Why Is GM Offering Free Maintenance?

GM CEO Dan Akerson announced the new plan at the company's annual meeting on Thursday. Photo credit: General Motors Co.

At General Motors' (NYSE: GM  ) annual shareholders' meeting on Thursday, CEO Dan Akerson announced a new program: Buyers of new 2014 Chevrolet, Buick, and GMC vehicles will receive free routine maintenance for two years, or 24,000 miles.

The new program includes up to four visits a year and covers regular oil and filter changes and free tire rotations.

Dealers will also, as GM said in a statement, "conduct a 27-point vehicle inspection based on what's called for in the vehicle owner's manual maintenance schedule and oil life monitoring system."

Luxury-car brands (including GM's Cadillac) have offered these sorts of programs for a while. But this is something new for the mass market, at least for GM.

Why would General Motors do this?

A surprising move that makes a lot of sense
There are several good reasons for GM to launch a program like this, all of which suggest that GM's new management is trying to address problems that GM's old management had kind of ignored for a long time.

First and foremost, it's about improving owner loyalty – specifically, about increasing GM's not-so-great loyalty ratings. As Akerson said while announcing the program, "We know that customers who service their vehicles at our dealerships are much more likely to purchase another GM product down the road."

GM has said in the past that every point added to its customer loyalty rating is worth about $700 million in added revenue. With Akerson intently focused on increasing GM's profitability, such things matter a lot.

But it's not just about encouraging GM's customers to become repeat customers. It's also about attracting more customers to GM in the first place. Kelley Blue Book analyst Alec Gutierrez noted in a statement that this new program might be enough to sway some buyers who were on the fence about buying a GM product.

That makes this a particularly timely announcement. GM is at the early stages of a massive overhaul of its U.S. product line that will see 20 new or revised products hit dealers by the end of next year. Those products are likely to be huge improvements over GM's older models. Bt getting potential customers to check them out – and to buy – could prove to be a challenge, as rival Ford (NYSE: F  ) discovered a few years back when its own product-improvement push began. This new program may help.

A more subtle, but important, benefit from this new program
Another analyst had a somewhat different take on GM's new program. Eric Lyman is vice president of residual values for ALG, a company that sets residual values for automaker's new-car leasing programs. A car's residual value is an estimate of what it'll be worth when the lease is up – critical for pricing new-car lease programs, which can be intensely competitive. Obviously, higher values are better.

Lyman suggested that the free maintenance program could be seen as an alternative to incentives, the cash-back or cheap-financing deals that automakers offer to spur sales, and could be related to GM's desire to increase its residual values. As he said in a statement, "While cash incentives have a direct, negative impact on the future resale value of a vehicle, free maintenance programs can have a positive halo effect on brand value."

I noted back in April that GM's leadership was working on ways to improve the company's residual values, which had improved from "terrible" to "respectable" but still fell short of the industry's average, not to mention those of mass-market leader Honda (NYSE: HMC  ) . This new program might help.

Last but not least, the dealers will love this
Of course, GM's dealers will absolutely love this program, and that was surely a key consideration for GM's leadership. More maintenance business and more repeat customers are exactly what any dealer wants – but now, GM's dealers have to step up and deliver the kind of positive experience that will generate repeat customers.

Few companies lead to such strong feelings as General Motors. The Fool's premium GM research service can help you get a better understanding of the real risks facing GM – and at how GM's new management plans to unlock its huge potential. Just click here to get started now.


Read/Post Comments (20) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 07, 2013, at 4:02 PM, hookdaddy5 wrote:

    , Chrysler been doing this for nearly two years now, just a bit late on this"new idea" smh

  • Report this Comment On June 07, 2013, at 4:31 PM, Vance1965 wrote:

    I would NEVER but another Government Motors vehicle. I used to be loyal to US auto makers. Now I would not care if they closed their doors tomorrow. The taxpayers took it in the rear hard for nothing more than a union pension bailout and don't believe for a minute that they paid that money back. That lie is from the same liars that have given us gun running, Benghazi, IRS intimidation, a disaster healthcare scam, illegal seizure of phone records and there is more to come.

