Should I buy an extended warranty?
What’s the best way to buy an extended warranty?
There are basically two types of extended warranties: Factory and Aftermarket. The factory warranty is only available from a dealer. But don’t confuse that to mean your SELLING dealer. If you buy a GM vehicle, for example, you can buy a genuine GM extended warranty from ANY authorized GM dealer—even on the Internet. Just make sure that you’re getting a factory warranty.
An aftermarket warranty is similar to an insurance policy. In some states, these warranties are regulated by the state’s insurance commissioner. That means they must be registered and be underwritten. If you’re buying an aftermarket warranty, you WANT one that’s underwritten. That means the warranty company has purchased and INSURANCE policy to cover your claims in the event the warranty company itself goes out of business. If you buy an extended warranty from a company that isn’t underwritten and they go out of business, you’re basically SCREWED. It happens all the time. Warranty companies open up, collect your money, pay a few claims (refuse payment on most claims) and then, when the word starts getting around that they don’t pay their claims, they fold up and disappear.
Which is better?
Almost universally, the factory extended warranty offers better coverage. But don’t assume that just because you buy a warranty from a dealer, that you’re getting a factory warranty. Car dealers can sell any warranty they want. Why would they sell you an aftermarket warranty? Simple. They make more money on them.
Since the factory warranties cover more, they also cost more. But dealers don’t like selling them because the profit margins are lower. Depending on the make, car dealers can make almost 40% profit on a factory warranty. When you consider that they sell for almost $2,000, that adds quite a bit of profit to the sale of a new car. But an aftermarket warranty can net them almost 60% profit. Which would you sell?
Understand your obligations
No warranty is going to cover your vehicle if you haven’t done your part. That means you must perform all the recommended maintenance and BE ABLE TO PROVE IT. Yes, you have to save ALL your receipts. And, you have to do each recommended service at the proper mileage or time specified in the owner’s manuals. Skip the maintenance and you risk having your entire claim denied.
How to read the fine print.
Since the warranty is like an insurance policy, you can’t just gloss over the page and assume you’re covered. The first section to read is the EXCLUSIONS: Extended warranties do not cover maintenance (oil, fluid, coolant changes, AC recharge, spark plug changes, bulbs, belts, tires, brakes, etc). They also routinely exclude squeaks and rattles (that means annoying non-specific squeaks and rattles). But if the squeak or rattle is caused by the failure of a covered component, it should be covered. Example, you’ve changed your oil religiously and the oil pump is starting to fail. You take it in for service because you hear a knocking sound. A weasel company will automatically deny the claim due to the “squeak clause.” But a real company will belly up and pay for the oil pump. See how this works? Look specifically for this deal breaker: emissions or emissions components. If you see that phrase, it means you’re not covered for any computers, sensors, or malfunctions of the fuel, ignition, or catalytic converter systems in the vehicle. And that’s where you’re liable to ring up the most repairs! If the warranty excludes those, walk away.
The next section to read is the DEFINITIONS: This one is really important. The word failure means different things to the consumer than it does to the warranty company. Since you’re bound by THEIR definition, you’d better read it upfront. Do NOT depend on the salesperson or the finance person to give you their interpretation of what the terms mean. They’ll be long gone when it’s time for you to file a claim.
Here’s what to look for:
Failure – a component can fail to perform its intended function for several reasons. It could be defective. It could be worn out from normal wear and tear. Or, it could be damaged by another component that failed. You guessed it, you want the definition to include all three. Weasel companies will define a failure as a defect only. Part wore out? So sorry. Not covered.
Fluids – I said above that no warranty will cover normal maintenance. But what if your air conditioning compressor springs a leak and all the refrigerant leaks out? They should cover the cost of the new compressor AND the new refrigerant because the refrigerant loss was due to the failure of a covered part. Get it?
Diagnostic charges – You don’t want your mechanic guessing what’s wrong with your car. Neither does your warranty company. They want it fixed right the first time. They just don’t want to pay for a proper diagnosis. A weasel company will work it this way: “We will pay for the cost of tear-down and inspection IF the failure is a covered component.” I have seen companies deny coverage for performing a computer scan. In those instances, you have wait until they discover the root cause and then fight with them over the definition of “teardown and inspection.” Is a scan a teardown? I’ve won the argument by claiming that a scan is an inspection and that a teardown to find the root cause would actually have been more expensive. But the bottom line is this: Do you even want to have this fight in the first place? Don’t buy from a weasel company.
Can they tell you where to have it fixed?
Most warranty companies go out of their way to tell you that you can take your car to any repair shop. But they also know that the dealer will be more expensive than an independent shop. So how do the weasel companies get around this? They have a clause in the policy that says they will pay the “reasonable and customary” charges. Then, when you submit the claim, they’ll tell you that the dealer’s labor charges are higher than reasonable and customary. You can counter that by conducting a survey of all dealers in your area to prove that your dealer’s charges are in-line with all the other dealers. But do you really want to spend your time that way? The warranty company cannot force you to take your vehicle to a less expensive shop unless they include that provision in their policy.
New parts? Old parts?
Here’s when things can get really hairy. Many times the dealer doesn’t sell rebuilt parts. A new alternator for a BMW from the dealer is almost $900. A rebuilt alternator for the same vehicle is $400. A used one is $150. Guess which one the warranty company wants? You can insist on a new one, but only if your warranty says that. Find out exactly what the warranty says about parts before you buy it!!
How to negotiate the price of a factory warranty.
I said earlier that factory warranties are NEGOTIABLE. No dealer will openly admit that. They insist that they cannot deal on a factory warranty.
Here’s how to haggle for a discounted price. Meet with the finance people and agree to every single item they try to sell you. Warranty, glass protection, paint sealant, etc. Then ask what the new payment will be. In the meantime, the finance person will be figuring out how they intend to spend their commission (yeah, they work on commission). When you hear the new monthly payment, freak out and tell them to take it all off–including the warranty. Then tell them you’ll buy your warranty online. They’ll tell you that those are no good. You tell them you know someone who has a really good online warranty company. Be prepared to walk out on the deal (not really). At the very end, they’ll drop the price. I’ve done this with my car, my son’s car, and my daughter’s. Works every time. After they’ve mentally spent their commission, they won’t want to let you walk out without buying it from them—even at a discounted price. Hey, car buying is a blood sport.
How to find a good aftermarket warranty
Talk to one of the service writers at a dealership. They work with the aftermarket warranty companies all day. The weasel companies take up their time and put them in the middle between the mechanic who wants to fix the problem and the warranty company that doesn’t want to pay for it. They know which companies are the goods ones, and they keep a black list of the companies that won’t pay or make life miserable. Ask them. They’ll tell you.
© 2012 Rick MuscoplatPosted on by Rick Muscoplat