Want Customers for Life? Give Them a Warranty for Life

A listener asks about lifetime warranties 0:00

Steve Shaw: Let's talk about retention. Dave Rogers, what's happening? How are you doing today, sir?

Dave Rogers: Doing great, man. End of the month, you know.

Steve Shaw: End of the month. Get along, little doggies, gotta love it. It's the dog days of summer, that's for sure.

Dave Rogers: Yeah, the dogs seem to be excited. I mentioned end of the month and the dogs are going crazy. Look at that. They're ready to fly.

Steve Shaw: My dogs used to bark during my training, and one of the guys would go, "Your training's gone to the dogs, Steve."

Dave Rogers: There you go. Of course, the minute we start recording, that's when they act up. So typical.

Steve Shaw: Exactly. Well, we've got a lot of stuff happening, Dave. We're getting some comments on Spotify, our Facebook and so on, so I encourage everybody to keep making comments, because this one came from a listener. His name is Chris. And Chris says, "What do you guys think about retention? What do you think about the lifetime warranty?" That seems to be the buzz right now. I know you and I were talking about extended contracts and so on, but there's a lot of talk right now about lifetime service warranties, lifetime repairs. What do you think about that?

Better parts warranties than the factory 1:10

Dave Rogers: I'm intrigued. I heard about it probably ten years ago and sat through a bunch of presentations, and at the time I was with the public company, and they didn't want any part of that. Too much liability, too many tentacles involved in doing things like that with lifetime anything. Then recently I've heard about it a couple more times. A couple of companies put together presentations for me.

I think it's something worth exploring. We're doing more and more repairs right now, and the mileage on the cars is creeping up. You can go to the aftermarket, NAPA and different places, and get a lifetime warranty on parts. You get three years on electronics. They have much better warranties than our stupid twelve-month, twelve-thousand-mile or two-year, twenty-four-thousand-mile warranties that come from the factory. It amazes me how lame the parts warranties actually are.

There's a little bit to work out there. But if you embrace it and use it as a selling tool, or it just becomes the way you do business, why wouldn't it be a retention tool? People bring the cars back. As long as there aren't a lot of strings attached.

No strings attached 2:21

Steve Shaw: Yeah, there's the key right there: strings. So much in the past was about strings attached. Even the manufacturer's warranty is one year, twelve thousand miles. But if you replace a part at, what, eleven months and eleven thousand miles, you only have this much left. You don't get another twelve months. There's a string attached to it. It's like, "Ha ha ha, we tricked you." So why'd you do it in the first place?

And I think that's the caveat. If it's going to be lifetime, it's got to be lifetime, and it's got to be easy. One of my partners had some trouble with the protection plan on the fluids, and it came up in a discussion I was having with them. I said, "Look, if you offer the protection plan, a claim may or may not be within the exact boundaries. I get insurance, I get the policies, and you can't really go outside them. But if a client has a problem, you've got to figure out a way to take care of them." I think that's the message. If you're going to retain somebody and you've got all these caveats and all these strings, then don't bother. You're ultimately going to piss somebody off instead of retaining them.

When employees kill a lifetime oil change program 3:36

Dave Rogers: Well, that's the thing. Years ago I worked at a store that had lifetime oil changes. There weren't really strings on the program. It was really designed to bring your car in three times a year to get the oil changed, for as long as you owned the car. But the advisors and the manager in the back decided it was cumbersome, and they put all kinds of rules in place.

I lived in the same town, and when people heard I was working there, I got a lot of feedback: "You can't just bring the car in for an oil change. You've got to bring it in between ten and two, and you've got to do this and you've got to do that." That wasn't the way the plan was designed. It was just the way the employees interpreted it, because they didn't want those "moochers" coming in for the free oil change, as they perceived it. So it had a negative effect. People didn't go back to the dealership, because it wasn't being administered right.

One of my missions in going there was to evaluate it, because the expense was creeping up. They had closed down the Mitsubishi store next door, and they actually had to fund those buyers' free oil changes. I'm like, "Well, why did you do that?" And it was just to make the store go away. They didn't want the Mitsubishi store anymore. That's really what happened.

So what did we do? We wrote up a rule book. We said, listen, this is what we do: you get three a year for as long as you own the car. All kinds of little things like that, but nothing crazy. We put rules in there that if the dealership sold or went out of business, the program ended.

