Extended warranty heats up auto sales

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A swelling number of automakers are following a marketing formula that helped propel sales for Hyundai Motor America: beefed-up warranties.

General Motors Corp.'s Chevrolet became the latest last week, when it announced its upcoming Cobalt entry-level small car will be backed by a five-year/60,000-mile "Powertrain Promise" warranty. Most GM vehicles carry the industry's traditional three-year or 36,000-mile powertrain warranty, which covers the engine and transmission. All GM's Cadillac models, like most luxury competitors, offer a higher provision of four years or 50,000-mile coverage.

"The warranty seals the deal," said Dan Gorrell, VP of Strategic Vision. His firm's survey of 75,000-plus new-vehicle buyers earlier this year showed 80% of those who bought a Hyundai said warranty coverage was the most important reason; Kia was second at 73%, Suzuki next with 54% and Mitsubishi fourth with 53%.

Chevrolet's Jim Campbell, director-car marketing and retail integration, said the warranty has become more important in buyers' purchasing process in recent years. He said the South Korean carmakers "helped fuel interest in warranties" at the entry end of the market. The extended warranty on the Chevrolet Cobalt will offer "assurances of quality for our customers," he said.

GM has struggled to change consumer perceptions of its vehicle quality in recent years. The auto giant touted its quality improvements in the summer of 2003 in a short-lived mea culpa corporate print effort themed the "Road to Redemption" that was targeted at some 40% of buyers who weren't putting GM on their shopping lists.

perception gap

"GM has had better quality than perception out there for a while," said Scot Eisenfelder, senior VP at auto consultancy J.D. Power & Associates. Power's survey of all new-vehicle buyers about a month ago revealed GM is closing the perception gap since the percentage of consumers rejecting the marketer's vehicles on quality declined to single digits.

Hyundai threw down the gauntlet in fall 1998 when it started a 10-year, 100,000-mile powertrain warranty. The move helped then-struggling Hyundai enjoy dramatic vehicle sales increases. Kia Motors America, Hyundai's affiliate since the end of 1998, started its matching "Long Haul Warranty" in summer 2000.

American Suzuki Motor Corp. kicked off its seven-year/100,000-mile warranty in July 2002. Tom Carney, marketing director, cited "competitive pressures" as the reason. The marketer's dealer advisory board convinced Suzuki to offer "America's No. 1 Warranty" despite an internal debate over whether the automaker needed it, because "our cars don't break," said Mr. Carney.

Suzuki's warranty gets a bigger play in 2005-model-year ads, which broke a few weeks ago vs. only a smaller mention for the prior model year. Dentsu's Colby & Partners, Santa Monica, handles. Citing data from consultancy Strategic Vision, Mr. Carney said 54% of all Suzuki buyers named the warranty as their top reason for buying; 51% said price and 49% said reliability.

Struggling Mitsubishi Motors North America instituted its 10-year/100,000-mile powertrain warranty early this year, but has since added other pieces, including five years of free roadside assistance and three-year/45,000 mile free scheduled maintenance. The marketer, trying to jump-start sales, started touting "the best-backed cars in the world" in a pair of TV spots that broke a few weeks ago from Interpublic Group of Cos.' Deutsch, Los Angeles.

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