Do car dealer loyalty plans save cash?
Car dealerships are rolling out more than new vehicles this year. Many are offering customer loyalty programs that promise to save drivers money on items such as oil changes, tire rotations and even new vehicles.
These programs generally operate like hotel or airline affinity programs and offer points or credits each time consumers do repeat business with their local dealership. Accumulating points can help customers reach special “elite” levels for complimentary services.
“People who proactively join programs like these can save money off their auto repair bills,” says Michael Gray, co-author of “Auto Upkeep: Basic Car Care, Maintenance, and Repair.”
Consumers enrolled in loyalty programs get discounts ranging from about 5 percent off for repairs to free oil changes.
In addition, customers may get special coupons on their receipts, such as rebates for future services. The rebate amounts are based on how much money the consumer spends on repair or maintenance.
Along with saving money, loyalty programs may help drivers save time, Gray says. Members often get free loaner cars when their vehicle is serviced, or the dealer may offer pickup and drop-off service to help reduce the inconvenience of having a car repaired.
Other incentives include hundreds of dollars in discounts on new auto purchases.
Dealers benefit because these programs strengthen the bond between a car owner and the dealership’s maintenance department.
“Dealers have found that keeping current customers is less expensive than attracting new ones,” Gray says.
Loyalty programs have their critics. Dealerships often charge a higher price for auto service compared with smaller, independent auto repair shops. As a result, any “savings” obtained through the loyalty program may be just a mirage, critics say.
Customers should ask several key questions before enrolling in a loyalty program.
- Can the benefits and discounts be used for all the cars in the household or just certain vehicles?
- Are there any expiration dates for discounts?
- What happens if the dealership goes out of business?
“If the price of an oil change or tire rotation is twice as expensive as what you’d pay elsewhere, then a 20 percent discount is no savings,” says Joe Ridout, spokesman for Consumer Action, a nationwide consumer advocacy nonprofit group based in San Francisco.
Signing up for loyalty programs is fairly easy. When a customer visits the dealer — whether for a car purchase or repair — he or she may be asked to provide an e-mail address to receive discount notices and special offers. Customers who agree to do so are automatically enrolled in a loyalty program.
Dealer loyalty programs are important because they can help car owners reduce their total cost of ownership, says Stephen Berkov, senior analyst with car Web site Edmunds.com.
Cars are becoming more complex, and repairing them can be difficult, Berkov says. By offering maintenance programs that are covered under warranty at no charge, manufacturers and dealers can help drivers reduce their overall car costs for the time they own the vehicle.
“Many people have a better comfort level by going to their service dealers, and loyalty programs encourage them to continue doing so,” he says.
Some dealerships offer their own in-house loyalty programs. The Fitzgerald Automotive Family dealership group in Bethesda, Md., is one such example.
“We’ve created a loyalty program in-house, and that’s where we put all our resources,” says Rob Smith, a vice president with the group.
Smith says his company offers a combination of discounts and reminders to customers. Qualifying customers can get a few free oil changes per year, percentages off regular maintenance and discounts off new car purchases. Smith also sends regular maintenance notes to customers.
“As a dealer, we have a responsibility to stay in touch with our customers,” he says. “They lead busy lives, so we try to help remind them when their car is due for service.”
In many other cases, dealers don’t manage the program details themselves. Instead, they pass clients’ contact information to a third-party marketing company that oversees the loyalty program.
Gorun agrees that privacy is an important issue. “The database of every one of our clients is stored by us,” he says. “The dealer has access to it, but we maintain all the security and back-end protection.”
“We don’t share security information, and we don’t store license numbers or credit card numbers,” he says.
However, it’s possible that some companies could share personal details with third parties, Ridout says.
“Can you be sure that dealers won’t also be hawking this information to other businesses?” Ridout says. “Consumers who value their privacy should ask whether the information they disclose can be sold or shared to other companies.”
MediaTrac is one of them. Mike Gorun, a managing partner at the San Ramon, Calif.-based company, says consumers benefit from these programs because every penny they spend on repairs counts in some way toward a larger benefit.
“As customers build up points or credits within a dealership, they view the dealer relationship as more valuable,” Gorun says.
Gorun notes that consumers get value from more than just coupons. Some of MediaTrac’s most popular forms of communication are information-based automotive tips that dealers send to customers, he says. They are often sent in the form of an e-mail.
“The letters address topics such as ‘how to get your vehicle ready for a summer trip’ and ‘how to know when you need to replace your battery,'” Gorun says. The information is typically delivered as an informational note, without any heavy-handed sales pitch, he says.
The goal is to give the customer a certain comfort level with the dealer, Gorun says. “Hopefully, consumers would feel that they’re receiving a higher level of service.”
MediaTrac recently reported its loyalty-based savings product, LoyaltyTrac, has more than 5 million consumer members. These members signed up for the rewards program at various dealers nationwide.
Not everybody is convinced that loyalty programs are the best auto repair option for consumers, however.
Ridout says the programs are often simply a way for dealerships to make more money in tough times.
“These loyalty programs are expanding in part because there is a scramble to generate new revenue for dealers who fear for their futures,” he says.
Ridout is wary of the notion that loyalty programs save customers cash, especially because dealerships often charge higher than independent mechanics for the same services. Dealers who charge more contend they are more familiar with the complex makeup of certain car brands and can more accurately diagnose a problem and fix it, he says.
Ridout acknowledges such logic is often justified for more complicated repairs. But for routine jobs, a local auto repair shop may do work that’s just as good for a fraction of the fee, he says. He believes that many of the dealer loyalty discounts carry the highest profit margins for the dealer.
“It’s a dollars and cents issue,” he says. “Because of the high margins, prices on these services can vary widely between dealers and independent shops, so consumers should comparison shop first before getting any auto work done.”
Ridout says there are cases where it makes sense to join a dealer’s loyalty program. “If a car is still under warranty, it could be a good idea to visit your dealer and benefit from whatever loyalty offers are available,” he says. “If the discounted price for a service is competitive, it’s certainly worth considering.
“But once the car is out of warranty and needs simple services like oil changes and tire rotations, it behooves consumers to comparison shop first before getting any work done.”
Gray agrees that consumers should do their homework before deciding to have a dealership perform routine maintenance work.
“I recommend to consumers that when they need service completed on their vehicle, they should get a quote from three sources: the dealer, a major chain and an independent,” Gray says. “The key is to make sure they are comparing apples to apples. For example, make sure the replacement parts are of the same quality at all locations.”