By Nathan Cooper, Product Marketing Manager

“It’s worth remembering that service plans are intended to get you to go back to the dealership you bought your car from. Dealers and manufacturers rarely make money on service plans (they may even sell them at a slight loss), but they’re keen to get customers back on site so they can offer them other products and services.”

–             What Car January 29th 2019

Reading this pre-Covid, many of us would have found this pre-inflation assessment of the value of service plans fascinating. While some OEM plans may have been discounted, it’s essential to appreciate what the OEM stood to gain – from the sale of their parts as well as the car – and that sometimes such offers were also linked to finance. The service plan was part of a holistic lifetime-value model.

Unless we’re talking about other essential maintenance and repair work, I’m not convinced that even when customers came back on-site for their servicing work that there was much in the way of post-point of sale product/service upsell happening. That is, until they were gauged to be back in the market for their next car.

With the benefit of hindsight, the much-promoted inflation-proofing capabilities of servicing plans make them look like an excellent deal now. However, we are over four years on from What Car’s article – and things have moved on significantly.

Inflation, the emergence of low-maintenance EVs and the emerging agency models all spring to mind as factors changing the dynamics of the service plan proposition.

Inflation will be at the top of many dealers’ thinking when considering the role of service plans for their new and used car customers. With inflation currently at 10.4%, the length of a service plan that customers can commit to before it becomes a financial risk to themselves is an important factor to consider.

On a positive note, in their most recent Monetary Paper, the Bank of England noted, “We expect inflation to fall quickly this year.” Their forecast is that CPI inflation is expected to fall to around 4% towards the end of this year.

Looking ahead, I believe service plans can prove to be an essential part of a dealers operating model, especially in the increasingly important used car market:

  • The inflation-proof concept and the monthly affordability of service plans is a compelling customer proposition.
  • They can help franchised dealers make in-roads into older car servicing, which is critical as EV sales pressure aftersales income.
  • They can be crucial in retention, positioning the dealer as the customer’s ‘go-to guy’ for all things motoring.
  • They can help to support the provision of essential red work identified during car ownership.

Looking forward, there may be opportunities to evolve the service plan principle to include tyres, valet services and EV charging. Service plans have always been about providing ease and convenience. Many people point to subscription models as the way ahead, but arguably, the ‘unbundled to the car’ nature of an evolving service plan is ideal for dealers and customers alike.

I welcome your thoughts.