Extended Warranties Revisited

[doitmyself]

I have never had an extended warranty for a new car purchase, but I would like to start a serious discussion about the feasibility of them on today's more complicated cars.

What prompts this are the occasional stories that pop up here of people requiring multiple thousand dollar repairs on newer cars for things an average person cannot DIY. Not too long ago a member spoke of his computer unit going bad out of warranty and the new part alone was around $1,800 dollars. Transmissions are more complex, air bags, and lots of electronics in general.

Are extended warranties something to consider now a days vs. self insuring? Lets talk in terms of the average middle class person (or lower) that has to manage a budget that does not include tons of discretional money left over every month.

 

[JHZR2]

You have to look at it mathematically. They would NOT be selling them if they were losing money. They pull enough in premiums to profit off of this.

Sure, insurance is pooling risk... SO if a $7500 long block fails, you will come out ahead, but practically speaking, how many of them do you see.

Again, if the amount of repairs, dollars-wise was sufficiently high that the average buyer makes out, the premium would be higher or the vendor would not be selling them.

So in reality, maintaining the value of the warranty in dollars in a savings acount is a superior approach for the average buyer. The "peace of mind" that the warranty offers is only such for those who cannot manage money properly.

 

[Silverado12]

I wouldn't get an extended warranty either. GM and Chrysler have 100k of powertrain warranty coverage standard. By the time you get that far the avg person will have the car long paid for. Keep it well maintained and it should give you good service.

 

[DBMaster]

Consumer Reports has stated over the years that the average payout for extended warranty claims (ALL warranties, not just for cars) is about ten cents per dollar of revenue. So, you can see why dealers like to sell them. It also explains why if you balk even a little they will come down substantially on the price of the warranty.

My grandmother bought one for $800 in 1989 on my old Accord. When I inherited the car I was having the dealer process a prorated refund on it, but then decided not to mess with it. Ultimately, I had the A/C compressor, master cylinder, and all four CV axle boots replaced under the 100K mile coverage. So, I got her money's worth. That Honda lasted me over 350,000 miles before I had an accident in it and it was a very good car.

So, I consider EW's on cars to be like a form of gambling. LOL!

 

[SwampSurvivor]

Originally Posted By: DBMaster
Consumer Reports has stated over the years that the average payout for extended warranty claims (ALL warranties, not just for cars) is about ten cents per dollar of revenue. So, you can see why dealers like to sell them. It also explains why if you balk even a little they will come down substantially on the price of the warranty.

My grandmother bought one for $800 in 1989 on my old Accord. When I inherited the car I was having the dealer process a prorated refund on it, but then decided not to mess with it. Ultimately, I had the A/C compressor, master cylinder, and all four CV axle boots replaced under the 100K mile coverage. So, I got her money's worth. That Honda lasted me over 350,000 miles before I had an accident in it and it was a very good car.

So, I consider EW's on cars to be like a form of gambling. LOL!


They absolutely are. And just like in a Casino, the odds are not in your favor. It's possible that you'll end up having a repair that is going to cost more than what the warranty costs.

However, if you buy the warranty on 10 cars, and even only ONE has a failure ... you've still lost a lot of money.

If you can, set aside a repair fund ... after a bunch of vehicles, think of the money you'll have saved.

 

[VicVinegar]

Well whatever you do, the important thing to do is take your time. Read the terms and understand what it covers (or doesn't) and negotiate a price. For most makes you can find out what people have paid for warranties with some Google sleuthing. I'd also stick with manufacturer backed or a warranty affiliated with a company you trust. I'd be surprised to find out that USAA's coverage is a scam, but whatever third party warranty the dealer is pushing or you stumble across in the internet might be.

Ultimately it is a roll of the dice though. You can buy a lemon of a Toyota Corolla or a bulletproof Audi that never needs anything outside of maintenance for 10 years.

 

[Doog]

Buy a certified one year old car and it is included. BTw, every lemon I have owned (4) failed inside of the standard factory warranty...then continued to fail over and over and over and over.

 

[kb01]

It's been my experience that insuring against relatively probable, non-catastrophic losses is typically a very poor value.

Consumer advocacy groups typically recommend against these types of policies, whether it's extended warranties, dental/vision insurance, pet insurance, etc.

 

[dishdude]

Originally Posted By: Miller88
They absolutely are. And just like in a Casino, the odds are not in your favor. It's possible that you'll end up having a repair that is going to cost more than what the warranty costs.

However, if you buy the warranty on 10 cars, and even only ONE has a failure ... you've still lost a lot of money.

If you can, set aside a repair fund ... after a bunch of vehicles, think of the money you'll have saved.


^^^ This is so true. I have been driving 19 years and have never had a powertrain failure, or even any major repairs, and I've driven some real bombs. The fact that you know how to maintain a car and recognize what issues are minor/major puts you at a major advantage and even less likely to need an extended warranty.

 

[otis24]

Its a story of "Pay now or pay later". As stated, you are pooling your risk. The average consumer does not have the left over disposable income to afford major repairs.

About a month ago, a guy stopped in with problems with his 6.0 Ford diesel. He had only put about 8k miles on it since he had purchased the vehicle used. Wound up needing a $15k engine swap. His cost, $50 out of pocket.

As far as new goes, it depends on them miles of the warranty, and how many miles you drive each year. Some warranties offer a refund if you do not use it during the course of the term.

