Cars are the second-most expensive purchase consumers make, topped only by the purchase of a home. Consumers want to protect their expensive assets, and they want to make sure they get value for their money. This is where you, as an automotive finance and insurance (F&I) personnel, come in to help with the offer of additional services and products. A vehicle service contract is one example of an add-on that car owners can look into after purchasing their vehicle. These contracts can help customers protect their investment even after the expiration of their car’s warranty.

More consumers than ever are opting to purchase these contracts, and it is only predicted to grow in the coming years. By 2027, the market for service contracts is estimated to reach a value of $169.82 billion, growing at a compound annual growth rate (CAGR) of 7.4% between 2020 to 2027. Vehicle service contracts have specifically dominated the market, with more car owners than ever investing in the services these contracts offer.

What is a Vehicle Service Contract?

A Vehicle service contract helps protect vehicle owners from unexpected and costly repairs by paying for certain repairs as outlined in the contract. This contract usually becomes effective once the warranty expires, which is usually after the vehicle has been driven a certain amount of time or miles.

While these contracts are not included in the price like regular warranties, they are still useful for covering repairs when a vehicle will likely need it most. These contracts are typically flexible, ranging from basic to comprehensive coverage, depending on the needs of the drivers. They cover both new and used cars, as well as the coverage of a variety of services and products.

A vehicle service contract is typically an add-on included at the end of the sale and can help boost revenue at your F&I department.

The Main Two Types of Vehicle Service Contracts

Vehicle service contracts can be separated into two main types: the powertrain warranty and the Exclusionary Coverage warranty. You can find out about each specific warranty, its coverage, and more below.

Powertrain Warranty

The powertrain warranty is a basic service contract that covers the vital components of a car, such as an engine, transmission, driveshaft, axles, differentials, and more, depending on the type of vehicle.

According to KIA, a powertrain can be defined as the assemblage of key components that work together to power your vehicle and push it forward. It plays a key role in smoothly steering, braking, and accelerating your vehicle.

If any component of the powertrain breaks down, a powertrain warranty will cover the repair and its cost. Not every powertrain warranty is the same though, so the details of what it covers differ from contract to contract.

As for what it will not cover? Powertrain warranties will not cover collisions or other accidents, since insurance should cover any damage sustained. The warranty will also not cover any damage that was sustained from reckless driving. For example, if a car owner damages their vehicle through off-roading or street racing then the powertrain warranty will not cover the costs. This warranty will also not cover these components if the vehicle has been modified and it no longer matches factory specifications.

For customers to take advantage of this warranty so it is not deemed void, they must take their vehicle to a dealership and their authorized service providers. As for how long a powertrain warranty lasts, it differs with every manufacturer. For example, car brands such as Genesis, Hyundai, and Kia have warranties that can last 10 years or 100,000 miles, whichever comes first, while brands such as Audi, Fiat, and Mercedes have warranties that last only around half that long at 4 years or 50,000 miles.

Exclusionary Coverage

Exclusionary coverage covers a much more extensive list of parts than the powertrain warranty. As well as covering the powertrain components, an Exclusionary Coverage warranty also covers steering, electrical components, air conditioning, and safety features such as airbags and seat belts.

This service contract is also known as an exclusionary warranty due to the comprehensive list of parts it covers. While other warranties, such as the powertrain warranty, may only cover a few hundred parts, the exclusionary warranty may cover tens of thousands of car components. Except for specifically named parts and components, this warranty covers nearly everything.

Listed below are a few of the specifics it will not cover. This includes:

  • wear-and-tear
  • general maintenance
  • cosmetic repairs
  • repairs needed due to accidents or inclement weather
  • brake pads and rotors
  • wiper blades
  • tires, lightbulbs, and window glass
  • fuel, fluids, and lubricants
  • external nuts, bolts, and fasteners
  • damages caused by misuse, abuse, or negligence

Other Examples of Vehicle Service Contracts Offered

While the powertrain and exclusionary service contracts are the main types of vehicle service contracts offered, other contracts offer additional services. This includes:

  • Roadside assistance: Tire replacement is costly, but it is not typically covered by most contracts, even the most comprehensive ones such as the exclusionary service vehicle contracts. Luckily, this add-on can help to cover the costly expenses of damaged tires. Contracts that offer roadside assistance as a perk will help to repair or replace damaged tires caused by road hazards such as potholes, cracks, breaks, and debris. They may also cover cosmetic damage caused by the curb.
  • Key replacement: Have you ever lost or misplaced your keys? Replacing these keys are expensive, especially for customers with the keyless key fob, which controls access to your car through its smart entry system. This add-on is for those customers who are always losing their keys or are worried about losing them and then paying the expensive cost for a replacement. An auto contract with key replacement will cover the costs of replacing a key that is lost, stolen, or destroyed. This add-on may also include a lockout service, where they assist in locksmith services in the off chance a customer locks their key inside their car by mistake, or 24-hr emergency roadside assistance, which offers mechanical first aid, tire, battery, and delivery services.
  • GAP coverage: Guaranteed asset protection (GAP) coverage is another vehicle service contract that vehicle owners can invest in. GAP insurance can help protect vehicle owners against financial loss if their car is ever damaged beyond repair or stolen without recovery. It ensures that car owners are not paying loans for a car they can no longer drive. GAP is also a great add-on to protect customers against depreciating vehicle value.
  • Auto maintenance programs: Another add-on to a vehicle service contract that is not covered in either of the main types of vehicle service contracts is general maintenance. This includes checking the fluids, oil changes, brake inspections, regular checkups, and more to ensure a vehicle is running smoothly This type of add-on is great for customer retention and is a program that can easily be developed around your dealership’s standards.

Learn More About How Vehicle Service Contracts Can Increase Profits For Your Department

With the market for service contracts growing, and automobiles dominating these contracts, there is no better time than now to offer your customers a vehicle service contract. These contracts are an investment for your customers, helping to safeguard against unexpected repairs and high costs. They are also an opportunity to increase sales and your department’s revenue.

As an automotive consultant enterprise, The Ace Group has the knowledge and expertise to provide you with the F&I training you need to drive profit for your department. We offer vehicle service contracts that are both flexible and expansive, and we can customize them to fit your needs as a dealer. Contact us today to discuss services and F&I solutions.