More Car Buyers Are Opting To Add Protection Coverage to Their Vehicle Purchase

According to the Colonnade’s VSC Industry August 2017 Market Commentary, the amount that consumers are spending annually on vehicle service contracts has risen to an estimated $33 billion. There are a number of factors that contribute to this major trend: the complexity of modern technology, longer span of vehicle ownership, limited funds available to cover rising repair costs and, most prominently, the increased amount of time that travelers, commuters and rideshare drivers are spending on the road. Road trips represented a whopping 39% of vacations taken by United States travelers in 2016.And traffic congestion is forcing the average urban commuter to spend about 42 hours a year stuck in traffic jams.2

The need to protect customers’ vehicle investments has never been more important for dealerships than it is today. But providing customers with different coverage options along with a positive buying experience is what’s going to set dealerships apart.

IMPLEMENTING THE WORRY-FREE EXPERIENCE AT THE DEALERSHIP

In order to capitalize on the rising need for vehicle coverage and see to the vehicle service coverage needs to each customer, it’s important for dealers to provide numerous driver benefits beyond a standard VSC, including: GAP, tire and wheel, appearance protection, dent repair and more. The proof of value is in the numbers: 69.4% of customers need to have repairs on tires and wheels, 58.3% on windshields, and 47.2% on exterior components such as paintless dent removal. Repairs are needed primarily due to road hazard (39%), accidents (17%) and parts replacement (11%).3

Consumers who do not buy VSCs usually believe they are already covered by the OEM warranty; 36% of those who don’t buy a vehicle contract don’t feel it is necessary or believe that their vehicle is already covered, and 29% indicate that a VSC is not worth the money.4 Educating customers about the limitations of OEM warranty coverage and the cost of vehicle breakdown can assist them in making the right choice.

Customers typically purchase vehicle service contracts based on their minimal monthly payment, not the lifetime cost. This gives dealers an advantage on competitors like direct-to-consumer marketers. With the ability to add in-house monthly payment plans to the vehicle loan, providers can lower their customer’s payments by extending terms based on customer preference. Because of these equated monthly installments, dealerships typically experience a low 5%-10% VSC cancellation rate; direct-to-consumer marketers, on the other hand, experience 40%-60% cancellation rates, and their contracts are generally priced higher to combat these cancellations and steep marketing expenses.

The market for VSCs post-OEM warranty is increasing, estimated at 85 million vehicles in 2016 and growing to 108 million vehicles by 2024.6 If dealers leverage these revenue opportunities by offering vehicle protection near or after the factory warranty’s expiration, and at vehicle resale, they’ll be providing customers with the solutions they’re looking for—at every stage of their journey.


1MMGY Global’s 2017-18 Portrait of American Travelers
 2https://www.reuters.com/article/us-usa-traffic-study-idUSKCN0QV0A820150826
 3According to results of a consumer survey conducted by Protective Asset Protection.
 4https://www.assurantsolutions.com/assets/pdf/vehicle-service-contracts-four-ways-to-attract-high-value-consumers.pdf
 5Colonnade’s VSC Industry 2017 Market Commentary
 6Colonnade’s VSC Industry 2017 Market Commentary
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