Rick's Free Auto Repair Advice

Should you buy a car extended warranty? — It depends on the brand

The pros and cons of a car extended warranty

If you bought a vehicle known for its high quality and reliability, ask yourself if you really need an expensive car extended warranty. After all, isn’t that why you bought the most reliable vehicle in the first place? If you bought a reliable vehicle, your vehicle repairs most likely won’t even come close to the cost of the warranty.

If you bought a less reliable brand, then it might pay for you to buy an extended warranty as long as you buy the right kind of warranty and buy it from a reputable company.

If you’re thinking about buying a used car extended warranty, that’s a completely different animal and you should read this article instead.

Factory car extended warranties are very good

A factory warranty is only available from a genuine factory dealer, and it can only be purchased during the carmakers’ bumper-to-bumper warranty period. But don’t think that means you have to buy it from 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 GM dealers that sell factory warranties on the Internet. Just make sure that you’re getting a genuine factory warranty.

NOTE: Dealers can also sell you an aftermarket warranty. In fact, they make more money on aftermarket warranties than on factory warranties, so make sure you know which type you’re getting before you buy.

Generally speaking, factory warranties are better than aftermarket warranties because they’re backed up by the carmaker. But how good they are also depends on the level of coverage. More on that later.

Some aftermarket warranties are ok, but some are awful

Aftermarket warranties can be issued on new or used cars and can be sold by just about any car dealer used car lot, or internet seller. Aftermarket warranties are basically an insurance policy from an independent company that has no affiliation with the carmaker.

Because they’re issued by independent companies, there’s always the risk they could go out of business. It’s up to you to determine whether the warranty is underwritten (an insurance policy that kicks in if your warranty company goes under).

Which is better; a factory car extended warranty or aftermarket?

If you compare coverage to coverage, a factory extended warranty is always the better choice. Here’s why: A factory warranty prefers that you get the repair done at the dealer rather than an independent shop. In fact, factory warranty administrators tend to trust the authorized dealer’s diagnosis more than they trust the diagnosis from an independent shop. Aftermarket warranty administrators, on the other hand, generally distrust the diagnosis of all repair shops. That means they frequently dispute the shop’s diagnosis and estimate, putting YOU in the middle between the warranty company and the shop.

Fewer disputes over the diagnosis are a huge advantage to factory warranties.

The level of coverage is critical to whether it will actually cover the repair

Most warranty companies offer different levels of coverage. For example, a powertrain warranty only covers the engine, transmission, and axles. It usually doesn’t cover the starter, alternator, AC, heater, computers, emissions components, or any accessories.

The next level of coverage usually covers the powertrain, along with suspension, steering, brakes, and some electrical components.

The top level of coverage is like having bumper-to-bumper coverage on just about everything.

Obviously, the more the warranty covers, the more it’ll cost. The key is not to kid yourself into thinking you’re fully covered if you just buy the lowest coverage.

Warranties come with obligations

No warranty is going to cover your vehicle if you haven’t maintained it properly. That means you must maintain it according to the carmaker’s schedule AND you must 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 on a car extended warranty

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. For 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 the extended warranty company tell you where to have it fixed?

Most car extended 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 those of 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 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 extended warranty

I said earlier that factory warranties are NEGOTIABLE. No dealer will openly admit that. They insist that they cannot deal with 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 who doesn’t want to pay for it. They know which companies are the good ones, and they keep a blacklist of the companies that won’t pay or make life miserable. Ask them. They’ll tell you.

© 2012 Rick Muscoplat

Posted on by Rick Muscoplat

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