Smart Motorist

Are extended warranties worth it? Unless you're prepared to pay for the very best policies from the highest rated companies (such as Warranty Direct), I find them more trouble than they're worth. One specific exception is a manufacturer's certification on a used car: this is extremely valuable, but the car will cost top dollar, and you can't choose to buy it. The car is either certified or it's not. And once that certification runs out, you'll still have to buy an extended warranty from someone else. The rest of this page describes the various kinds you can buy, and then concentrates on extended warranties, and finally on the difference in extended warranties found in my exhaustive warranty survey.

AAA Membership - Though not really a warranty, this plan insures that you won't be stranded if you break down. I highly recommend joining the Automobile Association of America. Any vehicle a member is driving is covered, whether he or she owns it or not. Pay the extra $30 for their AAA Plus Roadside Assistance Plan: for about $60 a year you get free towing up to 100 miles, free jumpstarts, and a lost key or lock-out service. At minimum, AAA offers trip planning, hotel and car rental discounts, special auto financing, low-interest credit cards, traveler's checks, and an excellent travel agency. This is the only true bargain in this whole industry.

Warranties in General - The purpose of a warranty is to save you major expense in case of mechanical failure or breakdown of the particular vehicle covered. A basic warranty covers major components: engine, transmission (or transaxle), and final drive. The best warranties also cover antilock brakes (ABS), heating and air-conditioning systems (HVAC), air-bags (SRS), overheating - regardless of the cause, and most of the accessory and computer systems.

Manufacturer's Warranty - This applies to new vehicles, and goes with the car even if it changes owners. A full manufacturer's warranty provides all service necessary, free of charge to the owner. It also allows for diagnosis of all covered systems, and removal and reinstallation of all covered parts within a system. Many dealers provide a loaner car during both scheduled and emergency service procedures. Lemon Law legislation allows the consumer in most states to choose either a replacement or a refund if the vehicle can't be repaired after a reasonable number of attempts.

Used Car Warranties - These vary from state to state, dealer to dealer, and car to car. Low-mileage late-model cars may have some of the original manufacturer's warranty remaining, usually transferable to the new owner. Or it may have a manufacturer's certification, permitting service work to be done by any same-make dealer in any location, in contrast to a dealer's certification, which is usually only good for getting specific work performed at that dealership. There may be only a thirty-day warranty, and it may only cover inspection items (parts that have to work for the car to pass inspection). In most cases, the terms are spelled out on the warranty disclaimer window sticker. Coverage may run from 3 months/3,000 miles to 12 months/12,000 miles (the "/" meaning "whichever occurs first.")

There may be no warranty at all: you buy the car "as is." When buying as is or from an individual, you can get a stand-alone warranty directly from a warranty seller, or go it alone.

In-House Warranties - Many independent dealers offer in-house warranties (covering only work done there). Coverage varies, so make sure yours covers the major components (engine, transmission/ transaxle assembly, drive train). Have the salesperson list the systems and components that are and aren't covered, directly on the warranty document that you both sign and receive. Some independent dealer garages offer a free 6-month 50/50 warranty on used cars, providing they do the service work. They charge the usual rate for parts and labor, then cut the invoice total in half (thus dealer pays 50%, customer pays 50%). This arrangement benefits both parties: the garage breaks even on warranty repairs (50% generally covers the cost of parts), and you only pay if something actually breaks. If your dealer doesn't offer a 50/50 warranty, suggest it.

Implied Warranties - The Federal Trade Commission and all states have laws concerning implied warranty, meaning that anything you buy must function for some reasonable period of time as it was designed to do. Don't rely on the implied warranty. Dealers are required to post a buyer's guide in the window of each vehicle offered for sale, notifying you either that there is a warranty or that it's being sold "As Is," with no warranty of any kind. Dealers are required to list all known problems on the buyer's guide. In my 30 years in the business I've never seen this filled in. It's possible to get a problem resolved under the terms of an implied warranty, but chances are you will have memorized the phone numbers of your attorney and the state consumer protection agency before that happens. If you hear a "clunking" noise when you put the car in gear and the salesperson tells you they'll take care of it, get it in writing. If the warranty doesn't specify that the drive train is a covered component, the dealer is under no legal obligation to repair it. And if the disclaimer states that there is no warranty on the vehicle, the dealer doesn't have to repair or replace anything, with the possible exception of safety-related inspection items, once the car is sold. If you buy an "As Is" vehicle, once you drive it off the lot, it and whatever problems it may have belong to you.