Even with this repair-for-life thing now, they actually reserve money for five or seven years, depending on the program, whichever way you want to do it. So it's a real program. It's not like you're just funding it as you go along. It's not Mickey Mouse. But some people look into that and don't like that five-to-seven-year payout either, so you've got to think about these things. I knew places that did free tire rotations for life. I don't know if that works, but I've got to believe repairing the vehicle for life would work pretty well. People would want to come back anyway. And you can do brakes and batteries too. That was the other thing I was trying to think of.

Pricing a repair-for-life plan 5:51

Steve Shaw: I've looked at a couple of programs this year. I looked at the Zurich program and some other programs, and what I've seen is that people are basically adding a percentage to the repair, ten percent, fifteen percent, whatever the number is, to the total cost, which I guess in this day and age you can get away with. I can see how you can build the value: your parts and labor went up ten or fifteen percent, but you're covered for the lifetime of the vehicle. You can build a case for that.

And I can also say that no one really cares about that ten to fifteen percent. I wouldn't really worry about the additional cost to the consumer, because you can look at it from the value proposition. I think the consumer would gladly pay the ten percent.

Coupons with no expiration date 6:35

Steve Shaw: But you made me laugh. So many things went through my head. I was always talking about coupons. We send out all these coupons, and I'm the coupon king, man. I'll send out a coupon that says, let's say, a $2.50 oil change. I don't give a shit. There's no expiration date. If you get this coupon ten years from now and show up with a $2.50 coupon, I personally will honor it. I will not argue with you. I'll be like, "Cool, man, I've got a new customer."

But there will be an advisor, or a manager, or somebody who walks out there like a forensic scientist going, "Wait a minute, we've got to figure out a way not to honor this coupon. You have blonde hair, and this was only supposed to go to Brunei." They will figure out a way not to honor it, instead of saying, "Cool, I've got a new customer who was never going to show up at my store. Let me show you how great we are."

That's the message, I think: if you're going to send something out there, make it easy. Say yes, and right now. Of course there are program rules, but we can't just be looking for ways to get out of paying for a service.

Dave Rogers: No, I just think you have to make it simple. Listen, you might have to put some rules in place for future liability, in case the dealership sells or whatever the case may be. You don't need a deal getting hung up on that. But for the most part, you're right. I was mailing out these gift cards, and I kept telling the guys, "There's no expiration date." "What do you mean?" It looked like a credit card, hard plastic, and it was fifty dollars off. I said, "Let the customer bring it every time." "Oh my God, they can use it over and over again?" I said, "Yeah, for as long as they want."

And they're like, "You have to have an expiration date." Why do you have to have an expiration date? Every time he comes in, he gets fifty dollars off. Okay, he's coming in. Isn't that what you want? When you talk about retention tools, we do the stupidest shit from day one, from not setting the first appointment on. We do all these little things incorrectly, and then we want to nickel-and-dime.

Honda had the service pass, two years of free maintenance on a car. It wasn't intelligent. It wasn't linked up with telematics, so it didn't know you had fifteen percent left on your maintenance or anything. Customers want to come in, and your advisor's like, "No, no, no, that light has to be on at seventy-five percent." It's all these little stupid things we do. I don't understand it. We talk about it all the time, but you've got companies paying a lot of money to advertise, to bring people in the doors and try to retain them, and then your frontline employees are doing everything they can to chase them away.

Let me talk about coupons for a second, because I was thinking about it when you said it. Years ago, in my previous life when I was married, my ex-wife was a stay-at-home mom for a long time, actually forever, because she just refused to work. She sends me to the supermarket one time and hands me an envelope full of coupons. I don't know if she was pregnant at the time or sick, whatever it was. She couldn't go. So I go to the supermarket with this envelope of coupons and get everything on our list. I was very visual. You had to send me pictures. I had to know what everything looked like.

So I buy everything on the list, and I don't even open the envelope full of coupons. I go to a line, and I look for the homeliest cashier I can find. I go to her and say, "Hi, how you doing today?" I'm all sweet-talking. I put my groceries up there and hand her the envelope of coupons. And this woman swipes every single coupon in the envelope. Now, I didn't know this, but there were two or three coupons for similar products. She had loaded me up with all these different ones, so depending on which one I found, I could use the coupon.

I come home, and she goes, "Where are the rest of the coupons?" "They took them all." "What do you mean they took them all?" I said, "They just swiped them all." She goes, "Are you kidding me? I had three different spaghetti sauce coupons in there, and you only bought the one. You don't know how to shop." I said, "Obviously I know how to shop." So I became the designated food shopper, because they just kept taking all the coupons for us. She didn't question one thing. It would beep, and she'd override it, every single one, because I was nice to her.