Most people carry collision insurance (which covers cosmetic things like sheet metal) but would never carry mechanical break-down insurance. I think of extended warranties as "major medical" for your automobile.

If you can afford several thousand dollars out of pocket, go for it. If not, need to have a backup plan.

 

[DBMaster]

I think if you are like most of us are you are more likely to get your money's worth from an EW because we are very astute observers of ANY issue, major or minor. For example, when I was rotating my tires on the Honda I noticed the torn outer CV boot. That was at the very end of the EW period. The dealer ended up replacing all four boots (or, put in new axles, I don't recall) under that warranty.

Since most people don't rotate their own tires that could have easily been missed. I don't even know if your average Discount Tire store would tell you about a torn axle boot - maybe, maybe not.

 

[jimbrewer]

I don't understand the argument that since the seller makes money on the warranty then it must be a bad deal. If seller profitability were the measure of a good deal then we should all trade in our cars for Suzukis.

I'd be pretty leery about any third party warranty. USAA is no exception USAA leases out some financial services to other entities who aren't USAA. I don't know if they do that with extended warranties or not. But just contact them about a mortgage and you will know right away you aren't really dealing with USAA.

I know that Honda and Ford have active extended factory warranty programs. I would look into it if I were buying one of those. Ford, for some reason, allows any Ford dealer to sell the ESP warranty to any Ford buyer, so there's an active market with internet discounters. I went with Flood Ford. A 7yr. 100k "Basic" warranty is about $800 with a $50 deductible. I figure a $500 extended warranty repair is just about a guarantee. The other $300 is the "insurance" part. Well worth it, especially for the Eco-boost crowd.

 

[doitmyself]

Thanks so far. No one here seems too worried about computer failure, etc. (my adult son's Mustang had this happen, but his used car warranty covered the $600).

Please continue the comments about extended warranties, but I would like to take this in another direction.

I hear stories of people that show no interest in a warranty towards the end of a new car signing, and that the dealer will go WAY down on the cost of said warranty, maybe reduce it 40% or more. $1200 down to $720.

Anyone have experience with this? Thanks.

And, FYI, I might consider an extended dealer warranty IF it was dirt cheap. On the other hand, if I were to self insure, I think I could manage to put $50 away monthly for the 36 month bumper to bumper period and have $1,800 to work with at that point. Comments?

 

[supton]

I bought one for my VW, since, well, it was a VW. Nothing failed inside the 100k mark. Waste of money. But at the time it was comforting.

I bought one for my Camry; now that was foolish... Again, it was comforting, and it was for the wife after all (I harbored some thoughts that she could take it to the dealer for everything it needed as the years go by, nope, I still get to take it in).

I got smart(er) and declined on my truck. I don't plan to drive it enough to worry about that magical 100k mark; I'd rather pay it off all the sooner, and bank that savings towards repairs. The F&I offered a shorter term warrenty when I declined the first one, but he was real nice about it and didn't put up a fight when I declined that one too.

At $700 to extend some large amount of time or miles, maybe the peace of mind is worth it. That said, anything that is going to fail seems to fail in quick order; and the older the vehicle, the better known the trouble spots are. While I agree with the sentiment that owning outright is best, next best is being able to cover repairs (think big amount of cash in the bank) w/o feeling the pain.

I think if you feel that you "need" to have the comfort of the insurance, then buying the wrong car: it's either too expensive, or too trouble prone.

 

[otis24]

The point of extended warranties is that automobiles can fail at any time with unknown costs that can range into the thousands. The people that get me are the ones that purcase a used automobile and expected that it will automatically be covered by the dealer because "we just bought it". How people have gotten the idea that their automobile "is supposed to be covered" is beyond me. Covereage is under the factory warranty or by extended warranty. I've seen "used" automobiles with less than 50k miles that needed major repairs. It happens. The customer always feels cheated when you explain that their vehicle does not have a warranty. No matter how much you try to explain it at the time of purchase, they think they will be o.k. because the vehicle is fairly new. But when a failure happens, they feel that you "ripped them off" because you won't write a check for the repairs. Warranties are always a bad deal, until you need one.

 

[Silverado12]

The way I see it you're paying for a major repair whether you need it or not. All the money I saved over the years by not buying the extended warranties is substantial. I have never needed a major repair that would have been under the extended warranty ever.

 

[HTSS_TR]

Everybody tries to sell EW for eveything, from TV to cell phone to car ..., because the profit margin is so high.

 

[BearZDefect]

When we bought the 2009 Sonata new, the closer had a menu of extended warranties she tried to sell us. This despite Hyundai's long standard warranty.

I wonder if the dealer would acknowledge problems under warranty any better if I had purchased additional warranties from them. Do those extended warranties pay the dealer any better rates for warranty work than the standard OEM warranties?

 

[sciphi]

One also needs to read the fine print to see what the extended warranty covers. GM's "protection plan" is basically duplicating the powertrain warranty. HondaCare is much more comprehensive in what it covers.

If one absolutely must have a known problematic vehicle, then an extended warranty can make sense. Some relatives with a Ford Windstar made out very well with a very long extended warranty, since they got 3 transmission rebuilds covered under their extended warranty after one was covered under the regular powertrain warranty. They traded it on a Honda Odyssey immediately after that warranty ran out.

 

[KitaCam]

One consideration...some dealers will refund your entire cost for the service contract if it is not used...so if the car requires some minor repairs and you are not required to invoke the "warranty" you can get your money back.