A Harvard Business Review article from March 23, 2012, is again making the rounds on the Ethical F&I Managers Facebook page. The title explains its popularity: “Consumer Reports is Wrong about Extended Warranties.”
F&I managers get incensed when consumer advocates bad-mouth service contracts. And to a certain extent, their anger is justified. A service contract, after all, is just a form of insurance, and when was the last time consumer advocates argued that renter’s or home-owner’s insurance was a bad deal because you might never use it?
In the Harvard Business Review article, author Rafi Mohammed argues that for some customers, the value of a service contract isn’t in the actuarial likelihood that over the long haul they’ll be out of wallet less if they buy it. The value is in the peace of mind that allows them to sleep well at night.
You want to try to put a price on that?
I’m reminded of the joke about life insurance: You’re betting you’ll die, they’re betting you’ll live, and you really hope the other side wins. Sometimes the emotional reasons are more important than the rational ones -- and equally valid.
It all depends on what matters to the individual customer. Which is why I question the trainers who argue that every product should be pitched to every customer. No, pitch the products that are going to matter to that customer. That’s why F&I managers need to get to know the customer.
In my case, I lose keys. Would I buy key insurance? Absolutely.
I have no problem, therefore, defending F&I products when I talk to folks outside of the industry. But note that I’m defending the product, not the price. To continue the insurance analogy, consumers often switch car insurers every few years to save money. I think F&I managers need to think seriously about whether the products they sell are priced competitively. But that’s another discussion.
