Hyundai Extended Service Contract - PDF

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					               PRINCIPLES OF DEALERSHIP MANAGEMENT
                         In the Twenty-first Century




        Chapter 24
EXTENDED SERVICE CONTRACTS




Every customer that sits in front of
you during delivery needs an
extended service contract, and
one of your primary responsibilities             then spewed forth noxious gases
as a Business Manager is to educate              from the tail pipe.
your customers with respect to this                  This was the era of the super car!
basic       need.            Antiquated          Terms like dual quads and three
misconceptions about automobiles                 deuces defined fuel delivery, and the
abound in your customer’s mind, and              possibility that an engine might be
it is your responsibility to bring their         aspirated by a super-charger, or
thinking up to the turn of the                   even nitrous oxide was not out of the
millennium and beyond.                           realm of possibility.      Big block
    Once upon a time, a long time                engines were placed in extremely
ago, the ignition system of a vehicle            light weight chassis, and power was
consisted primarily of points, plugs             king. Speed limits were much higher
and a rotor. The points and rotor                than they are today, and our toys
lived in a place called a distributor,           would pass everything in sight with
and a carburetor sat atop the engine             the exception of a gas station. That
and supervised the process. The                  didn’t even make any difference to
exhaust came out of the manifold,                us back then because we could buy
through a pipe to the muffler, and               gasoline for 20 cents a gallon. This


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was, in my humble opinion, the                  muscle cars.           The consumer
golden age of the automobile.                   advocates decided that they weren’t
     I spent my teen-age years in the           safe enough; the tree hugging
nineteen sixties, in Middle America,            ecologists decided that they polluted
mesmerized by these beautiful works             the atmosphere and placed massive
of art. Every small town back then              back pressure on our exhaust
had several measured and marked                 manifold, and the Arabs cut off our
quarter         mile     straight-aways         supply of oil. With lines forming at
established on the black top roads              the gas stations the large American
leading to them. It was a much                  gas hogs sat in the showrooms and
simpler time in more ways than one.             the small fuel efficient Japanese
Most notably the cars were much                 products were selling like hot cakes.
simpler! The best mechanic in town              Computerized fuel management
probably worked at a gas station,               systems replaced the simpler
and the funeral home had the only               systems, and catalytic converters
ambulance. (Think about that for a              invaded our exhaust.          Everybody
second)                                         began to manufacture smaller more
     Not only was there a mechanic at           complex machines to meet the
the gas station, when you pulled into           demand,        but    the      American
the pumps you ran over a rubber                 manufacturers didn’t know as much
tube that rang a bell, and someone              about small cars as the Japanese,
came running out to pump your gas,              so we experienced a quality gap.
wash your windows, check your oil                   As we came out of this quality
and take your money while you were              gap we had a much different
still sitting in your car. The reason           product. It was smaller, more fuel
that they did this was that they were           efficient, safer, and cleaner, didn’t go
in competition for your business, and           anywhere as fast, and was much
all of the other gas stations                   more complicated. Today’s modern
performed at the same level of                  products have more computers and
service.         In this climate of             more complex computers than the
competition the mechanic at the gas             spacecraft that landed men on the
station, your neighbor under his                moon. The modern technician is
shade tree, the mechanic at the tire            characteristically      certified     on
store, and the mechanic at the                  systems rather than being able to
dealership could all service or repair          repair any part of the vehicle like
your vehicle. Ahhh! Those were the              they were in the past. The term
days!                                           mechanic is as obsolete as the work
     We must at this point insert some          that they were able to do. With this
villains into our idyllic memories of           modern product, all repair work must
automotive history.       Ralph Nader           be performed at the dealership.
and his consumer advocates, the                     New vehicles have about 20,000
ecological movement and the OPEC                parts and 15,000 of them are moving
countries all conspired to destroy              parts, so let’s try and figure out how
and forever change our beloved                  good a job of manufacturing the


