By Scot Eisenfelder, CEO, APCO Holdings/EasyCare
One of the most overlooked metrics in auto dealerships is claims yield. This metric measures the percentage of paid service claims that your dealership gets from vehicle service contracts (VSCs) and other F&I products that generate service claims.
Increasing your claims yield percentage by 20 to 40 percentage points can add tens, if not hundreds, of thousands of dollars annually to your bottom line. Over the long term, claims yield is a metric worth paying attention to and one that dealers have quite a bit of control over.
How can dealers improve and maximize their claims yield to add more profits to the bottom line? Don’t assume that just because you sold a contract to a customer, that person will make a service claim or return to your store for service. In fact, I think you have to assume that unless your dealership is proactive in retention efforts, your customers will not make a service claim or return to your store for service.
Here are five things you can do to maximize claims yield:
1. Remember the Needs Analysis
Maximizing claims yield starts in the F&I office with a process that focuses on the best interest of the consumer. If a car shopper doesn’t have a good experience here, why should they trust you on the service side?
Most F&I professionals have been taught to perform a needs analysis, but this process is often ignored in favor of the 300 percent rule. To increase customer retention in service, you need a customer-focused process in F&I.
2. Market Your Service Center
Out of sight is out of mind, especially once customers leave your lot with their new vehicle. Many customers don’t even remember they purchased a service contract or don’t have a good understanding of what it covers, so they never make a claim.
To remedy this situation, provide your service marketing team with your F&I contract data. Make sure they create a list of everyone who has purchased a contract, sorting the list according to the type of contract each customer purchased.
Send emails to your customers reminding them about the specific product they purchased, including information on the benefits available to them. Don’t forget to highlight the service value propositions you offer, such as low deductibles, loaner cars, or roadside assistance.
3. Follow Up
Do you follow up with unsold F&I customers? If you can sell just five percent of unsold customers a $1,500 contract, that’s a lot of money.
When customers are approaching the end of their factory warranty, are you reaching out to them with new F&I contract options? With the current inventory crunch, more people are hanging onto their vehicles for longer than planned. Some of them may consider a service contract if contacted.
4. Monitor Claims Usage
How is your dealership managing claims? A customer may be happy when a $3,000 claim covers the cost of repairing their transmission, but they may have lost confidence in their vehicle going forward.
As a dealer, if you are holding that contract in your reinsurance position, you may just want that car gone. The $3,000 payment could be the first of many. In that instance, how motivated might you be to get that customer into a newer vehicle, and how receptive might that customer be? While it’s great you may have made another $100 on the contract, think about how you’re managing claims usage and where there are opportunities to convert claims into sales.
5. Manage Customers Between Stores
If your store is part of a multi-brand auto group, there is a good chance you are overlooking opportunities to maximize claims yields between stores. For example, let’s say a customer buys a pre-owned Honda at your Toyota store. That person is not likely to return to the Toyota store for service, minimizing claims yield opportunities.
Why not have the F&I manager in the Toyota store sell the customer a service contract that can be used in a sister Honda store? Afterward, market to the owner and remind them that the protection product they bought is good at your Honda store.
Improving your claims yield percentage by just 10 percent per year may add up to hundreds of thousands of dollars in additional service claims revenue over time. Taking the time to measure, track, and improve this metric is a worthwhile endeavor that will add to your bottom line while improving customer retention.
About the Author
Scot Eisenfelder took the role of CEO of APCO Holdings in 2021, after joining the team in 2020 as Senior Vice President of Strategy and Planning to help grow the company in an increasingly digital and competitive auto retail environment. Prior to joining APCO Holdings, Scot held leadership positions at Affinitiv Inc., AutoNation, JM Solutions, Reynolds & Reynolds, JD Power and Accenture.