Wednesday, July 27, 2005

BMW / Lexus BMW and Lexus are retaining some free service programs across their model lines.

Automakers dropping some free maintenance

Move will cut costs during tough times; drivers will pick up routine service expenses.

By Jennifer Saranow / Wall Street Journal

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In an effort to trim costs, carmakers are eliminating their free-maintenance programs, a move that could cost drivers thousands of dollars in additional upkeep over the life of a vehicle.

Free-maintenance plans started as a perk among a few luxury cars, but quickly spread to become an expected part of a top-dollar vehicle.

Now, however, a growing number of manufacturers -- including some of the same brands that kicked off the free-maintenance movement more than a decade ago -- are requiring new customers to pay for maintenance services such as oil changes, tire rotations and other routine tasks that used to be free.

Volvo plans to significantly downgrade its program beginning with the 2006 model year, offering just one free-maintenance visit. Previously the company, owned by Ford Motor Co., covered the first four scheduled checkups.

In April, Mitsubishi Motors Corp. stopped offering free maintenance to U.S. buyers of 2005 model-year cars, and says it doesn't plan to resume offering it soon.

DaimlerChrysler AG's Mercedes-Benz brand, starting with its 2005 model line in the United States, replaced its four-year free-maintenance plan with packages customers must purchase, at a cost that can range from $576 to nearly $4,000.

For 2005 models, Toyota Motor Corp.'s Lexus brand eliminated a complimentary inspection at about 1,000 miles, though it still offers a free scheduled maintenance at 5,000 miles or six months.

Volkswagen AG says its Audi unit is still deciding whether to continue to offer free maintenance for 2006 Audi models, which will be launched later this year, according to a spokesman.

The company dropped free maintenance on Volkswagen models a few years ago.

Some of the manufacturers eliminating free maintenance have been cited as having repair and reliability problems, which can translate into higher warranty costs. Volkswagen, Audi, Mercedes-Benz and Volvo were among the brands that performed below average in J.D. Power and Associates' most recent Vehicle Dependability Study, released last month.

In contrast, BMW AG and Lexus, which are retaining some or all of their free-maintenance programs, ranked above average in the study, which annually surveys consumers about problems with three-year-old vehicles.

A Volvo spokesman says the ranking didn't play a role in its decision to change its maintenance program. Mercedes says other rankings of quality show that the automaker is making gains.

The cuts are happening as automakers look for ways to trim their costs and beef up their bottom lines as the industry has struggled to reignite sales over the past year or so. Last week, Ford reported a nearly $1 billion loss in North America in the second quarter and said it was planning more cost-cutting . GM lost $1.2 billion in North America in the quarter and also vowed to pick up the pace on cost-cutting.

Earlier this year, Chrysler also significantly cut its warranty on Jeep, Chrysler and Dodge vehicles, and analysts expect other automakers to follow suit. But while new-car buyers still expect a vehicle to come with warranty coverage, automakers say free maintenance hasn't proved as important to customers. Mitsubishi, which started offering free maintenance on its 2004 models, found its program to be "less effective than anticipated" in getting people onto the showroom floor, a spokeswoman said. And Volkswagen, which dropped its free-maintenance program starting with 2002 models, at the same time extended its bumper-to-bumper warranty.

In recent months, automakers have turned to new pricing incentives to spark sales, and are seeing some success. Earlier this week, General Motors Corp. extended until Aug. 1 its "employee discount for everyone" program, which helped the carmaker in June report its best monthly sales figures in nearly 20 years.

Free maintenance first showed up on luxury vehicles in the 1980s to encourage lease customers to take care of cars they didn't own. In the past decade, automakers expanded it to all customers as a way to lure buyers without diminishing their brands' reputation with discounting. But as the perk spread even to nonluxury cars -- Toyota's new Scion line of entry-level vehicles come with three free oil changes -- buyers stopped thinking it was anything special. In 2004, "free maintenance" ranked 52nd in importance among consumers, out of 55 vehicle attributes measured, down from 48 five years ago, according to CNW Marketing Research, a Bandon, Ore., an industry researcher.

Not all automakers agree that buyers don't want the free oil change. BMW plans to continue offering free maintenance for four years or 50,000 miles, including replacement of items subject to wear and tear like windshield wipers. BMW last expanded its program for model-year 2003. Lexus, meanwhile, says it has replaced its early inspection with free programming of a car's electronic features.

For buyers of cars that don't come with full free maintenance, the price of a regular checkup can vary significantly. At Keystone Motors Volvo in Montgomeryville, Pa., a maintenance visit averages $200, according to Jonathan Bright in the service department.

Mercedes dealers, meanwhile, now offer two maintenance plans which customers can buy up to the first scheduled visit. The Mercedes-Benz Vehicle Maintenance Plan, includes basic service generally every 13,000 miles. Its price runs from $576 to $1,552 depending on car type and the term of the plan. Customers can buy it in periods ranging from two years or 26,000 miles to four years or 52,000 miles.

The second plan, the Mercedes-Benz Vehicle Maintenance Plan Plus, adds coverage of some wear-and-tear items and ranges in price from $1,253 to $3,928.

Mercedes eliminated free maintenance as it switched to a service schedule that spaces out visits to the garage based on the number of miles the vehicle has been driven.