced and executed, PPM sales penetrations can reach up to 50% or more, providing dealers opportunities to continually win over their customers.
Does your dealership sell PPMs? If your penetration is less than 50%, you could be pricing them too high. What do you think?