Is a service contract worth it

Gone are the days when the buyer ran after the seller. Now the seller is hovering around the buyer, Procurement Company offering a package of tempting solutions along with the equipment on the road.

Moscow went even further, becoming Russia’s ancestor of a new life cycle contract (LCC). It is the same service contract, only in an extended list of services and an increased calendar action. The leading carrier of the capital, Mosgortrans, now purchases buses from the Likinsky and Neftekamsk plants only on long-term maintenance and repair of equipment for a 15-year life cycle.

In short-term service contracts, most companies provide a minimum 12-month service period, but some start with a two-year SC. For example, DAF Trucks Rus LLC in our market started offering the MultiSupport service at the beginning of 2020 with a minimum period of two years. Three types of packages are offered (Care+, Xtra Care, and FlexCare), but the most popular (more than 80% of all transactions) is the standard Care+ Contract, which includes essential maintenance work.

The service increase to the purchased car was worthwhile: more than 40% of the bestseller DAF XF is sold on the Russian market with the service support specified above. At the same time, the terms of transactions are different. If the most popular Care+ package is for 2 years, Xtra Care for 5 years, then Flex Care has a time lag of 3 to 5 years.

There is no need to speak about the client’s extension of the service contract for a new period since we have a new DAF service. But the practice accumulated by the plant dealers in the EU countries shows that up to 40% of the insurance contracts are extended for another term. If only 10% of buyers were interested in such transactions five years ago, now this figure is about 50%. Only new vehicles fall under the current offer, but in 2021, DAF trucks with mileage will be allowed into the program.

Service contracts:

Who offers them and why is it profitable?

Iveco does not take cars for a service contract from the secondary market. The deal is only for new vehicles. It is due to the minimization of risks since the company assumes all the costs of repair and maintenance of the car. The decision is reasoned: if the car is with mileage, then you are unlikely to find out what problems the owner had with it earlier and what investments will be required to maintain it later.

Iveco has stringent rules on other terms of the service deal. To the question of Avtopark about whether the client can switch to another service contract during the validity period of the declared service package, they answered: “No, this is not practiced. The Contract is for a new car, and the estimated cost includes adjustments for operating features and total mileage.”

This season, KAMAZ PJSC gave a good informational occasion on the topic of service contracts. On the threshold of summer, the Russian auto giant began selling the flagship KAMAZ-54901, the latest line of K5 vehicles. In the price tag for this car, the manufacturer immediately invested the cost of a service contract, which became an integral part of the sale transaction. The decision was justified since the consumer and the main tractor received full-service support for the equipment.

The list of positions for the service turned out to be impressive. First, the service includes all maintenance plus materials. Secondly, the term – all repairs will be carried out under an extended warranty for three years or an actual mileage of up to 540 thousand km. One battery replacement is provided, and, if necessary, the evacuation of a faulty vehicle to the nearest KAMAZ service center.

In addition, the owner of the purchased vehicle receives the ITIS-KAMAZ monitoring system free of charge. This hardware and software complex is valuable because it allows you to detect fuel drains and track unaccounted flights. The ability of an onboard intelligent transport information system to improve the economic and operational efficiency of the transport business is evident. The results show that the carrier can reduce the cost of fuel and lubricants by up to 30% and reduce the wear of parts and assemblies by up to 14%. Demand for such a car went up almost immediately. In September alone, a batch of ten KAMAZ-54901 vehicles replenished the fleets of Moscow and the Nizhny Novgorod Region. The equipment went to consumers under a leasing scheme through KAMAZ-Leasing. If the carrier bought a 4-year-old car and extended the Optima 2.0, he immediately receives a 25% discount on maintenance and related repairs, and in a year, it will reach 30%. At the same time, the client uses the power line protection service until the car reaches the age of 6 years or the mileage of 800 thousand km.

In 2020, Scania-Rus focused on developing various SCs for owners of Scania vehicles with mileage and, it seems, made the right decision. Such clients received several insurance contracts, including the Business 2.0 package for a car of any age with a contract period of 2 to 10 years without mileage restrictions. As part of the service contract, maintenance is carried out following a flexible maintenance plan. The car owner enjoys a progressive discount for maintenance, which reaches 25% and also gets the opportunity to carry out related repairs with a discount of up to 30% under the Contract + program.

As part of the after-sales service program, the Fuso brand has offered service contracts for consumers of its equipment. The new service is a kind of carte blanche for the truck owner. The offer, among other things, includes discounts on spare parts and consumables, which reduces operating costs. For example, a set of spare parts and materials for a specific type of maintenance will cost 25% less than if you buy consumables yourself.

Spare parts and lubricants are only in the original version, which eliminates premature wear and even failure of the aggregate base and power line. Add to this the high-quality standards of the work performed by qualified employees of Fuso service centers in Russia.

There is no fixed cost of the service contract, but a flexible approach is provided with various coverage options, considering the annual mileage and validity period. The equipment owner can choose either scheduled maintenance or technical inspection and repair. IC can be concluded for up to five years.

WITHOUT CONSIDERATION OF AGE

The company “Scania-Rus” in selling service contracts in the primary and secondary markets went its way. Due to the coronavirus, financial and service instruments have been adapted to economic difficulties. In September, updated service contracts “Optima 2.0” for buyers of new cars and “Business 2.0”, designed for used vehicles, appeared. IC Optima was purchased separately and as part of Scania’s comprehensive offer, including leasing financing, insurance, FMS fleet monitoring system, and training. In addition to discounts, this package provides the owner of Scania equipment with free power line protection for up to six years or a mileage of 800,000 km.

On average, Automotive Quality Engineering transport companies enter into a service contract for three to four years, which is how long the car is with the first owner. That is why the Optima 2.0 option appeared, in which service becomes more profitable over time: every following year, the discount on maintenance and related repairs increases. It is essential here that the discount is tied to the chassis number. If the next owner, when buying a car, renews the existing Contract, he receives a service discount in proportion to the car’s age, plus several other benefits.