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Cover Feature - ‘Lock ins’ which customers seem to love

It may be more of a ripple than a wave but an increasing number of private motorists are following in the footsteps of their business and fleet counterparts and moving from the concept of ‘ownership’ to ‘usage’. Though outright acquisition of vehicles still remains strong and predominant in the retail sector, it’s been eroded over the years by the arrival of financial packages like personal leasing and personal contract plans (PCPs).

These packages play a key part in the vehicle manufacturers’ aim of securing profit-generating customers for the long term. This in turn has meant a shift from supplying merely a piece of hardware (the vehicle) to providing a complete package of personal mobility (vehicle plus trimmings) over an extended period of, say, 20 years.

To further this objective, manufacturers have become more involved in ‘downstream’ activities such as finance, remarketing and, of course, the aftermarket. To compensate for ever-thinner margins on new car sales, franchised networks turned to the more profitable servicing, maintenance and repair sides of the business. But now these are under threat by members of the ‘non-captive’ aftermarket including independent garages and fast-fit operators. This threat has taken on a new virulence following the block exemption changes which allow consumers to have their vehicles serviced by ‘independents’ without invalidating the manufacturer’s warranty. Carmakers are retaliating with a variety of tactics aimed at ensuring that as much servicing work as possible legally remains within franchised networks. At the same time further attempts have been made to recapture the servicing and repair of older vehicles from the independent trade.

One of the most significant moves has been the introduction and development of servicing packages, whereby consumers are covered for future servicing and (sometimes) maintenance requirements over a predetermined period. These packages have a variety of forms. For example, some are given free-of-charge while others are cost options. In the case of the latter, the cost is payable either as an upfront lump sum or by monthly payments. Some manufacturers offer the feature across their entire range, while others apply it selectively and sometimes the offer is subject to a time limit.

An important aspect is that typically these schemes are fully transferable to subsequent owners and therefore provide a prop to residual values. The crucial characteristic, though, is that all require the work to be carried out by a franchised dealer or authorised repairer. 

BMW has been a prime mover of servicing packages. The company first offered the feature as a cost option on the 7 Series, and this was followed by a free-of-charge plan for diesel variants of the 3 Series.

However, since the start of the year BMW’s scheme – known as Service Inclusive – has been available as a cost option, starting at £380, on all models. Customers who opt for Service Inclusive can choose between four levels ranging from three years/36,000 miles to five years/60,000 miles.The service package covers oil changes, replacement of air conditioning and fuel filters, spark plugs and brake fluid, while the service and maintenance deal extends to front and rear brake discs and pads, clutch assembly and wiper blades, but not tyres. 

But the scheme which really caught the headlines – and, it seems, the customers’ imagination – was BMW’s ‘tlc’ (tender loving care) offer on its Mini brand: five-year/50,000 mile cover for just £150. This has been followed by tlc XL (Xtra Large) covering eight years/80,000 miles servicing for £450. It’s perhaps an indication of manufacturer determination to ‘lock in’ customers that Mini tlc XL can be bought as a top-up when the Mini tlc period comes to an end and both are transferable to new owners. Customers certainly find the offer attractive, with Mini reporting a 98% uptake.

Towards the end of 2003, Vauxhall launched Complete Motoring Plan, a fixed cost servicing, repair and maintenance scheme. Owners have the choice of 24, 36 or 48 months’ cover and may opt for interest-free monthly payments from £15 a month. Vehicles up to five years with fewer than 60,000 miles are eligible and all servicing and maintenance bills are covered apart from body damage, exhausts, tyres and windscreens. At the time of launch – and in a dig to the independent sector – Paul Daly, Vauxhall’s aftersales director, noted that the best possible way to ensure long-term reliability and hassle-free motoring was "to rely on the local retailer to provide comprehensive service back-up with Vauxhall-trained technicians using genuine replacement parts".

In similar fashion, Mercedes-Benz offers two types of service contract – Mercedes Service and Mercedes Service Plus – which are available for new and used cars up to a maximum period of six years or 120,000 miles. A variation on the theme occurs where the servicing package is offered on a specific range and for a limited period. At the beginning of the year Volvo announced that customers of the S40 Saloon and V50 Sportswagon during January to June would be offered 3-year/36,000 mile cover for a one-off fee of £100. Clearly this involves a heavy subsidy with Volvo claiming that the package is worth "an average of approximately £800". The company is even more generous to fleet customers who receive a 3-year/60,000 mile package free-of-charge "worth around £1,200 per car".

Apart from the independent aftermarket, servicing packages appear to offer benefits for all concerned. From the consumers’ standpoint, the knowledge that all servicing and, in some cases, maintenance costs are covered provides peace of mind – the more so when a heavy ‘subsidy’ is involved. Moreover, the ability to demonstrate a full service history at the time of trade-in should enhance residual values.

Meanwhile, servicing packages provide vehicle manufacturers with the means to scupper legally what should be one of the independent aftermarket’s strongest weapons in the post-block exemption era. Servicing and repair work is retained within the franchised network along with the likelihood that the majority of parts will still be sourced by the dealers and authorised repairers from vehicle manufacturers’ parts departments. An added bonus is the potential to boost customer loyalty.

On the surface, there would appear to be compelling advantages too for franchised dealers through the opportunity to boost servicing retention. But if the evidence from US dealers involved in these packages is anything to go by, there could be mutterings of discontent. Manufacturers are unlikely to reimburse dealers for parts and labour at the same generous rates extracted from private consumers.

In extreme cases there could be an intensification of the move to separate sales and servicing, with perhaps a larger role for the growing band of independent garages who are gaining authorised repairer status and whose lower overheads can accommodate reduced margins.

For the future it is difficult to anticipate anything other than a proliferation of the type of schemes outlined here, which, surely, represent just the tip of the iceberg. Further important initiatives are expected to be unveiled during the next year and manufacturers who have yet to declare their hand will do so as extended servicing packages evolve to form a bigger part of the ‘competitive advantage’.

It requires little imagination to see how servicing packages have the potential to become powerful ammunition also in the used car market as vehicle manufacturers seek to retain the servicing and repair of older cars within franchised networks.

Moreover, as consumers migrate more and more towards innovative finance plans which include a full maintenance contract, and with operations as diverse as Britannia Building Society’s Freeway Car Buying Plan and Saga Car Direct offering optional aftersales services including fixed cost maintenance packages through franchised dealers, there is a clear danger that the independent trade will be left even more in the cold.