The Don Kott Bucks revolt 11:00

Steve Shaw: That's awesome. I worked for a store in LA called the Don Kott Auto Center, and they had Don Kott Bucks. Don Kott is long gone. He passed away, and they sold the store a long time ago. But Mr. Kott was an awesome dude. It was a small store in Carson, California, and he had been there forever. When you paid for your service, you would get Don Kott Bucks back, a percentage, one or two percent, and you could use them. They were good forever.

People hoarded these dollars like they were real dollars. Then a big company bought out Don Kott. That's when I took over. And people were coming out of the woodwork to cash in their bucks. Hundreds and hundreds. You'd come in for an oil change, pull out a wad and pay for your whole service with your bucks. So the new company, which will remain nameless, but I don't like them, said, "No way, we've got to stop this." It was a publicly held company. "We can't have these bucks out there."

So finally we had to put a sign up: "No more Don Kott Bucks accepted." And the community revolted. They were so mad. Eventually, after about ninety days of getting our butts handed to us, they started issuing new Don Kott Bucks, and you could exchange your old ones up to a limit. It was like the government, man: "We're going to end this program." But it blew up in their face. It was so bad. I look back on it and laugh. Mr. Kott was so smart, and people loved him. That was retention, man. They were coming back in, and they were spending money in the store.

Dave Rogers: Of course they would. You have to be smart about these things. We bought a dealership that had some brass-ring oil program. It was a very poorly run dealership: dirty, not kept clean. The old owner just didn't give a crap. And the only customers who came in were definitely not the customers you wanted servicing their cars. They were just there for the free oil change, and there weren't that many of them. We accepted them in the beginning, and then eventually we weeded it out. We adopted our program of a free lifetime inspection, got rid of the free oil changes and tried to accommodate people. If they took it, they took it and they stayed. If they didn't, they left.

I did something like that years ago when I was working up in Jersey City. I called them DeFeo Bucks. I made a PO book that was three copies deep, a regular PO, and you'd write it out, and it looked like a check. I'd hand it to you, and you could use it any time you wanted, not to exceed the value of two hundred fifty dollars or whatever the case may be.

But to go back to the point, a public company won't look at these repair-for-life plans because they don't deal with any of the reinsurance plans. They always have a hard time swallowing it. But to go back to the listener's question, I think if you do it, and you do it right, there are no strings attached. One of the rules is that the customer has to bring the car back to you. You have to be able to do the work. It's not transferable; it can't go to the new owner, because that's the way most plans are. And you can't get your car fixed somewhere else and bring me back a receipt. I'm not reimbursing you. No shady shit. You just can't have shady shit.

I was talking to somebody about it one time, and I said, "Couldn't you just do it? Do you have to reserve? Do you have to set up money? Do you have to pack the labor?" The worst-case scenario would be having a bunch of engines go bad. I don't know if you want to take that chance, for liability reasons. And again, if you had a slush fund, you could sell it with the dealership and say, "Here, we funded your little warranty company, your free warranty." So I don't know. I think it's a good plan.

Paying for it: price, slush funds and commissions 15:12

Steve Shaw: I knew a store in the past, a Honda store, that instead of jacking up the price would take ten percent of the gross at the end of the month and put it into their fund. I think that was a nuisance for the employees, because they lost out on that gross profit. The company just said, "No, ten percent goes to the slush fund," or the reinsurance, or wherever it went. The employees were very much against it, because it affected their pay plans. So you'd have to look at that as well: I'm not going to pay somebody commission on that top ten percent, or the additional fifteen percent I raised it, or whatever. That would have to be taken into consideration.

But I'm always about: what is it that's going to drive a customer to come back to our store? Like we were kidding about, there are service advisors or managers who look for a way out. It happens. You've called them the Karens before, because they get a little bit of power and they're looking for a way to say no.

I just think it has to be a way to say yes. If we can use that repair for life to get a customer to come back, we can say yes to them. I know there's a program called Engines for Life. In fact, that came with my new truck. I've got Engines for Life on my new Wagoneer. But I know there are caveats. If you don't replace the engine oil, if you don't do the transmission fluid, that particular warranty doesn't cover it. If you don't do the cabin filter and air filter, it's void. You have to follow it meticulously, to the letter of the law.

