Sales by car manufacturers and dealers of additional services to car buyers may mean the difference between profit and loss. A new study from the financial market research group Finaccord concluded that sales of “motor [auto] insurance, extended warranties, pre-paid service contracts, creditor insurance, GAP (guaranteed asset protection) insurance and road assistance services” can mean making “a profit in a highly competitive industry.”
Finaccord said the study was the first to be published with “estimates that show just how important they are to the automotive trade in Europe.
“Across 26 countries, dealers sold policies to consumers worth an estimated at €16.8 billion [$22.8 billion] in revenue in 2010, which is the equivalent of 4.6 percent of the underlying value of the new and used cars that they sold to retail customers, across six financial services.” The value of these products is measured in terms of gross premiums written and other revenues.
Finaccord consultant David Parry commented: “Insurance, warranty and assistance services are especially valuable to the automotive trade because policies last for more than one year, and in the case of motor insurance can be renewed as long as the customer owns the car; this helps to smooth out the peaks and troughs in car sales themselves. Because most policies are multi-year or get renewed, 70 percent of this revenue came from policies in force at the start of 2010, while the remaining 30 percent came from policies sold in 2010 itself.”
In some countries, revenue from the sale of these financial services is twice that of the European average. They include the following countries:
• for Russia and Slovenia, revenues from these products amount to 8.5 percent and 9.8 percent of the value of cars sold to consumers respectively;
• it exceeds 6 percent in six other countries in this study, which are as diverse as Croatia, the Czech Republic, Portugal, Romania, Sweden and Turkey;
• in contrast, dealers in Finland and Ireland are weak at selling automotive financial services, and generate less than 1 percent of the value of car sales through these products.
Of all of the various services offered by car manufacturers and dealers, “motor insurance is unsurprisingly the most important,” said Finaccord; It amounts to “53 percent of the revenues coming from the automotive trade, reaching 98 percent in Russia:”
Finaccord estimated that motor insurance sold through the automotive channel in Russia was worth €2.031 billion [$2.758 billion] in gross premiums written in 2010. “However, this means that across Europe as a whole, almost half this market is made up from other products, and in France and the UK, where other automotive financial services are well developed, motor insurance accounts for less than 30 percent of these revenues.
“In these two countries, extended warranties and pre-paid service contracts also generate substantial income for dealers, and are worth €960 million [$1.304 billion] and €1.092 billion [$1.483 billion] in gross premiums written and other revenues a year, respectively.”
In Germany the figures are even higher, as the market is substantially larger. Finaccord calculated that €1.232 billion [$1.673 billion] of gross premiums written and other revenues were paid in Germany in 2010 for extended warranties and pre-paid service contracts, out of a total of €3.314 billion [$4.5 billion] of turnover from these additional financial services.”
Parry added: “Insurance, assistance and warranty products are very important to manufacturers and importers as well as car dealers. Dealers often use the official partner of their manufacturer brands only for these financial services, whereas they may have one or two independent providers for finance and leasing contracts as well. Because there is less competition through this channel, dealers, manufacturers and importers can benefit from higher margins, which can be essential when the car market itself is so highly competitive.”