Resource Center14F&I Operations

Dealer-Owned Prepaid Maintenance and Reinsurance

Dealer-owned prepaid maintenance can create both an economic opportunity and a reason for the customer to return to the dealership.

By Max Zanan4 min readDealer Reinsurance Resource Center

Dealer-owned prepaid maintenance can accomplish something traditional F&I products do not always accomplish:

It can create both an economic opportunity and a reason for the customer to return to the dealership.

The Basic Strategy

The dealer designs a prepaid maintenance program appropriate for the dealership and establishes the reimbursement economics.

Unlike many OEM prepaid maintenance plans that may be usable across a broad national dealer network, a properly designed dealer-owned program can be structured around service at the selling dealership or participating dealer group, subject to the program terms and applicable requirements.

That creates a powerful retention tool.

Use It as a Why Buy From Us

One strategy is to include:

One year of dealer-owned prepaid maintenance at $0 additional cost to the customer with the purchase or lease of an eligible vehicle.

Now the dealership has a tangible Why Buy From Us benefit. The customer has a reason to return to the service department. The dealership gets another opportunity to build the relationship.

Then Offer the Upgrade

During the F&I presentation, the customer can be transparently offered the opportunity to upgrade from the complimentary one-year term to:

Three years.
Five years.
Or another available term.

The customer understands what is complimentary, what is optional, and what the longer-term program costs.

That creates a clean, transparent sales process.

The Retention Economics

If approximately 75% of customers return under the program, that creates substantial service-retention opportunities. The dealer may benefit from:

Maintenance visits.

Additional legitimate repair work.

Tires.

Alignments.

Accessories.

Future vehicle sales.

Trade-ins.

Customer retention.

And higher customer lifetime value.

What About Unused Benefits?

Depending on the program structure and contractual terms, favorable economics associated with unused benefits or forfeiture—often referred to as breakage—may potentially remain within the dealer's program economics rather than being surrendered to an OEM program.

That needs to be properly structured and accounted for.

Where Reinsurance Fits

Depending on the design, dealer-owned prepaid maintenance and related eligible risks may be incorporated into a broader participation or reinsurance strategy. The dealer should understand:

Premium or program funding.
Expected utilization.
Reimbursement rates.
Administrative fees.
Cancellation behavior.
Breakage.
Reserve requirements.
Claims/utilization experience.
And the ultimate economics.

The Bottom Line

Dealer-owned prepaid maintenance should not be viewed only as another F&I product.

Properly designed, it can become a customer-retention strategy, service-lane strategy, F&I opportunity and long-term economic asset.

The objective is simple:

The bottom lineSell the vehicle—and give the customer a reason to keep coming back.

When was the last time someone independently reviewed your reinsurance program?

Confidential. No obligation. There is no charge for the initial assessment. You may discover an opportunity, a problem, or that your program is exactly where it should be. But you’ll know.

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