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Financing in the Service Department

In the competitive automotive repair industry, fixed operations directors, service managers, and dealership leaders continually seek innovative ways to boost revenue and customer satisfaction. One such strategy that has gained traction is offering financing options in the service department. Below, TVI MarketPro3’s industry experts share their thoughts on the pros and cons of financing from both the dealership and customer perspectives and when it might not be advisable to encourage financing a repair.

Financing in the Service Department

Pros for the Dealership

  1. Increased Revenue – Offering financing options can significantly increase revenue for the service department. Customers who might have otherwise delayed or skipped necessary repairs due to cost concerns are more likely to proceed when financing is available. Bruce Peters, Fixed Operations Specialist at TVI MarketPro3, highlights that this approach “keeps customers from shopping around.”
  2. Enhanced Customer Loyalty – Financing options can also enhance customer loyalty. When customers know they can rely on your dealership for flexible payment solutions, they are more likely to return for future services. This dependability can improve customer retention rates and foster long-term relationships.
  3. Competitive Advantage – Offering financing can give your dealership a competitive edge in a saturated market. Many customers prefer dealerships that provide financial flexibility, positioning your business as a more attractive option compared to competitors who don’t offer similar services.
  4. Improved Cash Flow – Financing programs can improve dealership cash flow. Instead of waiting for complete customer payments, dealerships can receive immediate payments from finance companies, ensuring a steady cash flow to support operational expenses and investments.
  5. Incremental Business – Robert Morris, Regional Sales Manager at TVI MarketPro3, notes that customers can get preapproved for a dollar amount before visiting the dealership, leading to significant incremental business. For example, a customer who received the financing information via a TVI MarketPro3 mailer got preapproved for $2000. “This is incremental business the service department wouldn’t have had otherwise,” says Morris.

Cons for the Dealership

  1. Administrative Burden—Implementing and managing a financing program can be administratively burdensome. It requires additional paperwork, staff training, and potentially new software systems to efficiently handle financing applications and approvals. However, some companies partner with dealerships for a fee to process applications.
  2. Monthly Fees and Service Charges – A notable drawback is the fee that dealerships must pay to participate in these programs. Some even have fees if no customers use the service that month. Additionally, as Peters mentions, a percentage of the repair cost is charged to the dealer as a fee. These fees can add up and have a decent impact on profit margins.
  3. No Participation in Financing Revenue – The dealership benefits from increased repair sales but does not receive financing revenue. Morris explains that the financing company takes 5% of the RO. However, though the dealer loses this percentage, it gains from larger repair jobs that would otherwise be declined.

Pros for the Customer

  1. Financial Flexibility – For many customers, financing provides much-needed financial flexibility. It allows them to spread out the cost of expensive repairs over time, making it more manageable within their budgets. This financing option can be particularly beneficial for those facing unexpected repair costs. Peters highlights that customers can maintain their budgets while paying for emergency repairs.
  2. Immediate Access to Repairs – Financing enables customers to get immediate repairs without waiting until they can afford the full cost. Their vehicles then remain safe and operational, which is crucial for daily commuting and overall convenience.
  3. Safety-Related Repairs – Nick Shaffer, Vice President of Sales at TVI MarketPro3, emphasizes that financing allows the customer “to say ‘yes’ to safety-related repairs (tires, brakes, battery) that they otherwise would not have been able to afford.” 
  4. Potential for Better Deals – Some financing programs offer promotions such as interest-free periods or low interest rates. In this case, financing is an attractive option for customers. These deals can further reduce the financial burden of repairs.

Cons for the Consumer

  1. Interest and Fees – One of the main drawbacks of financing for customers is the additional cost of interest and fees. Peters points out that these costs can accumulate if the balance is not paid before the introductory short-term rate expires. This will make the total cost of the repair significantly higher than if it were paid in full upfront.
  2. Risk of Overextension – Financing can lead to overextension if customers take on more debt than they can comfortably manage. This can result in financial strain and potential defaults, negatively impacting their credit scores.
  3. Complex Terms – Financing agreements can sometimes be complex and difficult to understand. Customers might not fully grasp the terms and conditions, leading to misunderstandings and dissatisfaction if unexpected costs arise.

When Financing Is Not a Good Idea

While offering financing options has numerous benefits, there are times when it might not be advisable:

  1. High Interest Rates – If interest rates are excessively high, financing a repair might not be in the customer’s best interest. High interest rates can significantly increase the overall cost, leading to a poor customer experience and financial hardship.
  2. Short-Term Financial Instability – Taking on additional debt can be risky for customers already experiencing financial instability. In such cases, discussing alternative solutions that do not involve financing might be more ethical.
  3. Minor Repairs – It may be unnecessary to encourage financing for minor repairs that are low priority when it comes to safety or further damage to the vehicle. Customers may prefer to pay out-of-pocket for smaller expenses over dealing with the complexities of a financing agreement.
  4. Unclear Financial Benefits – If the customer does not clearly understand the financial benefits, it’s better to avoid pushing for financing. Transparency is crucial to maintaining trust and ensuring customers make informed decisions.

Final Thoughts

Financing in the service department offers a range of benefits for both dealerships and customers. These include increased revenue and customer loyalty, financial flexibility, and immediate access to necessary repairs. However, it also presents challenges such as administrative burdens, potential defaults, and additional consumer costs. By carefully considering the pros and cons and assessing individual customer situations, dealerships can strategically implement financing options.

As fixed operations directors, service managers, and dealership leaders, understanding the intricacies of financing can help you make informed decisions to drive success and build lasting customer relationships. On a final note, Tyler Parker, Regional Sales Manager at TVI MarketPro3, states, “The stores I know that use service department financing all love them.”

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