Tom McKernan tells Liz French that size matters when it comes to offering members the best prices.

You might think that the rate at which a company grows is the rate at which personalized customer service decreases. Not so for Automobile Club of Southern California (Auto Club), a member of the AAA family. In fact, the more it acquires and affiliates with other AAA organizations, the better its rates get, and the easier it is to manage customer relationships.

Thomas McKernan, president of the Los Angeles-based nonprofit organization, says that when motor clubs emerged in the early 1900s, they were mostly small and local. As they gained in popularity, more capital was needed to continue offering members the same high-quality products and services, so they started to consolidate, a movement that has accelerated over the past decade due to competitive pressures.

“Manufacturers have started providing roadside assistance; our travel business faces tough competition from other travel agencies and Web sites; and our car insurance business, the fourth largest in California insuring 2 million cars, has hordes of other agencies to contend with,” McKernan said. “The more volume we have, the better our chances of negotiating lower prices with our vendors and the more we can spread out our costs.”

Tom McKernan

To that end, Auto Club took on the management of AAA of Texas, AAA of New Mexico, and AAA of Hawaii during the 1990s. In 2003, it affiliated with AAA of Northern New England, which covers Maine, Vermont, and New Hampshire, and it recently completed another alliance with AAA of Missouri, opening up the Missouri, Arkansas, Louisiana, and Mississippi markets. All in all, Auto Club serves more than 9.5 million members in 14 states—roughly 22% of all AAA members in the country.

Its two most recent affiliations have allowed Auto Club to standardize back-office operations (membership processing, mailing, claim channeling). “In doing so, we have become more efficient and can invest more in services without having to raise prices for our members,” McKernan said. “We are a nonprofit, existing solely for the benefit of our members. Last year, we paid out $184 million in dividends to our policyholders, and our goal is to continue doing that.”

More than meets the eye
Diversification is another strategy that has served the organization well. In addition to its core product, which is roadside assistance, Auto Club offers car, home, and boat insurance, and because of the power of scale, its insurance rates are 25% lower than they were 10 years ago.

It also purchased a wholesale travel business, Pleasant Holidays, a few years ago that offers complete vacation packages to Hawaii, Mexico, the Caribbean, and Europe to AAA members and non-members. “We did that for the sake of volume so we can continue to offer our members discounted travel prices,” McKernan said, adding that the organization has also started offering customized travel products via AAA Club Vacations. “We can get them amenities they may not otherwise be able to get.”

“We diversified, but did it within our own membership. We are meeting more of their needs, by investing more in the existing services and adding complementary services, we engender more loyalty from them.”

But as much as diversification has helped the company, Auto Club’s core product is still its sustenance. “Over the years, we have done a number of things to ensure the quality of our core product because that is what keeps us differentiated along with the nature of our membership, which is on the individual, not the vehicle,” McKernan said.

Recent efforts to raise the bar on Auto Club’s core product, roadside assistance, include investing in technology, such as GPS tracking for cell phones to find members in need of assistance more quickly and easily, as well as mapping software installed on the majority of its service trucks.

Auto Club pioneered the new AAA Premier plan, an extension of the AAA Plus plan. With the plus plan, members are covered for 100 miles of towing and receive $750 in trip interruption benefits, complementary rental car upgrades, locksmith services up to $100 per call, $300,000 free travel accident insurance, and free AAA maps. With the Premier plan, members are covered for up to 200 miles of towing, and they receive the benefits of a home lockout service, one-day complementary rental cars, free personal notary services, 24-hour emergency travel and medical assistance, 24-hour concierge services, and trip interruption benefits up to $1,000.

Members are not the only ones who have benefited from Auto Club’s service ideology. Employees and members have given more than $4 million to causes in Southern California, including Orthopaedic Hospital and affiliated clinics, the Children’s Miracle Network, the American Red Cross, the Make-A-Wish Foundation, and United Way. And, the company advocates for the safety of all drivers in California. It has worked with legislators and state agencies to make sure that fees and taxes motorists pay go the causes for which they were meant. It also sponsored the state’s graduated driver license law in 1997 that requires teens to have more experience behind the wheel before receiving a full license. The passenger restrictions enforced during the first year of licensure were estimated to have saved 700 lives in the first three years after the law was in place.

Tech savvy, people oriented
Investments in technology have also bolstered business for Auto Club. It adopted a new cashiering system from AAA of New England to handle face-to-face transactions, is adding more capabilities to its Web site, and has made major investments in member relationship management.

“We have spent tens of millions of dollars on software, telephone systems, and computers that will enable our folks to see the member’s entire history with our organization. They’ll be able to see what services they have, which ones they are eligible for but aren’t taking advantage of, and if the customer has ever had a complaint. When we interact with our customers, we can treat them as individuals and not as a number because our folks know a lot about them before they even walk in the door,” McKernan said.

Even though members interact with Auto Club via its Web site and telephone services, they still like to see a friendly face, so the company has been adding to its number of store locations. For instance, when the population grew in Ladera Ranch and Rancho Cucamonga, Auto Club set up shop in neighborhood retail centers. It also remodeled and relocated offices in Anaheim Hills, Montebellow, Whittier, and San Diego. As part of a pilot program, Auto Club even opened mini-offices offering travel and insurance services in two Pensky-owned Toyota dealerships.

On a daily basis, about 30,000 people visit one of Auto Club’s 100 locations, roughly 11,000 roadside assistance calls are made, 3,000 service vehicles are deployed, and hundreds of insurance claims are filed. Each interaction is an opportunity to make sure members are aware of all that the organization has to offer. “A few years ago, our members told us that they wanted us to give them more information about our services, but we found out it was only happening 30% of the time. We’ve turned that around. Although we have made tremendous investments in technology, we remain a people-oriented organization. When you call us, you talk to a real person.”