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Source of dealer income is given away

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. Itís 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, thatís 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 managerís earnings. Now itís 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 buyerís 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 didnít 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 ďcashed inĒ on the promotion hadnít even made any choice regarding the engine. In other words, the promotion didnít 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 youíve ďlivedĒ as a dealer you canít have an intimate understanding of how everything can affect the retailer. So, isnít 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 donít cut it in the real world, let us know your experience, for the record, here.

Comments

12 comments on “Source of dealer income is given away

  1. Wally Eastman

    What would work for me is money in my pocket. They should offer extra $$$ for off season retail sales. They could be pinned to re-orders of like product. I am told a promo like the Why Wait Buy Now; Yamaha’s Current give-away cost up to 3 million. Thats alot of bling bling they could be passing around in the cold months. instead I am forced to give away a warranty and pay a portion on it for a rig that was sold in August and just being delivered!

  2. Ray Polzer

    I am just amazed by the manufacturers inability to understand retailing. When you come out with a program to stimulate sales you need something that will create a “reason to buy now “. If you start a program in September and it runs until mid April the consumer doesn’t see the value or the reason to buy now . Giving away warranties and covers just take profit centers away from the dealer. I believe that the best promotion is a rebate system. Dealers need the most help in the fall season to clear out old inventory so make the rebates higher on the non-currents.

  3. Doug Reimel

    First of all the Manufacturers only are concerned about their 1/4 profits. The dealer is the customer not the partner. The user (our customer) does not count on their books. Just my opinion: to many MBA’s and Accountants micro managing. I always thought the term Marketing was creating the need, lifestyle. Manufacturers don’t even follow their own University programs they want the dealer to follow. Automobile Manufacturers understand retail financing they control is the key to sales. Not one Manufacturer will take control of a retail finance program, the just farm it out to someone else hoping it will work out. With the mortgage mess how tight will money be this year?

  4. jim

    I am saddened to think that we must as dealers now rely on rebates and extended warranties to stimulate sales. The day manufacturers started offering rebates was a sad day in our history just as it was in the automotive industry. Offer a fair price, good service, a reasonable warranty which would help fair pricing, and a well made product with excellent marketing– then success would be a given.
    If you want a fair profit margin, you must first ask for it; and then back up your ability to deserve it with great rigging, delivery, and service. I am addressing manufacturers here as well as dealers.
    Under the rebate/incentive way of retailing, we have trained our customers to wait for the big push, the boat show, the end of the year bargain, etc., ad infinitum to the point that product and quality becomes a non-issue. All else a dealer or manufacturer may offer the customer is masked behind the banner of price, savings and immediacy.
    The easy way to gain potential market share has, in recent history, been extended warranties, rebates and dealer incentives. The hard way I describe above, works one hundred percent better, and the proof is with those who are already doing it and gaining by the effort.

  5. Gordon McKelvey

    Why has it taken you guys this long to figure this warranty scam out? The $64,000,000.00 question is, why have the retail dealers allowed this kind of BS to on this long?

  6. JACK JETT

    Don’t forget the FREE warranty usually costs the dealer a set fee. Kinda adds insult and injury to our dwindling bottom line! Hope they don’t take profit from our financing by giving away FREE interest for 6 years

  7. Josh Cooper

    I have complained about this situation for many years. It has always fell upon deaf ears. Anytime I have ever gotten a real audience, the only responce I get is “the majority of our dealers love our warrantly programs and praise us for helping them sell more boat”. These programs do not help sell boats or motors. They only take money out of dealers pockets. The manufacturers get to raise the cost of a boat by 2-8% every year and take more out of the dealers pockets. This is money that dealers need to survive. If there main concern is the end customer and dealer sales, the focus needs to be on creating a better product for a better price. Customers will buy that! Every year there is a new “promo” (that we have to pay for) that is going to send more and more customers to my desk. Yet every year our sales drop more and more. Figure that one out. No more warranty give aways!

  8. Josh Cooper

    ====FOLLOW UP====

    I recently talked to an RV dealer who was very happy with his current market situation. I asked him how he combats warranty give aways and wrap around packages. He laughed and said that his industry has never taken that direction. They do just fine without it.

    Our dealership will actually avoid a manufaturer because of these practices. ie Larson, Crownline etc. However, the outboard companies hold us hostage.

  9. Marc DePeel

    I have been talking about this problem for years also. My first encounter was with a manufacturer who not only gave away extended warranties, they also bought down interest rates, costing us participation on loans. I talked wiith the CFO until I was blue in the face and got nowhere. It was all about us buying more of his boats. They even encouraged us to reduce profit margins in order to sell more boats.

    I haven’t heard of a single manufacturer that was able to say that a 5 or 6 year warranty boosted sales. I have had an Outboard Engine Rep tell me that they did it because the competition did it and besides “the small Mom and Pops just gives them away anyway.” I’m sorry, but I don’t think the future of our industry lies in their hands. I suggest that you take the money for the warranty and reduce your price with it. Lower prices in this market, even $600 or $1000, will help us to make the sale, which means we will order more boats from you. I’ve said it a million times, warranties do not sell boats, they just reduce the dealers profitability.

    As an industry, we have to police ourselves. Poor quality, both on the retail and manufaturing sides, high prices and bad self-centered attitudes won’t keep us in business. Everyone has to make a reasonable profit. The dealers need product to sell, and the manufacturers need the dealers to sell their product for them. How many customers would buy a boat over the internet or by mail, sight unseen? The sooner that the industry stops it’s in-fighting and realizes we need to team up, the better we will all be.

  10. Steve Miller

    In the past 30 years, extended service products have been a big part of our bottom line. Unlike the auto industry, we don’t have paint, body, tire and rust-proof items to add to our income. With engine manufacturers and boat builders giving the product away we concentrated on accessory component protections plans. That lasted about 3 years and than a well-known bass boat company gave that plan away. In an industry so hungry to become professional and meet all the government’s new compliance laws, you think and hope that manufactures and boat companies would help the dealers’ bottom line.

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