  • Report this Comment On June 07, 2013, at 4:33 PM, tittymonster wrote:

    Its because their products are over priced $#!T made in Mexico, I have owned a 2006 Uplander and a 2009 HHR...the trade in value was a joke and the build quiality was total trash..They only made these models for 5 years because of all the electrical problems...GM makes throw away cars..I will never buy another, my next forgin made car will be a Kia

  • Report this Comment On June 07, 2013, at 4:57 PM, WmMeadows wrote:

    Could it be that they know that Government Motor vehicles are junk - it will take 2 years to fix everything wrong with them - so instead of having a recall they will spread it out over time as FREE maintenance.

  • Report this Comment On June 07, 2013, at 5:16 PM, 420BOYS wrote:

    OK, way to go GM and who ever wrote this. Toyota has offered Toyota Care which is maintenance and road side asst. for 2yr or 25k miles. They have had this program for over 3 years now. No mention of this in your article. Did you know that the Toyota Camry has been the most American built vehicle for 4 years straight. It's a foriegn nameplate now not a foriegn car company. Maybe GM should start building and getting their supplies from the US again. That would buildcustomer loyalty!!!

  • Report this Comment On June 07, 2013, at 5:35 PM, XMFDRadovsky wrote:

    It's a smart thing to do. Look at the effect the Hyundai/Kia 100,000 mile warranty had on bringing those cars from Korea into the U.S. mainstream.

    Contrast GM's move to Chrysler's which has vowed to fight the NHTSA request for the company to recall 1993 to 2004 Jeep Grand Cherokees and 2002 to 2007 Jeep Libertys to fix a problem with faulty gas tanks which could catch fire if those vehicles are struck from behind.

    Now that's a sure way to engender mistrust among the car buying public.

    Dan

  • Report this Comment On June 07, 2013, at 5:41 PM, Rafthand wrote:

    All comments so far seem alien to our town where GM is making its way back splendidly. In my hometown the local GM dealer is a great citizen whose business depends on loyal customers – of whom there are many. The new 24 month maintenance incentive is another reason to return to our hometown dealer that people trust. If our dealer sells us a defective vehicle, he will fix it or make it right. I happen to live in a world where people like to buy cars from the same dealer, and the news today is just icing on the cake. Critics of GM are talking about politics in the guise of auto quality, but they really want to direct the attention away from car buying.

  • Report this Comment On June 07, 2013, at 5:50 PM, kca124cain wrote:

    I got that when I bought my 2003 Suburban - probably a dealer incentive

  • Report this Comment On June 07, 2013, at 5:55 PM, kca124cain wrote:

    In the 60's and 70's, most people did not bother getting their oil changed. They just drove until the car failed and then replaced it. Along came the Japs who sold cars that had better fit and finish, but needed frequent oil changes to survive. Then the idiots decided to have a love affair with them, instead of looking at what needed to improve, but many others did look at what needed improvement and American cars have been as good or better for the past 20 years.

  • Report this Comment On June 07, 2013, at 6:32 PM, syrgrad91 wrote:

    Another very good reason to offer free maintenance is a reduction of in-warranty repairs due to a lack of maintenance. A typical oil change is $30-40 at the dealership's Quick Lube Plus service. Multiply that by perhaps 4 times over the course of two years (3500 mile oil changes are no longer the norm), and you end up with a much lower cost than having to replace the engine or other vital components due to owner neglect.

  • Report this Comment On June 07, 2013, at 6:52 PM, jssiegel wrote:

    The deal makes very little money on the sale of a new car (unless you are a totally inept negotiator). The major profit center is the service shop. So if you can start the customer in the habit of coming in... here, kid, the first hit is free.

  • Report this Comment On June 07, 2013, at 7:25 PM, AmericanFirst wrote:

    TMF,

    FYI,

    Of the Big 8 auto. mgfs. April Ytd. Hyundai/Kia largest loss of market share -0.7, Ford the highest increase +0.9.

    Short story, it's not all about warranty/freebies! It's PROCUCT, PRODUCT, PRODUCT.

  • Report this Comment On June 07, 2013, at 7:43 PM, Nylonsrox wrote:

    Only un-Americans would ever by a G.M. government motor vehicle----they could offer free oil changes for life---and I still would never buy one----besides the paint falls off in 3-5 years.