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industry can do.         If we get our             This has established a virtual
manufacturing effort to produce a              monopoly in the dealership, and the
vehicle that is 99% perfect we will            resulting escalation of prices is
experience one hundred and fifty               characteristic of an established
part failures during the life of the           monopoly. The dealership has no
product and everyone knows that                effective competition anymore. This
this would be an unreasonable level            is obvious if you try to have your car
of performance. We must come                   checked the next time you pull in to
closer than that to perfection! 100%           get gas. You can’t get the attendant
is an absolutely impossible level in           out from behind the bullet proof
any manufacturing process; you                 glass, and if you could get them out
simply can not get there. If you have          from behind the glass they would
any doubt about this, ask yourself             have no idea what was wrong with
why every automobile dealership of             your vehicle. The tire store is good
any brand name out there has a                 with your tires, and can possibly
service department. From Honda to              replace your battery, but is unable to
Hyundai and Mercury to Mercedes                do repairs on your vehicle. Turning
they all have a service department.            your       remarkably       expensive
We are attaining manufacturing                 investment over to a shade tree
excellence in our industry, and are            mechanic is so stupid that calling this
performing at just about 99.9%                 behavior stupid is an insult to stupid
perfection in our new products.                people all over the world. You must
However this still produces a failure          be willing to bring your vehicle back
rate of 15 average part failures over          to the dealership for service, and you
the life of the vehicle.                       must be willing to pay a technician
    In the 1960’s a Mustang cost               about the same money per hour that
under $3,000.00 and was made out               your doctor makes!         Would you
of predominantly steel. It now costs           seriously consider living life without
just a bit more and a significant              medical insurance?
amount of it is manufactured from                  You can’t even tow a new vehicle
plastic. The only thing that seems to          with a tow sling anymore. That
have gone up faster than the cost of           Mustang that we used as an
the actual vehicle is the cost of              example earlier was made of steel
servicing      the   vehicle.      The         and could be towed without damage
complexities of the electronics have           by using a very simple mechanical
spawned the diagnostic computer,               wrecker. It consisted of a tow sling
and without one you can not have               and a winch, didn’t have any
the car’s computer talk to you. This           hydraulics or many moving parts,
sounds strange, but the car’s                  and functioned beautifully. Now the
computer is now telling another                only way to tow the modern product
computer what is wrong with it. A              is to reach under the chassis and
diagnostic computer for a specific             grab the vehicle by the tires using an
model of automobile exists in one              excessively expensive hydraulic
place, and this is the dealership.             system.        Wreckers now cost


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remarkable amounts of money that                middle of the night the customer’s
make Italian sports cars look like a            engine seizes up in the middle of a
bargain, and they do not drive them             freeway bridge in a major urban
out for a $10.00 charge like they               center.      The vehicle must be
used to. It is not uncommon for a               removed from the bridge to the
towing bill to exceed $100.00 and in            dealership incurring a significant
this modern environment this is only            towing charge. The customer is
reasonable.        Consider that the            facing a bill from your service
towing company is sending out an                department that will easily exceed a
extremely        expensive,     heavily         thousand dollars, and they have no
insured, capital investment driven by           way to get to work in the morning.
a skilled and probably union                    Wouldn’t it be easy to hand your
operator.     With the escalation of            customer the keys to a rental car,
prices towing a vehicle can now cost            charge him a small deductible, and
the customer as much as the entire              give him his car back completely
repair cost in the past.                        repaired. Your customer is happy
    Another thing that you should               because his towing bill has been
consider while you are explaining a             paid, his car has been repaired with
new vehicle’s vulnerability to your             parts      from        his     vehicle’s
customer is the impressive cost of              manufacturer, in his dealership’s
replacement transportation. If you              service department by factory trained
have rented a vehicle recently you              technicians so that the work is
are aware of the outrageous rates               guaranteed, and he has had the
that are charged for even the least             advantage         of       replacement
expensive of automobiles. In the                transportation while his car was in
“good old days” dealerships gave out            your shop. The only thing that has
loners to customers with vehicles in            unexpectedly come out of his pocket
the shop. This practice has been                is a small, say $50.00 or $100.00
virtually eliminated by the insurance           deductible, and your customer
companies who have done much to                 satisfaction        is      dramatically
dictate operating practices of a                enhanced.
dealership’s service department.                   Because       of    the    increased
Think about this for a second,                  customer loyalty your dealer is
because        of     the    insurance          happy.      Your service and parts
companies, you can’t even stand                 managers are happy because they
next to your vehicle while it is being          have received full payment from the
repaired.       Insurance companies             warranty company, promptly and
control and regulate the liability that         without hassle. Everyone involved in
they are willing to underwrite, and for         the entire emergency is happy
this reason the “loaner” is virtually a         because the risk was carefully
thing of the past.                              planned      for     and    appropriate
    Let’s consider your customer’s              insurance was in place to answer
complete exposure of risk on the                every need.
worst case scenario. During the


