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Business Management

Should Your Powersports Dealership Offer Priority Maintenance Agreements?

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Is in-house priority maintenance profitability worth it, or should it be taken to the outhouse? Yes, the pun is intended. Many dealership owners have taken interest in priority maintenance agreements (PMA) over the past few years.

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From the retail side, I jumped on the PMA train about six years ago. I was attracted to three major components of the program. First, we designed our program as a client retention management (CRM) tool. We wanted our clients to come back for every service so we could capitalize on the add-on sales and maximize our referral and repeat business. The secondary mission was to provide the F&I department with another high yield product. Our third priority was to maximize profitability by recovering any unused redemption by maintaining control of the product. After all, why should we give away our profits to the insurance companies? The good news is that we achieved both objectives. Yep, I said both, not all.

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During an annual audit of our program, we soon learned that success lay in the details. By engineering the program ourselves, we took on all of the liability for this “pre-paid” product. We knew we did not want to overstate our front side income only to neglect our true costs of redemption, but we found ourselves constantly managing the fund. The whole program was based on our own future sales.

The big lesson we learned: Clients will take advantage of any loophole you forgot to plug. We had healthy penetration and retained high reserves, but the redemption dollars were exceeding the account. We found our biggest hole was in the redemption process.

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• Make sure you clearly detail the terms and conditions on the agreement.

• Make sure the staff knows the details of the terms and conditions.

• Make darn sure the staff upholds the details of the terms and conditions.

We found our staff was, unwittingly, allowing the terms to be exceeded. The client basically had a deal for life! The staff also was not clear on the definition of scheduled maintenance items. If you have an in-house program, audit your system for the big three problems listed above. If the detail is missing, you are in the outhouse.

These days, I have the unique perspective of observing a huge cross-section of the powersports, auto, marine and RV industries. I have learned the following requirements exist in all successful PMA programs:

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• You must have at least 25 percent penetration.

• You have to adopt a total dealership culture.

• You need to remove the liability from the dealership.

• The system must be set up to eliminate risk.

Many audits show that dealerships are overexposed to risk. Some of that risk is spending too much of your high caliber brainpower on too small a slice of the business. Never neglect your primary focus: “Sell motorcycles, stuff you put on motorcycles and stuff people who buy motorcycles wear.”

I recommend investigating turnkey PMA solutions to clean up the process. Look for an insured third-party product structured similarly to the extended service contract programs. Modern providers will have a fail-safe system of remittance and claim processing that is managed online. The claims process should be like a digital punch card that pays the service department like a warranty claim. Solutions should base the actuarial integrity on real-time national averages rather than the limitations of your sample repair orders.

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Many of these “turnkey” solutions have the option to enroll in either retro or reinsurance programs. This means you can still earn the underwriting and investment profits on the sale of your PMA sales. Essentially, the company you select should manage your program and money for you.

If you decide to look at taking the liability and risk out of the dealership, look for additional perks like a zero interest program (ZIP). ZIPs provide an additional resource for financing the product outside of traditional lenders. It is no secret that lenders have tightened the belt. ZIPs do not require a credit check and can free up the traditional funds for ancillary products. Our research shows that ZIPs have been utilized to recapture up to 50 percent of PMA sales during the first service.

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In the end, you should audit your program on an annual or semi-annual basis. Take a hard look at the differences between an in-house program and those offered by the F&I industry. When I reached this crossroad, I decided to look at the situation like I looked at OEMs — do I want to build motorcycles and take on that liability, or do I just want to sell them?

With today’s economic climate and faced with the recent scrutiny of local and state governments, I voted to get back to selling and leave “brain surgery” to the “brain surgeons.” Above all, make sure you are both competent and compliant.

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RPMOne is a leading provider of F&I products and dealer development services dedicated to serving the powersports market. Due to its comprehensive experience with dealerships, lenders and insurance companies, RPMOne has created top-tier F&I programs, web-based tools, training programs, and sales and marketing systems to meet the unique demands of the industry. RPMOne’s mission is to increase client profit to its fullest potential. Got questions or comments? mail C.B. Ammons at [email protected].

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