Do You Need One? - For a new car, you don't need it. The factory warranty is extensive and covers any factory defects. If the car you're getting is less than three years old and has less than 36,000 miles, it's probably still covered under the original manufacturer's warranty, which goes with the vehicle regardless of ownership (watch out, some new car warranties are only for 2 years or 24,000 miles). If so, determine the original delivery date (Date Of Service). This is the date your warranty commenced. On a demonstrator, executive, or program car (all considered used cars), the warranty clock starts running the day the car first started use as a demo, not the date you purchased it. If the factory warranty is up in the next 12 months or 12,000 miles, consider getting a warranty that extends the manufacturer's warranty.

If I don't need one now, why should I consider purchasing one at this time? - For one simple reason, the newer the car is, the cheaper the warranty is. Take a look at the Warranty Direct site for an example. Get a price on the same vehicle, one of them new and one of them 3 years old with about 40,000 miles. Even though the newer vehicle will be covered for more years and miles, its warranty will be substantially cheaper. The reasoning that the warranty company is betting on is that you won't keep your vehicle longer than the 2 years or 24,000 miles that the factory covers you for. Even those of us who used to get a new car every two or three years, have been putting it off for longer periods of time. That 2 or three years quickly turns into five or six. Just ask my father-in-law. In 1996 he insisted that he was only going to keep his new Audi until the original warranty ran out. The stock market made a change for the worse and today he has a six-year-old 1996 Audi that he just spent $3400.00 dollars to repair. All together he's spent over $5000 on repairs that would have been covered by a $1200 warranty.

Basic, Mid-line or Deluxe? - For cars that cost $5000 or less, it's debatable whether to get a warranty at all. If it cost at least $10,000 or is less than four years old, consider deluxe. The middle priced warranties don't cover the items that are most likely to break, and don't offer $0 deductibles either. The newer the vehicle, the more likely it is to have complex computer systems. Climate controllers and ABS motors can set you back $800 or more, but basic plans don't cover ABS or HVAC. Deluxe, top of the line, plans include these and also the smaller component systems. They sometimes provide towing and rental cars while your vehicle is being repaired. For these reasons a deluxe warranty can be a worthwhile investment.

What's Not Covered? - Exclusions found in all extended warranties include glass, headlamps, taillights, bulbs, trim, moldings, bright metal, upholstery, paint, exhaust systems (including catalytic converters), tires, batteries, brake rotors, drums, struts, and shock absorbers. None cover routine maintenance, such as oil changes or tune ups. Most don't cover overheating, regardless of the cause, or consequential damage (such as blown or cracked heads), even if those parts would otherwise be covered. All extended warranty contracts require that you maintain the car according to the schedule in your owner's manual. Keep all your receipts in case your maintenance claims are questioned. Only damage caused by accident or abuse is not covered.

Buying - Before you buy an extended warranty, obtain several to read, review and compare. This will help you learn the language and understand what's covered. Have your mechanic look over the ones you are considering and give an opinion based on a review of the car and predictable problems. Make sure all major systems and their consequential failure are covered. Insist on a written list, itemizing what is and is not covered. Get any promises in writing, with the signature of the person making that promise.

Some warranties require that you pay the bill, send them the receipt, and wait for the company to reimburse you. This lets them invent an excuse why your repair is not covered and refuse to pay the bill. Choose an extended warranty that pays the repair shop directly.

Beware of deductibles. You may be charged the deductible for every part repaired. If your car needs a blower motor, a heater core, and a window regulator, your payment may be 3 times the $100 deductible. I highly recommend paying the extra $100 to $200 to get a $0 deductible and avoid this issue entirely.

Depending on what they cover, deluxe extended warranties run $1000 to $3,000 or more for a two or three year period. If you buy direct, you avoid dealer markups. I recommend brand-specific coverage (Ford, GM, etc.) and national companies like Warranty Direct over smaller outfits, because you can get service from dealerships around the country. Be sure to get quotes from sources other than your dealer.