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   Manufacturer’s warranties that              and have them forward you recent
are in place when the vehicle is new           impressive checks to dealers in your
are merely insurance policies that             area demonstrating the financially
have the premium included in the               disastrous consequences of a
base price of the vehicle. These,              modern major repair.
unfortunately, only cover defects in
material and workmanship, and have
no provision at all to cover towing
and replacement transportation.
                                                  SERVICE DEPARTMENT LABOR
Extended Service Contracts help                        RATE COMPARISON
with these important liabilities from
the first day your customer drives his           1855……………………….$26.57 Per
new vehicle off of the lot augmenting
the factory warranty.
                                                 Hour

      Documentation                              1860……………………….$57.67 Per
                                                 Hour
The first bit of documentation that
you should construct for your                    1865……………………….??????
customers is to find out what your
dealership charged per hour for labor
in your service department five years
ago and what they are currently
charging. You then using the current             Analyze and Conquer
year, five years ago and five years
ahead construct the following                  By this point in the transaction you
graphic for your customers. This               have a great deal of information on
should be placed in your evidence              your customer.       You have three
book along with the credit union               major sources of information that you
contracts, pertinent articles from the         can use to form a logical argument to
business pages and one other                   indicate that your customer can in
valuable and compelling category of            fact afford the increase in monthly
evidence for your customers.                   payment.      You have all of the
Search your service department for             information on the vehicle that is
repair orders that are expensive               being traded in, and all of the
enough to impress your customers.              information on the vehicle that they
This is a continuing effort because            are purchasing. From the credit
you want to keep your repair orders            application you know where they
relatively current, say within three           work, how much money they make,
months of the current date. The                how much they pay for rent, where
other thing you can do to present              they live, how far they drive to get to
evidence to your customers is to               work, where their bank accounts are
contact your warranty representative           and approximately how much money


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is in them. From the credit bureau               down on a legal pad explaining to
report you know how much they pay                your customer how you concluded
on their card bills, whether they have           the amount by involving them in the
any loans that will be repaid soon,              computation. If average mileage of
and are looking at all of their                  the trade work out to 1250 miles per
revolving and installment credit. You            month, the trade-in is getting 14
have more financial information on               miles per gallon, the new car gets 21
your customer than any other human               miles per gallon and gas is 1.10 per
being in their life, with the possible           gallon the savings is $32.74. If the
exception of their mate. If their mate           customer has indicated that they
is not as good at analyzing credit,              spend about $10.00 per month on
you probably have a better picture of            maintenance and repairs, and they
the customer’s situation than their              are about to pay off an $18.40
spouse does.          Nobody in the              installment debt on a refrigerator,
business world is privileged to more             construct the following justification
usable      information     on     their         on your legal pad:
customers than         the Business
Manager        of    an     automobile
dealership. You should use all of
this information on their situation to
explain to them that not only can                 Gas Savings $32.74
they afford this important coverage,
but that they can not afford not to               Maintenance 10.00
take advantage of this important                  Refrigerator 18.40
coverage.
    Ask your customer if they got an
income tax refund, and if they                      Total         $61.14
answer in the positive, explain to
them that all they need to do is go to
their personnel office, adjust their
deductions, and get the money in
their paychecks.        Find out the
amount of the refund, divide it by 12,
and include it in your presentation.
                                                     If you can come up with an
Continue with the differences in the
                                                 analysis like this you will have
automobile that they are trading in
                                                 certainly justified the “twenty some
and the one that they are
                                                 odd dollars” of increase in monthly
purchasing. What is the difference in
                                                 payment caused by the warranty.
gas     mileage?         How      much
                                                 Whenever your customer asks how
maintenance have they been
                                                 much the extended service contract
investing in the trade-in that they will
                                                 costs you answer “twenty some odd
no longer be required to shell out?
                                                 dollars” because hearing the entire
Express the gas and mileage saving
                                                 five year premium is counter
in a monthly amount and write it


