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From: Jared Hamilton
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Richard Holland

Richard Holland Managing Director

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GM Warranty Cuts: The Good and Bad News

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An article last month in USA Today, revealed that General Motors plans to dramatically cut the warranty coverage on Chevrolet and GMC vehicles beginning with 2016 models. Additionally, GM is halving those brands’ maintenance-free programs. According to the article, the main reason? GM thinks nobody cared.

 

This could create significant side effects for Chevrolet and GMC franchisees.

 

The warranty period of any vehicle is a highly important time in the customer retention lifecycle. The brief time when a vehicle is under warranty is also the period of time that a dealer will enjoy the highest level of customer loyalty – during this period consumers will naturally gravitate towards a franchise dealer to get repairs completed.

 

This news essentially represents a potential ticking clock counting down as GMC and Chevrolet dealers experience the highest levels of defection once vehicle warranties expire. The warranty period has always been the time to build and nurture customer relationships. By reducing this amount of time, these dealers will be forced to expedite any retention efforts or risk losing customers to independents. Customer retention is a challenge in itself, and the luxury that warranty coverage provides a dealer is time. Some of that will be taken away soon.

 

However, a potential positive side effect is that these dealers will be able to capture more of the most lucrative type of service work – customer pay –sooner than has previously been possible. They will also be able to increase their basic service revenue stream as soon as free maintenance disappears. This second side effect is, however, very much dependent on the dealer’s ability to retain the customer after the warranty expires. As well as to entice consumers to choose them for basic services immediately after purchase.

 

Perhaps this move by General Motors could present an opportunity for dealers to increase service department revenue earlier in the customer relationship. It will depend on if these dealers make an effort to build value, trust and loyalty early in the customer relationship. Dealers that fail to immediately improve their customer experience may find that the service work they used to rely upon disappears.

Denim Simkins
This is an interesting move by GM. Their statement of "Free scheduled maintenance and warranty coverage do not rank high as a reason to purchase a vehicle among buyers of non-luxury brands," shows me GM is still interested in just selling a vehicle instead of focusing on the customer life cycle. Obviously, the main goal should be to keep the customer as an "active" customer at least until the vehicle reaches an equity position so our sales department has the ability to acquire a nice used vehicle and then sell another one. Additionally if the service department is not on point they stand to loose their customer retention foothold as well.

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