Dodge Durango Forum II

They don't have a lot of costs to cover on a service contract.

He validly pointed out that the only way someone could offer such a deal is if they never have to service vehicles under that contract.

I don't think that is true. My understanding of the DC contracts (and certainly any third party contract) is that the service department gets paid what the job is worth when the service is done, and the profit made on the sale of the contract pays for the salesman's and owner's boats.

Clearly, the dealer should be able to mark up the contract enough to pay for the labor and overhead involved in selling the contract (filling out the forms, mostly). Anything else is fat.

When a vehicle is sold, the dealer has to make enough markup to pay for the showroom, the lot, the carrying costs of inventory, the lights, heat, and phones, salaries of overhead labor, the salary of the sales person, etc; the service contract bears a tiny fraction of that (unless they park their service contracts out on the lot, display them on the carpet in the showroom, and pay for them before they are sold).

Oh, yeah, there is one side effect to service contracts that often does affect the overall dealer's profit: It is much harder to sell the "gravy" service work when the contract won't pay for it. Burying a $70 "cooling system maintenance" or "charging system check" in a $900 bill is a lot easier than burying it beside a deductible.

... tom

Tue Oct 31