The dealer's business manager may make you feel like a fool if you don't buy an extended warranty, some unscrupulous dealerships may even insist upon it if you're financing the vehicle through them. What's in it for them? The most profitable part of the retail automobile industry is the extended warranty business: anything over the dealer's cost is profit. Typically, the salesperson gets a flat fee and the balance of the profit goes to the dealer. Those fees and profits can range anywhere from $250 to $1750, depending on the warranty. Salesmen can make more money selling extended warranties than they can selling cars. That's why I can't recommend buying an extended warranty at the dealer. My survey found that when compared to comparable third party warranties, the plans offered by dealerships cost from 40% to 100% more.

There are a lot of people making a lot of money selling inferior products. This is definitely a "buyer beware" situation and in my opinion, unless you're prepared to pay for the very best policies, most extended warranties are more trouble than they're worth.

Which Warranty Company Is The Best?

There are a lot of people making a lot of money selling inferior products. This is definitely a "buyer beware" situation and in my opinion, unless you're prepared to pay for the very best policies, most extended warranties are more trouble than they're worth. There are over 50 extended warranty companies to chose from. How do you decide which one offers the best coverage for an acceptable amount of money? I spent two weeks researching the warranties available from reputable vendors, carefully comparing the coverage and the costs for each one. I received quotes for the top of the line coverage (the only coverage I recommend) available from each company, for two different vehicles (a 2001 VW Passat Wagon with 10,000 miles and a 1996 Audi A4 Quattro with 65,000 miles). I compared the items that were covered, and the items that were excluded from each company's warranty.

Much to my surprise, only a couple of the warranty companies were even willing to cover my "low mileage" 1996 Audi A4, while everyone offered coverage for the 2001 Passat. Most companies won't cover a vehicle with over 60,000 miles on the odometer, and Warranty Direct is no exception.

A further review of the coverage revealed that only a couple of the companies covered engine damage due to overheating, a coverage I consider absolutely necessary (I worked as a service writer at a large dealership and saw over 100 engines destroyed by overheating while I worked there). The repair bill from an overheated engine will run anywhere from $1500 to well over $5000 is certain cases. Warranty Direct offers coverage for overheating.

Another common exclusion is repairs resulting from wear and tear of covered components, this occurs most often in a vehicle's suspension and drive train (transmission & axles). Most of the companies only covered broken components (aka breakdown), only a couple covered items that had worn out (aka wear & tear). The distinction is very important - for example: ball joints rarely break however they wear out all the time. The same holds true for internal engine components like camshafts, bearings, and piston rings. Warranty Direct offers coverage for wear & tear as well as breakdown.

My experience as a service writer also taught me that dealerships like to work with customers whose warranty company pays the dealer directly with a credit card. Only a couple of the companies I surveyed did so, the rest either paid by check or made the customer pay the bill first before reimbursing them. Keeping your dealer/mechanic happy ensures that you'll get the best service possible, I should know. Warranty Direct pays the dealer/garage directly with a corporate credit card.

Some companies insist that if a warrantee repair exceeds $500, the shop must wait for an inspector to visit and approve the repair. Only then can the shop order the part. Needless to say, some garages aren't thrilled with customers who show up for third-party (as opposed to in-house or 50/50) warranty work. Warranty Direct trusts your ASE-certified mechanic.

Most companies make you pay a $50 to $100 deductible for every visit to the repair shop. If your vehicle has a persistent problem, the deductibles can add up quickly. Only a couple of the companies offered a $0 deductible. Warranty Direct offers a $0 deductible.

Another coverage I like to see is for rental cars (at least $150 per occurrence), travel interruption (again $150 per occurrence), towing (hopefully you're an AAA member), lost key or lockout coverage, and road hazard protection for your tires ($100 per occurrence). As you may have already guessed, only a couple of the companies offered all five coverage. Warranty Direct offers all five coverage.

The cost of an extended warranty is often a major determining factor in deciding which warranty to purchase. I found that coverages available from dealerships cost anywhere from 40% to 100% more than the same coverage available from the third party insurers I surveyed. Most of these dealer/manufacturer offered policies covered the same items as the third party offerings. So why do they cost so much? The only explanation is the huge commissions earned by the dealer whenever they convince a customer to purchase one. At a new car dealership, the single most profitable item sold by the dealer aside from the vehicle itself is the extended warranty. Warranty Direct has prices consistent with other third party insurers (40% to 100% less than at a dealer) yet offers significantly better coverage.

In each and every category the same company made my short list, that company? Warranty Direct. Who would you chose?

 

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