Recently I visited a dealership whose used extended service agreement (ESA) production was down 10% from previous years. When I asked what had led to the decrease, they cited the following factors:

• Certified Pre-Owned. Most certified pre-owned cars come with a substantial powertrain plan, and some are starting to include comprehensive coverage as well on higher-end models.
• Cheaper units being purchased. A higher percentage of cars are being purchased at lower prices right now because customers are trying to be more frugal. When a car costs $7,000 and the ESA is $2,500, that’s over 33% of the cost of the car to insure against mechanical repairs.
• Higher prices/less coverage. Any new car qualifies for comprehensive coverage. Some used cars, depending on mileage, might only qualify for the second-tier named component or powertrain plan. But the price is still substantial.

I listened to their feedback but stopped short of validating their excuses for declining performance. Instead I reminded them that most of the issues they referred to, with the exception of certified pre-owned coverage, have been true for years. Instead of giving credence to the reasons that customers object, we must reacquaint ourselves with the benefits of purchasing an ESA on a used vehicle.

A customer is much more likely to use an ESA with a used vehicle than with a new car or truck. On a new ESA, the customer usually won’t use it for three to four years or 36k - 50k miles. On a pre-owned vehicle, they could be in need of coverage at the point of sale. This begs the question: Is an ESA more important to a customer on a used vehicle than a new? It’s not more important, but it’s more immediately relevant, especially in cases where the remaining factory warranty has already expired. If, in these cases, the customer leaves without purchasing additional coverage, they are choosing to self-insure, which can be costly.

We use price as a selling tool on new ESAs. Why? Because we’re too often guilty of thinking that price is what sells. We need to remind ourselves: value sells. If value exceeds price, that’s when a customer says yes. Naturally, the lower the price, the easier it is to build value. That doesn’t happen as easily on pre-owned. So, we have to be better at building value. Showing the customer how the plan fits their specific driving habits is one way to attack their objection.

Speaking of price, can we take a 3-year, 36,000-mile used car plan that costs $2,400 and make it more affordable in the customer’s eyes? Yes, and here’s one way. What’s $2,400 divided by 3 years? That’s $800 per year. Still sound expensive? How much do you pay for your full coverage insurance (PDI, physical damage insurance), $90/month, $100, $120? At $90 per month, that’s $1,080 per year. Most people pay more per year for full coverage insurance than the annual cost of an extended service agreement. Yet they may never file a claim on their PDI. When was the last time you took your car in for an oil change and the repairman told you it needed some additional work? It happens more often than we like to admit.

Finally, you must believe in the plan you’re offering. Realize this used car plan WILL protect the customer and WILL protect your dealership. How does it protect your store, you ask? Ever been back in service when a customer was complaining about the high cost of replacement parts on their car, or the hourly labor rate in your service department? Protect your store from those negative scenarios. Remember, a negative encounter for a customer at your store, even though it’s in the service department, will be remembered as a negative experience with the entire organization. The benefits you offer do more than just pad your paycheck. They give your dealership, its employees, and ownership a position of strength with which to handle customers after the sale.