Free maintenance still core part of BMW's strategy

[Variance]

Bumper-to-Bumper

Free maintenance remains core part of BMW's strategy

By DIANA T. KURLYKO | AUTOMOTIVE NEWS

AutoWeek | Published 02/12/06, 3:16 pm et

A BMW 3 series snakes down the highway, flaunting its new body in the TV commercial. But performance and styling aren't the hook.

At the very end of the commercial, a message flashes: free maintenance for four years/50,000 miles.

It's the most generous package in the industry, including oil changes, windshield wipers, brakes - you name it, except for tires.

BMW is the only manufacturer still offering bumper-to-bumper free maintenance. It's not about to change, because "free maintenance is part of our strategy. It is very suitable for our customers," says Tom Purves, CEO of BMW of North America.

Two years ago, archrival Mercedes-Benz ended free maintenance. Other makes, including Jaguar, have followed suit. Audi has a similar plan, and Saab, Land Rover and Volvo offer limited free maintenance plans.

For BMW, free maintenance provides a competitive edge, insures lease cars are maintained properly and gives dealers a steady flow of service business for at least four years.

More important, "It keeps our customers connected to us," says Tim Smith, owner of Bob Smith BMW in Calabasas, Calif., and chairman of the BMW National Forum.

"Parents keep kids in touch with them because they're the money source - we keep our customers closer with free maintenance," Smith says.

Dispels high-cost notion

BMW maintenance has been free since 2000. It was developed to cope with the fact that the luxury German brand's cars are expensive to service.

"With all premium brands, there is this perception that if you pay a lot for the car, you have to pay a lot for the service," says Alan Harris, BMW vice president for after sales. "We have longer service intervals than most lower-segment, nonpremium vehicles may have. Therefore, even when the customer was paying over the lifetime of the car, they are not more expensive."

Harris estimates providing the service costs BMW between $1,500 and $3,000 per vehicle annually. Owners are covered for the same period as a new-car warranty - four years or 50,000 miles. The customer can buy an extension to six years or 100,000 miles. BMW throws in free roadside assistance.

Bob Kurilko, vice president of Edmunds.com, the Internet buying service, says free maintenance has become so ingrained into BMW's

image that dropping the program "would cause more than a ripple."

Says Kurilko: "Their whole positioning is based around free maintenance. They have put a lot of marketing behind (being) the company of 'You put your key into the igni-

tion and drive away. The only payment you make is the once-monthly lease.' "

The car sets the schedule

BMW's program doesn't adhere to a mileage-based maintenance schedule like other luxury brands.

"It is condition-based service," says Harris. "The car is monitoring wear and tear via an electronic system in the car.

"When things are due to be changed can vary depending on people's driving styles. The car will notify the driver when the service is needed."

The system used by BMW is called TeleService. The driver gets a message indicating what kind of service is needed. But the system also notifies the dealer with an electronic message.

"The dealer will see this pop up on his screen in the morning and can see what needs to be done," says Harris. "He can plan his workshop time and make sure he has all the parts in stock.

On the 5-, 6- and 7-series cars on which BMW's iDrive program is standard equipment, customers can look at individual components "and see things like how much life is left in his oil and brakes," Harris says.

If a customer misses an interval or doesn't heed a dealer's followup calls, the warning lights on the car will change from green to yellow and finally to red - which will persist until reset at the dealership.

Steady income flow

Dealers like the system because they have a guaranteed flow of service business, says Smith.

Dealers are paid the same way as for a warranty claim - through the same system. The normal pricing structure also applies, meaning "dealers mark up the parts the customer is paying for," Harris says.

Harris says BMW pays each claim overnight.

Kurilko says dealers are paid less for each job because the services are treated as warranty claims, making a 30 to 40 percent gross profit on each claim, compared with a gross profit of about a 50 percent: "It's a mixed bag for dealers. If the car company is promoting it, you will sell more cars."

"The service guys will say they aren't getting full compensation, but they are still selling the service and even those jobs they normally would not get," Kurilko says

In other words, BMW buyers aren't tempted to get the oil change or brake job at an independent service chain.

The per-hour labor rate varies depending on location and the cost of operating the dealership, Harris says: "The rate in Manhattan is different than the rate in Oklahoma."

The bottom line is dealers make money, he adds: "The advantage to the dealer is they have 100 percent retention for 100 years. No customer will go to a nonfranchise dealer."

Another advantage for dealers is the steady flow of service work. BMW has been asking dealers to upgrade their services as sales increase and new vehicle ranges are added. The projected annual service income "allows dealers to have a much more stable planning base, build new facilities and realize savings," says Harris.

Good used cars

Smith says the side benefit is extremely well maintained lease cars that dealers can purchase from BMW and resell as certified vehicles.

"When we get them back on certified pre-owned, we get a car that has been maintained," he says.

Purves says this is one of the reasons that BMW has gotten the top ratings for residual levels for three years in a row from Automotive Lease Guide.

Having good-quality certified vehicles is important for BMW, which has one of the industry's highest lease rates: 60 to 70 percent, depending on the year, says Harris.

"It is in our interest to make sure those cars are maintained properly," Harris says. "We don't win residual awards for nothing."

BMW has no plans to follow its competitors by trimming freebies or dropping its program. "In fact, quite the reverse has happened," says Harris.

Because of the program's success in the United States, BMW is also offering a free maintenance plan in Germany.

Bragging rights are a factor, too. "As our competitors drop it, the program becomes more of a unique selling proposition for us," says Harris.

And there is little doubt that it helps sell cars, Harris says - particularly entry-level vehicles such as the 3 series, "where the customer is stretching a little bit to get into a luxury car."

Link: http://www.autoweek.com/apps/pbcs.dll/arti...1024/LATESTNEWS

[Flybrian]

If Mercedes still had free maintenance, they'd be bankrupt by now.

[razoredge]

As we witnessed in a thread concerning car maintenence and repairs its a darn good thing BMW offers this. Still, somehow I dont see how a few oil changes and brake pads every year could possibly add up to 1500-2000 $. General Motors could not afford to do this because their dealership network would rob them blind. This along with better drivetrain warrenties on the Cadillac or Buick cars could be easily doable for GM if it were not for the rip off artists that dealerships are. They would surely be doing all kinds of warrenty work to get the bottom line at the end of the month. This can not be as hard to keep track of with the smaller size of the BMW network.

[PurdueGuy]

The free maintenance is a valuable offer... especially at the cost of BMW parts!

[Cory Wolfe]

They offer this for used ones? Maybe then I could realistically afford one!

[CaddyXLR-V]

I'm sure the reason behind it is to get their customers coming back to see their new products every year, and hope they will be tempted to trade in on a new one.

[pow]

After the warranty ends, BMW dealers are known to charge insane amounts for maintenance, repairs, or parts. They wanted $18 for a paper oil filter...

[NOS2006]

Hmm, you paid how much for a BMW? I'm sure you can afford the maintenance for an oil change or two.