Driving profits when service contracts fall short

To improve F&I results, dealerships need to address a widening performance gap, according to VP of Ascent Dealer Services,  Paul Brown. On the latest episode of F&I Today, Brown attributes this disparity to lower service contract penetration and missed opportunities with ancillary products. He offers strategies for F&I professionals, detailing how to shift the conversation when a service contract is declined by prioritizing ancillary products, developing stronger sales discussions, and focusing on the customer’s long-term vehicle ownership experience.

While service contracts remain a primary driver of F&I success, Brown notes that when a service contract is sold, additional products are more likely to follow, leading to stronger overall deal performance. However, when a customer declines a service contract, such deals often lead to lower product penetration and reduced profit per vehicle.

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Recent StoneEagle data shows national service contract penetration at approximately 47%, with roughly half of customers leaving the dealership without one. Top-performing dealerships significantly outperform those figures, with the top 5% reaching about 84% penetration and the top 20% achieving roughly 66% to 67%.

Shift to exit strategy 

Brown said a common issue arises when finance managers disengage after a customer declines a service contract, shifting their focus to processing paperwork rather than continuing the product conversation. This approach, he explained, leads to missed opportunities and an increase in zero-product deals.

Instead, Brown encourages finance professionals to transition the conversation toward ancillary products, which he described as more relatable to customers. Products such as tire and wheel protection, dent and ding coverage, key replacement and windshield protection address common ownership issues that most customers have already experienced.

Because many customers have not faced major repair bills, they may struggle to see the value of a service contract. Ancillary products, however, allow F&I managers to connect with customers through real-world scenarios, making the benefits easier to understand.

“About 50% of our customers are going out the door without a service contract. That does not mean that that deal is done.”

A key part of Brown’s strategy is shifting the conversation toward an exit strategy. While most customers focus on entry points such as price, rate, term, and monthly payment, he said finance professionals should also highlight what happens when the customer eventually trades in the vehicle.

Ancillaries boost retention

Trade-in value is largely determined by three factors: mechanical reliability, vehicle condition and available options. Of those, condition plays a critical role. Differences in condition can create value swings of $1,500 to $2,000 between categories, making vehicle preservation a key factor in long-term ownership value.

Brown said ancillary products can help maintain a vehicle’s condition and improve its resale value. For example, unprotected paint may retain about 25% of its gloss after seven years, while protected paint can retain up to 97%, helping vehicles maintain a more desirable appearance at trade-in.

These products also enhance the ownership experience by addressing everyday issues such as pothole damage, chipped windshields and cosmetic wear. By framing ancillaries as solutions to common problems, finance managers can create more effective and engaging conversations with customers.

Brown also highlighted the financial benefits of ancillary products for dealerships. Unlike service contracts and GAP products, which often result in chargebacks unless carried to term, many ancillary products are non-chargebackable, allowing dealers to retain the gross profit generated from the sale.

He also pointed to bundling strategies as a way to increase overall deal value. Even when a customer initially agrees to a single product, that acceptance can create an opportunity to introduce bundled packages that include additional protections.

Improving performance, Brown said, requires reducing zero-product deals and expanding the focus beyond service contracts. By maintaining engagement, leveraging ancillary products and shifting the conversation toward long-term ownership, finance teams can increase profitability and deliver stronger overall results.

Recent StoneEagle data shows national service contract penetration at approximately 47%, with roughly half of customers leaving the dealership without one. Top-performing dealerships significantly outperform those figures, with the top 5% reaching about 84% penetration and the top 20% achieving roughly 66% to 67%.

Shift to exit strategy 

Brown said a common issue arises when finance managers disengage after a customer declines a service contract, shifting their focus to processing paperwork rather than continuing the product conversation. This approach, he explained, leads to missed opportunities and an increase in zero-product deals.

Instead, Brown encourages finance professionals to transition the conversation toward ancillary products, which he described as more relatable to customers. Products such as tire and wheel protection, dent and ding coverage, key replacement and windshield protection address common ownership issues that most customers have already experienced.

Because many customers have not faced major repair bills, they may struggle to see the value of a service contract. Ancillary products, however, allow F&I managers to connect with customers through real-world scenarios, making the benefits easier to understand.

A key part of Brown’s strategy is shifting the conversation toward an exit strategy. While most customers focus on entry points such as price, rate, term, and monthly payment, he said finance professionals should also highlight what happens when the customer eventually trades in the vehicle.

Ancillaries boost retention

Trade-in value is largely determined by three factors: mechanical reliability, vehicle condition and available options. Of those, condition plays a critical role. Differences in condition can create value swings of $1,500 to $2,000 between categories, making vehicle preservation a key factor in long-term ownership value.

Brown said ancillary products can help maintain a vehicle’s condition and improve its resale value. For example, unprotected paint may retain about 25% of its gloss after seven years, while protected paint can retain up to 97%, helping vehicles maintain a more desirable appearance at trade-in.

These products also enhance the ownership experience by addressing everyday issues such as pothole damage, chipped windshields and cosmetic wear. By framing ancillaries as solutions to common problems, finance managers can create more effective and engaging conversations with customers.

Brown also highlighted the financial benefits of ancillary products for dealerships. Unlike service contracts and GAP products, which often result in chargebacks unless carried to term, many ancillary products are non-chargebackable, allowing dealers to retain the gross profit generated from the sale.

He also pointed to bundling strategies as a way to increase overall deal value. Even when a customer initially agrees to a single product, that acceptance can create an opportunity to introduce bundled packages that include additional protections.

Improving performance, Brown said, requires reducing zero-product deals and expanding the focus beyond service contracts. By maintaining engagement, leveraging ancillary products and shifting the conversation toward long-term ownership, finance teams can increase profitability and deliver stronger overall results.