Tech-only service contracts emerge as one option for naysayers

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Tim Dulaney, right, finance chief at a Chandler Chevrolet in Madison, Ind.

When customers decline a standard service contract, Tim Dulaney, the finance chief at a Chevy store in Indiana, offers them another option: a tech-only service contract.

The idea makes sense to Dulaney, who says persuading service contract naysayers to accept a tech contract has proved smooth in some cases.

Industrywide, new-vehicle buyers skip purchasing a standard service contract more often than not. In 2015, 57 percent of new-car buyers did not purchase a service contract, according to the National Automobile Dealers Association.

But those same car buyers who are willing to bet their vehicles won’t break down might not be willing to take the same risk that their technology won’t malfunction.

So Dulaney, finance director at Chandler Chevrolet in Madison, Ind., offers them a vehicle technology protection product called AutoTech Protect, which covers items such as GPS, touch screens, radios, rear and forward cameras and sensors. Delaney’s store was one of 15 pilot dealerships for AutoTech Protect. During the pilot in March and April, he sold 10 to 15 of the technology plans a month. And he has continued to sell the product beyond the pilot.

Dealers on average make $600 to $700 on the product, which typically costs consumers $1,200 to $1,300 over the course of their finance contract, says Shawn McCool, creator of AutoTech Protect and co-founder of the iTapMenu, an iPad-based menu system for F&I products that enables customers to choose among features and levels of coverage.

In a vehicle, technology claims can be pricey, McCool says. A touch screen replacement could be $2,000. So when customers aren’t interested in bumper-to-bumper coverage but understand the risk of tech failure, the product “kind of sells itself,” he says. And customers can have their technology covered often for half the price of the standard service contract, he says.

Some customers simply have no need for a standard service contract. For example, one Chandler Chevrolet customer refused a standard service contract because he is a mechanic and said he could fix the vehicle himself. Dulaney asked if he would be able to fix tech glitches. The customer said no. In that case, the customer made a smooth transition to accepting the tech-only service contract, Dulaney said.

The mechanic didn’t necessarily have an issue paying for a typical service contract; he just didn’t have a need for it.

“When we agreed to take on the pilot, that’s how I thought it would go. That’s how it should be,” Dulaney said.

And because many manufacturers offer extended powertrain warranties without technology coverage, “it’s the perfect upsell,” he said.

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Tech-only service contracts emerge as one option for naysayers