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Source of dealer income is given away

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I must admit I had my eyes opened by a comment from Gary Stephen to one of my recent blogs. He pointed out that, lately, engine and boat manufacturers have been giving away extended warranties in an effort to stimulate retail sales. It’s been both a failure and a success. It has failed to increase sales, according to industry figures, but it has succeeded in stripping dealers of previously enjoyed income. And in these tough times, that’s about as popular as a Dennis Kucinich for President rally!

F & I has been something every dealer has been encouraged to have in the dealership for both good customer service and as a needed profit center. In the F & I game, a boat dealer usually has only 4-5 items for sale (auto dealers may have as many as 12.) For a boat dealer, then, the extended service contract is a big, profitable deal. In addition, in larger dealerships with an F & I manager, the sale of an extended service contract can be a significant part of the manager’s earnings. Now it’s largely taken away as manufacturers give it away. Moreover, not only have they given away this profit center, but some manufacturers have charged the dealer to help pay for the giveaway.

An illustration: Earlier this year Yamaha offered three additional years of warranty (total 6 years) on a 250 hp engine, plus a buyer’s bonus of $750 to spend at the dealership for accessories or service. On paper it looked like a great promotion, until you realize that (1) it didn’t increase sales; (2) the sale of a profitable extended service contract was lost to the dealer; (3) the dealer had to eat 1/3 ($250) of the $750 bonus; and (4) the engine came packaged on the boat and the customers who “cashed in” on the promotion hadn’t even made any choice regarding the engine. In other words, the promotion didn’t impact the sale, it just stripped income from the dealer.

So what can we learn from this?

First, I know from experience that all manufacturer marketing executives are always under pressure to create innovative programs that will boost sales. Second, unless you’ve “lived” as a dealer you can’t have an intimate understanding of how everything can affect the retailer. So, isn’t it time for manufacturers to work directly with their dealers to develop programs and promotions that can genuinely benefit all parties? That would give real meaning to working together!

Finally, if there are other well-intentioned programs out there that look good on paper, but don’t cut it in the real world, let us know your experience, for the record, here.

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