I agree with that from one standpoint, but I also look at it like: if I don't rotate my tires, you're telling me my engine warranty is void? And pretty much that's the standard. I think that's a little bit too much of a catch. But I'm totally in favor of the idea. And I would also say it has to be done here at our dealership. That's the retention piece. I would want it done at our store, not somewhere else. All repairs have to be done here, and I don't see anything wrong with that.

Dave Rogers: Yeah, with the plans I've looked at, it goes back and forth on packing the labor. The guy giving the presentation is always very flippant: "You can raise your labor prices ten or fifteen percent, and just so you know, that'll qualify you for a higher warranty reimbursement rate," like the factory pays you like a drunken sailor, "and customers are okay with that."

The other option they kicked around: at the end of the month, they'll tell you how many of the repairs in the store qualified. Let's say it's ten percent. You take that number, you cost it out, you charge it back against customer-pay gross profit or cost of sale, and then obviously you adjust commissions. I said, "Yeah, that'll go over well." So you have to figure out a way to do it.

And I was thinking: it's not every job in the shop. You have maintenance, light maintenance. I wanted to include batteries and brakes. When you look at it, if you did the math, maybe you could just pack the labor five percent, four percent, half of it. It depends on your labor mix between maintenance and repairs. Maybe you wouldn't have to raise the prices much at all.

The more I look into it, the more I think it's definitely worth exploring, and I do think it's a tool for retention. I think the number one tool we miss out on is that we're not convenient. We're not saying yes, right now, and we're not doing stuff to get customers to come back to us for competitive maintenance. But if you're going to do repairs, you might as well have repair for life, or at least extend the repair coverage.

The last piece of that is: if I put a new part on a car and that part fails, chances are it's going to fail rather quickly, and I'm going to get the factory to pay for it on the parts warranty. So what's your real exposure? Last I heard, the loss ratios were two, two and a half percent. Even after the factory stuff, maybe it's one and a half percent. And even if it's two and a half percent, it's not that much if you think about it.

Nobody knows about the protection plan 19:41

Steve Shaw: Right, I get it. I think it's a great tool. And look at the fluid maintenance companies and their protection plans. Listen, I know the claim percentage is less than one percent. Part of the reason for that, and I would bet this would happen with lifetime repairs too, is that nobody knows about the protection plan. It's the biggest secret on the planet.

My buddy was one of the best at selling the lifetime protection plan, and I know all about it. I talk about it in our classes quite a bit: why would you do fluids at different times? And a lot of times people look at me like, "What do you mean, protection plan?" They don't even know it's on there. Even the advisors don't know. So obviously they're not using it as a sales tool, and they're not sharing it with their customers.

And I would have to think that over time our advisors would become immune to it, it would stop being a selling point and the price would just be the price. If the customer isn't aware of it, then the whole reason for doing it, which is retaining your customer, goes out the window. So I would make sure there was a ton of signage and that I was getting the value for that ten percent I was charging the customer extra.

Dave Rogers: Yeah, I think that's one of the biggest flaws we have in this business. We don't explain things. We don't market. We don't merchandise. We don't put any point-of-sale material out there. A lot of us are just really terrible at that. All these fluid companies have some kind of protection plan in place, and for the customer not to know about it defeats the purpose. It really does.

Steve Shaw: Anyway, you'd better give us a GM tip of the day.

Dave Rogers: GM tip of the day: I would look at any program that's going to give you some retention. I was talking to somebody recently, and that's the new buzzword: retention, absorption, because we're not making any money in the front end of the business. I make the joke that you hear about this every time there's a downturn, every time you can't make money in sales. Everyone starts paying attention to service and parts.

What if the economy doesn't get better for five years? We know it's eventually going to get better, but what are you going to do in the next five years if you don't have some way to keep customers coming back to your store? Because what we're doing right now isn't working, as a general rule. And I don't want to hear that if the customer comes back once a year, you retained them. That's not retention. That's forcing the guy to come in once a year to get the oil change on his BMW. That's not retention. It really isn't.

You've got to have people who want to come back to you to get their oil changed twice a year, get their alignments, get their state inspection. You've got to start looking at this stuff, because if things don't get better in the next five years, you're not going to be selling a lot of cars and you're not going to be making any money. So that's my tip of the day. Get on it, man. Retention's the key word.

Steve Shaw: I love it. All right, I'll catch up with you next week. Later.

Dave Rogers: Yes, sir. I'll talk to you soon.