  • Report this Comment On June 07, 2013, at 8:46 PM, josh995 wrote:

    So now it's un-American to buy a GM or Chrysler vehicle? Let me see. It's un-American to buy a foreign vehicle. Now, apparently it's un-American to buy a domestic vehicle. Apparently we're all un-American then. That's the most ridiculous thing I've ever heard. You want to know what's REALLY un-American? Calling a fellow American UN-AMERICAN because of the car they drive. Listen to yourself. You sound like an idiot.

  • Report this Comment On June 07, 2013, at 9:48 PM, Thecross1 wrote:

    There is nothing free about the maintenance of this program just wait until you see the cost of the new vehicles, you are prepaying for this free service the cost of the new truck lines will blow your mind

  • Report this Comment On June 08, 2013, at 1:28 AM, wla755 wrote:

    Our Cadillac/Buick/GMC truck dealer here in Oregon is great.

    GM could learn a few things from this small dealership in Grants Pass.

    Real pride and actual service is continually modeled.

    If GM could quit all the lip service and actually follow thru it would be great.

  • Report this Comment On June 08, 2013, at 8:20 AM, carlf06 wrote:

    First off, and I'm surprised The Fool doesn't realize this... NOTHING is 'free' from a car dealer or manufacturer! The 'cost' of parts, materials and labor is included somewhere in the price of the car... guaranteed, end of story. I worked as a service writer in a dealership for 11 years. Anybody making money in the automotive business is simply moving money from one bucket to the other, and those buckets are filled by the car buying consumer!

    Second, the dealers will use this to take full advantage of the extra income stream available through 'warranty repair'. There are checks and balances in place to prevent this, but again, in my experience, I've watched service writers ask leading questions around 'known' problems to see if the customer would 'say the magic word'. When they do, the tech gets the car, the 'problem' gets fixed, the dealer makes money from a warranty claim.

    And right now, the dealers AREN'T making money! The service departments are ghost towns! The sales are off! Used Cars don't make enough to keep the doors open.

    So in summary, it's going to end up costing the customers more for the car, GM more for the warranty claims, and that in turn will be passed on to the consumer.

    And if you don't believe me, go in and look at a car, and start talking price. Tell the dealer you're not interested in the 'free' items they offer and ask them to deduct that amount from the price of the car... they have no way of doing it!

  • Report this Comment On June 08, 2013, at 9:30 AM, wjcoffman wrote:

    Good for GM. A recent visit to my local Toyota dealer for a recall included their promise of a xx-point inspection. The first 'finding' was need of timing belt replacement. I asked what inspection point determined that little nugget (knowing the timing belt is hidden from view) - well, sir, the odometer reads 90K miles. Nothing like profit based maintenance, um er condition based maintenance - no, that's not it either. Once I erred and revealed I had accumulated the parts for DIY the timing belt/water pump remove/replace I didn't get the balance of the xx-point inspection. I really don't know if they did the recall either for that matter.

  • Report this Comment On June 08, 2013, at 7:19 PM, splatthecatt wrote:

    Because most other car companies are...Nissan, Toyota, Kia, Chrysler/Jeep...

  • Report this Comment On June 10, 2013, at 5:21 PM, capitan60 wrote:

    This "news" about the "new" GM reflects both the good qualities of its management and the retained bad qualities of old!

    Good that they want to be competitive and provide better customer & product support!

    Bad that they, through the writer still say, tolerate; "now its up to Dealers to deliver and achieve customer loyalty".

    Most successful car brands do not present themselves to customers as "us & them" regarding their Dealers. Success comes to unified one brand, one process, one ownership experience delivered by that unified brand TEAM.

    GM must continue to "transform" with product design and comprehensive and systemic change to a unified TEAM delivering ever better product and continually better ownership experience.

    THAT will build customer Loyalty! And continuing success.

    As to all the bad comments, please! Enough!!

    Do a RESET. Take a deep breath, relax, and begin the rest of your lives expecting good outcomes from people and businesses. Say what you need and want simply and clearly and expect to get it, you will. Best wishes to all.

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