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productive. You will disclose the                  When the lender gets the money
cost to your customer when you                     back they apply it to the outstanding
present them with the retail                       balance of the loan, but they will not
installment contract, but premature                change the monthly payment.
disclosure is usually disastrous to                Monthly payments are contractually
your presentation. The product is                  fixed, and adjusting them would
designed to be included in the                     require a completely new contract.
monthly payment of a vehicle loan,                     Armed with this information, you
so the premium is collected up front               can     generally    convince    your
in its entirety.                                   customer     that   canceling    their
    To protect the outer five percent              coverage is not a good idea because
of the vehicle customers pay liability,            when buyer’s remorse sets in the
comprehensive          and      collision          customer’s goal is generally to
insurance every six months.          It is         reduce their monthly payment.
much easier to pay for insurance                   When you explain that this will not
monthly       than    in   six    month            happen you can generally convince
increments, but that is how                        your customer to retain this vitally
automobile         insurance     works.            important protection, and save your
Customers must generally deal with                 dealership a costly charge back.
an out of pocket expense of
hundreds of dollars every six                          Aggressive Selling
months, but if they would see a five
year     premium       for   automobile
coverage they would probably have                  You must present your case for an
a fit. Thankfully it is easier and less            extended      service   contract   as
expensive to protect the inner ninety              strongly as humanly possible for a
five percent of a vehicle with an                  number of reasons. If necessary
extended service contract than the                 take the customer to the point where
outer fiver percent protected by                   they are getting angry with your
collision       and      comprehensive             tenacity, but be as persistent as you
insurance.                                         need to be to get the job done. You
                                                   must adopt the position that you care
                                                   about the customers in front of you,
          Cancellation                             they need this important coverage
                                                   and you are not going to let them
If a customer decides to cancel their              leave without it. Selling product is
extended service contract, they do                 vitally important to your finance and
not get any money back and their                   insurance effort, and a good balance
payment is unchanged. The cash                     of product to rate is essential to
was advanced by the bank, and if                   controlling your charge backs.
the customer terminates their                      Everybody that sits in front of you
coverage the extended service                      needs this product and your attitude
contract company will send the                     about your product will have a
money back to the lending institution.             significant effect on your ability to


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sell it to your customers.       The           keeping you happy, so once again
number one reason for a business               your selling performance is vitally
manager loosing his or her job is              important.
held offerings, but number two is a                The most inflexible extended
lack of service contract penetration.          service contract companies tend to
You must yourself truly believe in             be those set up by the manufacturer,
your product to communicate this               i.e. Ford’s ESP, GM’s GMPP etc. It
urgency and importance to your                 becomes almost impossible to
customers.                                     reverse a decision once they have
                                               made up their minds, so this is a
       Responsibility                          significant reason to go with an
                                               independent        service      contract
                                               company.       As a general rule of
When selling an intangible product to          thumb, the larger a bureaucracy the
your customers you are in essence              more inflexible it becomes.         The
selling a promise. The reputations of          other obvious criterion for selecting a
your dealership rests on this                  warranty company is their price list.
promise, so selecting a warranty               If you can reduce your costs, you
company that is responsive to claims           can increase your profit margin, but
is vitally important. There are things         remember that if it sounds too good
that no insurance company can be               to be true it probably is too good to
expected to do, such as repair a pre-          be true. Steer clear of extended
existing condition, but a warranty             service contracts that have a price
company tries to find ways to deny             structure that is below the market
claims is no good to you at all. This          rate.
can destroy the reputation of your                 The third consideration is your
dealership and produce the worst               service manager’s opinion of the
possible form of advertising.                  company. Remember that you are a
    It is your responsibility to               part of a team, and your service
intervene if one of your customers             manager’s      input     is   extremely
has a claim that should be paid                important. A time consuming claims
denied by the extended service                 procedure or a company that is slow
contract company. If this happens              forwarding payment to your service
you should immediately contact your            department is not good for your
warranty representative and have               dealership      or    your     customer
them intercede with their claims               satisfaction index.
department.        If they are not                 Remember that you are the agent
responsive to your problems, you               that sold your customer a promise
have no alternative but to change to           that their vehicle would be repaired if
a company that will be responsive              they have a problem. All they have
when it comes to paying their claims.          is your word that the piece of paper
If you are sending in a significant            you sold them will work if the need
number of premiums each month                  presents itself. If a claim is for some
they will be very interested in                reason denied you need to


