“Hi, this is Chuck, I just wanted to let you know your vehicle’s warranty has expired.”
If you own a phone and a vehicle, then I’m sure you have deleted this message from your voicemail more than once. We get asked all the time at The Garage about extended warranties. Should I buy one? Which one is the best? Do they really cover all my repairs bumper to bumper? I thought I would take some time to answer some of the broad stroke questions and explain our “real world” experience with various warranty contracts.
First and foremost, it is just that, a contract. That warranty that the smiling salesman told you covers your vehicle from tip to stern, probably contains about 15 pages of magnifying glass sized writing. If you look closely, you will find that the “What is NOT covered” section easily eclipses the “What IS covered” section. I’ll give you a quick example of how that plays out in reality. Let’s assume your vehicle needs a new A/C compressor and for sake of simplicity, that job costs $1000. That number includes a diagnosis, parts, freon, labor, supplies, and sales taxes.
Car salesman sells me a “BUMPER TO BUMPER” warranty
Contract A: This company is the gold standard. They cover the OEM factory part we’ve quoted. They cover the diagnostic time. They include all freon, taxes, seals, etc in their claim payment. They were able to answer the phone call and provide coverage within minutes. They may or may not have a deductible.
Contract B: This company is the majority. They cover the part at what they can purchase from amazon online. The customer pays diagnostic time and sales taxes. Their phone service requires around 30 minutes of hold music. They generally have a deductible. Customer will end up paying $200-400 of the $1000 initial estimate
Contract C: This company is becoming more common. They want to ship in a used part. They cover “national average” labor rate that includes more places like Greenbow, Alabama instead of Los Angeles, California. Their contract lists so many exclusions that they find some way not to cover the compressor. We spend an hour on the phone only to find out that we are the ones that have to break the bad news to the customer. The $2000 they spent on the bumper to bumper warranty is basically worthless in the real world.
So why do so many dealers sell warranties? The short answer is to make money. The selling dealership usually makes a fixed commission of $500-1000 when they sell a warranty. After you sign on the dotted line, their job is done. They have no culpability in the contract. As for the rest of us, you as the consumer and we as the repair facility are the ones that experience all the lows of your extended warranty ownership. Guess who gets to call you and inform you that your $1000 A/C repair isn’t covered? The Garage. More often than not we get stuck in the awkward middle between you the consumer and the warranty contract administrator trying to explain the minutiae of page 8 article C section 4a. Trust me, these contracts are geared to protect the administrator. They have so many outs for denying repairs based on tire size, trailer hitches, maintenance records, pre-existing conditions, etc. They also suscept you and me to excessively long phone calls and hold times. A warranty claim that is paid will typically require around 30 minutes of on hold music to be played in our ears.
So we’ve established that the sales guy is the big winner here, but surely there must be some warranty companies that are respectable? Well yes, there are several in our experience that tend to be better than the rest.
Carmax’s MaxCare plan, Allstate extended warranty, Fidelity, Route 66, and ASC
These companies are efficient with our time, pay acceptable claim rates, offer reasonable deductibles, and are generally much easier to deal with for the business and consumer. Keep in mind though there are hundreds of providers, these are just a small sampling of ones that we have found to be better than the rest.
So what is my recommendation? Well every situation and family is different. When I was in high school I had a professor, Mr. C, that told the class “only insure what you cannot afford to lose.” That quote has stuck with me through the years and proved to be far more profound than I realized. When I check out at places like Walmart or Best Buy and they ask about the extended service plans, I always say no. I can afford to lose it. However, when it comes to my home, my health, my cars, etc, I have insurance for those. It would be financially painful to lose one of those. In my opinion, and it’s only an opinion, I would pass on the extended warranty contracts. I think you would be better to take that money each month and save it in an “emergency fund” that could be used in a variety of situations. For those of you that feel you need the security of the warranty, do your research. Call shops and ask their opinions, read the example contract, and spend some time on the internet looking at real world reviews.
If it’s too good to be true….