Can dealers hold back the tide on online warranty sales?

By Debbie Kirlew

Dealers have traditionally been slow to embrace online sales, such as finance or GAP, and many are currently resisting selling extended warranties online. But customers can now buy finance, tyres, parts and insurance without setting foot in a dealership and increasingly expect easy online interactions. Can dealers hold back the waters on warranties?

Probably not, say suppliers. Car Care Plan is one of the few companies with a structure in place enabling dealers to sell warranties online. In fact, 70% of its extended warranty sales take place online – ‘white label’ products sold by dealers and manufacturers via their own portal or branded purchase platforms.

Paul Newton, chief executive officer, said: “Our partners have already got to grips with offering warranty online. Online purchase is playing a significantly increasing role in sales volume and the sites are a valuable tool in helping retailers to retain their customers for longer. We all live in an increasingly online world and customers expect to be able to transact online.

“Making it easier for customers to transact should be a core aim for all dealers and letting customers renew their warranty cover online is a great way for retailers to extend their

relationship with consumers. Car owners can extend warranty cover at their own convenience, can select a payment plan that fits their needs and can do all of this without tying up dealer staff in the showroom.

“More importantly, retailers can stretch their aftersales relationship with their customers beyond any complimentary warranty period that has been included in the sale of the vehicle.”

“We all live in an increasingly online world and customers expect to be able to transact online” Paul Newton, Car Care Plan

Newton said dealers need to ensure they offer customers a smooth online experience.

“That means a website that’s easy to navigate, products that are easy to understand and pricing that’s transparent and without any hidden surprises. Dealers also need to work with their warranty partner to make sure the offer is compliant and in line with FCA rules on selling.”

Warranty companies are increasingly recognising the need to explore the online route with their dealer partners.

“Traditionally, dealers have preferred that extended warranty sales remain the preserve of the point of sale. However, in a changing market, we are encouraging dealers to look again at their approach to extended warranties and to the opportunities afforded digitally,” said AutoProtect director Nick Wake.

While there are sound reasons to sell warranty at point of sale – it enables the product to be fully explained and enhances the customer relationship – Wake said the rise of the self-funded warranty and consumer online expectation would lead to more digitisation of the product.

Self-funded warranties enable dealers to cover their statutory warranty requirements without being subject to stricter FCA regulations associated with offering a full mechanical breakdown insurance (MBI)  product. However, the risk remains with the dealership, as does the legal liability and administrative burden.

Wake said: “The attraction of offering an extended plan across all platforms, with the associated liability potential, has understandably been limited. However, regulation and digitisation may have some dealers re-thinking their use of such an option and this could have implications for online and point-of-sale warranty offerings.

“Dealers should make more use of a long-term MBI product as a retention and differentiator tool.

“They should also start testing online strategies that use warranties to connect to customers. A return to traditional MBI, built for the digital age, could offer dealers many benefits and less risk than their current approach.”

Mapfre Warranty’s ‘Click & Buy’ platform allows dealers to select products such as warranty, tyre and alloy and MOT insurance to distribute online either via a link from their own website or through their own email campaigns.

Nick Franklin, head of partnership & distribution, said: “What this does is gives the dealer the opportunity to meet more of their customer’s needs throughout the ownership lifecycle, but without having to try and introduce a fourth or even fifth product at point of sale.

“We have already seen more integration between dealers and finance providers online. There’s no reason why this principle shouldn’t be extended to other products like warranty. If nothing else, there could certainly be more promotion of extended warranties online as a core part of the customer value proposition.”

However, internet software and services provider GForces is not aware of any dealers selling warranties via its websites.

Tim Smith, group strategy director, said: “We certainly don’t have any integrations with warranty companies for people to quote on and buy warranties via dealer websites. What some of our clients will display against used car stock is an indicative cost for a warranty based on their suppliers’ figures.”

GForces has investigated offering warranties online, but it said the level of interest did not justify further development. The time may well come when warranty quotation software appears on dealer websites, although Smith believes it is unlikely that direct selling will occur through dealer sites.

Warranty companies are effectively direct to market, he explained: “If a dealer was selling the product through their website, the warranty company is effectively competing with itself.”

He said FCA regulations would also probably keep warranty sales offline. Smith added that dealers only want to sell extended warranties on their own cars rather than risk higher claims with a universal online offering.

Wake agreed: “The challenge facing all direct-to-consumer warranties is the risk of adverse selection. Customers opting for an extended warranty online can display higher claims ratios. They may be purchasing based upon insight about a potential problem or simply recognise that an ageing car is more likely to develop a fault. This self-selection bias is a factor that can impact pricing.”

 

Warranty as a retention tool

Research from Trend Tracker shows that manufacturers offering new cars with longer warranties benefit from higher servicing retention. However, while director Chris Oakham said used car warranties are “usually too short”, Trend Tracker’s research showed a warranty was more likely to result in motorists using their franchised dealer. When owners of sub-four-year-old vehicles who hadn’t yet had their car serviced were asked, 60% said they would return to the network for the work to be carried out.

The worry for many dealers is that this preference depends on the relationship that the customer has built up with the franchise at the point of sale and that should they buy their warranty online, even from the same dealership, that servicing loyalty will be lost.

However, in the end, it may be manufacturers that give dealers the final push. Mazda, Land Rover, Audi, Renault and Vauxhall are among the carmakers already offering extended

warranties online. Dealers’ initial reluctance to dip a toe into digital warranty sales may soon soften if they see a revenue stream evaporate.

 

Manufacturer view: Volvo Car UK

Volvo Car UK offers online extended warranties to both new car customers and used car buyers, through its Volvo Selekt programme, in partnership with Car Care Plan. It enables customers to take out an extended warranty, either with full payment or by monthly direct debit instalments.

Until now, existing customers have been directed online via a direct mail reminder, however, the brand is in the process of integrating the online warranty extension site into the main Volvocar.com/uk website so that all existing Volvo car drivers, subject to terms and conditions, have the opportunity to take out an extended warranty in this way. As a policy recognised and backed by Volvo Car UK, in the event of a fault occurring with the vehicle, the repair can be handled by any dealer in the network.

 

Dealer view: Swansway Group

Swansway, like many dealer groups, does not offer online purchase of extended warranties, but neither does the group consider it a ‘point-of-sale’ product. Instead, said director Peter Smyth, it should be sold at ‘point of service’.

Smyth is quick to acknowledge that as a group, extended warranties do not receive the same level of focus as products such as service plans.

He said: “With new vehicles, PCP funding is designed to persuade people to change their vehicles before the warranty expires. Aftersales is the key to keeping customers longer by utilising products such as extended warranties and service plans, but in particular, service plans. Extended warranties should be a point-of-service and not a point-of-sale product.”

Smyth believes used car customers who did not buy an extended warranty when they purchased their vehicle, should be offered the product when the vehicle returns for a service: “Our service receptionists are becoming extremely good at upselling and we are seeing more uptake. Focusing our service team on selling extended warranties is something we will be looking at for the future.”