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immediately find out why and take              understand all of the features and
action to overturn this decision. You          benefits of the product as it would
concurrently need to communicate               relate to them.
with your customer so that they know               When the customer responds in
that you are working on their                  the positive bring up your already
problem.      They should be kept              loaded and printed contract, disclose
continuously informed of your                  its appropriate features, and indicate
progress, and if you can’t get the             the locations of your customers
denial overturned they are entitled to         required signatures.
a complete explanation of the
reasons why.                                             Objections
    If you do experience this problem,
before you give up you should
involve your General Manager and               You are better off to answer the
your Dealer Principle. This is one of          customer’s objections during your
the times when a telephone call from           presentation, so make it as
the owner can be extremely                     comprehensive as possible to
effective.    No warranty company              anticipate potential objections. If a
wants to loose a good account over             customer still has an objection to the
a problem like this.                           product you must ferret out the
                                               objection so that you can deal with it,
                                               educating the customer to their
     The Presentation                          obvious needs. These responses to
                                               the most common objections are
Begin with the warranty company’s              merely ideas that hopefully will spark
brochure. Not the one that says it             your own creativity in dealing with
covers everything but the following            the problems.      The number one
components.       This is almost as            objection has got to be:
negative a device as asking the
customer “You wouldn’t want to buy                       It Costs Too Much!
an extended service contract, would
you?” Never work from a negative               Don’t be afraid to remind your
like a list of things that are not             customers of the fact that “Good
covered. Get a brochure that lists all         things aren’t cheap and cheap things
of the things that are covered, and in         aren’t good.” Break down the cost of
great detail describe exactly what is          parts plus the labor rate and divide
covered. Expand the value of the               the premium by this new value to
product in minute detail, including            achieve the number of in shop hours
the towing and rental car options,             that they are actually paying for.
and make sure that the customer                Like so:
understands everything in fine detail.
Answer all of the customer’s                                 Labor $90
questions that they have about the                           Parts $120
product, and be sure that they


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 So the average hour in the shop costs           contract to comprehensive and
                $210.00                          collision insurance. To begin these
 So a $1,000 premium works out to 4.76           presentations ask the customer “Do
           hours in the shop                     you have collision insurance on your
                                                 car? Even if it was not required, can
Does your customer really think that             you imagine leaving your driveway
over the life of the vehicle it won’t            with no protection the way they drive
spend one day in the shop? If this               here in Townburg. So that makes it
analysis doesn’t work reverse the                a necessary evil, right? How much
process and ask the customer if they             do you spend a year on
would be willing to accept a monthly             comprehensive        and        collision
payment twenty some odd dollars                  protection?
and agree to:                                         Write    out     the      following
                                                 comparison to graphically illustrate
   •   Sign a legal document stating if          your point to your customer after
       my car breaks down you have it            asking them the following question:
                                                 If it makes sense to spend $2,500.00
       fixed by a factory trained
                                                 to protect the outside of your car,
       mechanic
                                                 doesn’t it make sense to spend $200
   •   Provide towing assistance                 per year to insure that it runs well?
   •   Give me a car to drive for up to
       five days while the work is being
                                                  Physical Damage Extended Service
       done, and an additional five days
                                                     Insurance      Contract
       if there is a delay because of             $500 per Year     Cost      $200 per Year
       parts availability                         $250             deductible       $50
   •   Give me your credit card to take           Can Increase      rates     never go up
       along with me if I break down              Can be Canceled claims      Unlimited
       away from home                             No             transferable     Yes
                                                                           (Increases resale)
   •   Agree not to cancel this
                                                  Accident          use minor and major
       arrangement if I experience                                            Repairs
       numerous repairs

Would you take all of these chances
with someone else’s car, not
knowing how they intend to care for
it? This is exactly what our product
is going to do for you at an extremely
reasonable monthly investment.

         I’ll take my chances!                   Close this time with the question: Do
                                                 you think that five years will be
For this objection, go back to the               enough or do you think that six years
comparison of an extended service                would suit you situation better?


