Tied selling strangles us all

I recently spoke with a Southern Ontario service dealer about an issue that has the potential to hurt the service aftermarket across the country. A regular customer of this service dealer had purchased a used car from a local automotive dealer with an extended warranty which locked the owner into service and maintenance at the dealer’s service operation. We’ve been down this road before with dealerships telling new car owners they had to use the dealership’s service to maintain the new vehicle’s warranties. But this is the first time I’d encountered such a thing in the aftermarket. The banking industry once tried this, where financial services like mortgages were “tied” to other banking services like GIC’s or RRSP’s. This coupling of services was stopped by Section 459.1 of the Bank Act.

The use of coercive, tied selling in the aftermarket warranty business, however, may be more damaging to our industry than tied selling was to the banking industry. New car purchases are a natural break-point for many vehicle owners, so it’s not surprising that if an owner switches service brand loyalty, they’re likely to do it when purchasing a new vehicle. Why? Often it has nothing to do with the quality or value of the work provided by many service dealers across the country. It’s just new vehicles need routine maintenance only during the warranty period and that can be performed just about anywhere. The owner of an older vehicle may trust you exclusively with a head gasket job for that car, for example, but new vehicle owners may feel inclined to let the local quick lube or the dealer change the fluids. Manage this situation correctly (maybe with a mailing or e-mail to remind them that you can provide warranty-approved maintenance at a competitive price) and you can win back a lot of this business.

Used car extended warranties are a different matter. Like all used-machine warranties, these programs can hurt the aftermarket in two ways. The first is loss of power train and repair opportunities. It’s the maintenance side that is the biggest loss in this instance since warranty companies adjust the coverage to keep the product profitable. They don’t expect to be replacing a lot of engines or transmissions. But, it’s the second way these programs work that’s the most serious, namely the non-covered services. If the owner is locked into one dealership for power train maintenance, it is not hard to guess who gets the other used-vehicle service items that come up after the brief bumper-to-bumper coverage runs out. The same dealer that sells the warranty gets the maintenance work and the high-value items like ride control, brake, tire, HVAC and other jobs. The dealer gets this work not necessarily because the customer likes or trusts the car dealer more than the local service dealer. Instead, the dealer’s extended warranty program drove him or her there for a regular inspection or for a fluid change. The convenience of one-stop shopping is a lot harder to fight than the trust issue.

So how do we fight back? The first step is to check your customer’s warranty document carefully to make sure it does not exclude your service operation. Reputable warranty programs require specified service intervals and licensed technicians, but not necessarily specify that such work must be done by the dealer selling the warranty. Photocopy the warranty for your files so you can show others. If the warranty locks in the owner of the vehicle to a coercive tied-selling arrangement inform the owner of the vehicle and then call, write, fax or e-mail the provincial MLA responsible for consumer affairs. Remember, this ultimately is a consumer fairness issue, not a Transportation Ministry issue. Many provinces ban this tied-selling scheme outright. If your province does not, the province should. But this situation won’t change unless everyone, vehicle owners and service providers gets on board to make such a change happen for the benefit over everyone.