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Remind your customer of the other                your salesperson has done their job,
high points of your presentation, and            this will be the second time that they
do not give up! Remember tenacity                have seen the service department,
is your greatest ally in selling                 but take them anyway. Show them
extended service contracts!                      the more impressive pieces of
                                                 computer equipment, and have one
   My friend works on my car for me!             of the technicians explain its
                                                 complexity. Remember, you care
This     program       eliminates    the         about the customers and you aren’t
necessity of burdening a friend with             going to let them leave without this
your car problems and makes the                  vitally important coverage.
cost of having the work done
professionally worry free. In order to                    I’ve never had a problem!
professionally work on these new
products our dealership has invested             Twenty some odd dollars a month is
in     a     significantly     expensive         very little to invest when you
diagnostic      computer      that   the         consider the cost of 99.9% problem
manufacturer insists that we have.               free driving. Do you realize how
Does your friend have access to one              many components are covered with
of the new state of the art computers            this product? Wouldn’t you say the
that your new vehicle requires for the           very best that we could hope for over
diagnosis of problems? Does he get               a five year period would be 99.9%
his parts for free? Would he tow                 repair free driving? Write out the
your car in if you didn’t break down             following illustration for the customer:
in front of his shop? Does he supply
you with alternative transportation?
If he is a good friend would you
really want to impose upon him like                   •    15,000 Covered
that?                                                      Components
    With this program we are paying                   •    Times 99.9% Components
the bill, but you chose where you
want the work done. If you still want                      that won’t break Equals
your friend to do the work, and he                    •    15 Probable breakdowns
has a real repair business, we will                   •    Times $400.00 Average
cut a check for the repairs to his
business. Can you see how our                              Cost per Repair
program eliminates the necessity of                   •    That’s $6,000.00 of
burdening a friend with your car
                                                           Probable Expense Over
problems and makes the cost of
having the work done professionally                        the Life of Any New
completely worry free?                                     Vehicle
    Don’t be afraid to get your
customers up and take them on a
tour of your service department. If


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Close with the question, do you think            card, pay cash or include it in your
that you would prefer the 60,000 mile            monthly payments?1
or do you think that you need the
100,000 mile policy?                                  Selecting a Service
The factory coverage is enough for me!
                                                      Contract Company

Let’s give this customer an                      If you are selecting a service
interesting twist by taking the factory          contract company, make sure that
coverage      away       from     them.          their price list reflects market
Hypothetically, if the factory didn’t            conditions. Satisfy yourself that they
give you a warranty you would                    have a proven track record, (more
expect     a    significant    discount,         than a couple of years in the
wouldn’t you? So the first three                 business) and that they are backed
years of protection is worth a                   by an “A” rated insurance company
significant amount of money to you               with more than a billion dollars in
right? How much would you figure                 assets, and are listed as “insured” on
your factory warranty is worth? (I               the declaration page of the policy.
have never had a customer name a                 Make absolutely certain, to your
number less than a thousand dollars              complete satisfaction that they are
when I have asked this question)                 going to be responsive to your
When do you think that you should                dealership, and your customer’s
expect a repair, during the first two            needs.2
years or after the parts have
experienced some significant wear
and tear?      Average miles on a
vehicle are based on a 15,000 mile
year not a 12,000 mile year, so if you
are an average driver, the factory
warranty will expire at just after two
years of normal driving.
    Can you see that the last three
years of ownership, when the parts
have experienced some wear and
tear, and you can start to expect
some failures, should be worth at                1
least as much as the first two years               For the section on objections I used an
                                                 anonymous source document. Information is
when the parts are all new? Now,                 frequently faxed all over the automobile
hopefully you can consider the fact              business, and I would certainly enjoy giving
that you augment your factory                    appropriate credit to the author, but unfortunately
warranty      with      towing      and          I have no idea who did the work.
                                                 2
replacement               transportation           I extensively interviewed Mr. Mark Muller
                                                 from Mechanical Breakdown Protection Inc., in
coverage. Close immediately with:                Kansas City. I certainly appreciate all of the
Would you like to use your credit                information that he was able to provide.


                                           251
          PRINCIPLES OF DEALERSHIP MANAGEMENT
                    In the Twenty-first Century




Key Concepts

Service              contract
penetration is a life and
death, career changing
issue       for      Business
Managers, so you must
aggressively present this
product in order to produce
the numbers necessary for
survival. Each and every
customer must get a high
quality presentation every
time, no exceptions and no
deviation from this rule!
You must adopt the attitude
that you care about your
customer,       that     they
absolutely can not live
without this vital coverage,
and that you are not going
to let them leave your office
without it.




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