Carfacts Extended Warranties Page2

Service Contracts and Extended Warranties

Service contracts, or warranty extensions, continue to be aggressively marketed to car buyers. Careful shopping is the only way for a consumer to get the contract that is right for them. Similar programs are offered by automakers, car dealers, and insurance companies. Subtle differences between plans may make one more suitable for a person's needs than any of the others. It is important to be able to review the actual policy that explains coverage and exclusions in detail.

The "basic warranty" is the bumper-to-bumper protection for at least the first year or 12,000 miles. However, most car makers do better than that, and offer a three year or 36,000-mile basic warranty. Be sure to read the warranty carefully for hidden charges or deductibles.

A "powertrain warranty" extends beyond the basic warranty, and covers the internal parts of your car's engine, transmission and driveline.

Think of a "corrosion warranty" as "rust-through" protection, because a visible hole through a body panel usually needs to be present before a warranty claim can be made.

While under warranty, you are required to follow the recommended maintenance of your vehicle to keep the warranty in force. You should also keep all your service records in case of a dispute.

Many people seem to think that when their car is no longer under warranty they don't need to follow the suggested maintenance intervals any longer. Do yourself a favor and continue following the maintenance schedule as before. You'll find that this preventive maintenance will more than pay for itself later on down the road, whether it be in resale value or in avoided repairs.

Sales brochures often are written in a one-sided manner that obscures the shortcomings of a particular program. Buyers should know exactly what parts or systems on the car are covered. Many contracts cover only the parts that make the car move down the road. Owners of luxury cars equipped with many electronic gadgets and power accessories that sometimes malfunction need to shop for contracts that cover these components.

Some contracts put restrictions on trailer-towing. Be wary of exclusions involving things that characterize your driving. On questionable interpretations of the policy, it is best to try to get some statement in writing from the parent company.

Verbal statements from a salesmen seldom are binding. Car owners need to know the amount of driving they will do during the time of coverage. If a car is driven 8,000 miles per year, the time limit of a 36,000-mile/three year contract will expire long before its mileage limit.

Does the service contract duplicate the coverage of the manufacturer's new-car warranty? Coverage under new car warranties is not necessarily standard at 12 months/12,000 miles -- many new cars are covered for 60 months/50,000 miles.

How much longer does the service contract protect the car owner after the original warranty expires? Service contracts seldom offer coverage as comprehensive as the original new-car warranty. Claim settlement procedures also vary.

Must the car owner pay for the repairs and then be reimbursed? Is there a deductible amount on each repair to be paid by the customer? Who may repair the car? Only the selling dealer? Any dealer? Any shop, dealer or independent? Is a pre-repair inspection by the warranty company's representative necessary? It may even be smart to check the financial stability of the company carrying the service contract. Your bank can assist you here. If a warranty contract company goes out of business, your contract may be worthless.

When maintenance recommendations are followed, major problems are unlikely to occur until the car hits the 60,000 to 70,000 mile mark. Yet, if you are buying a car with new engine design or transmission design, a service contract might be a good idea if unexpected bugs still exist in the new design. The extended service contracts are insurance policies.

A driver's individual circumstances determine whether they can stand to risk having to pay for a major repair out of their own pocket, or whether they prefers to purchase the peace of mind that the right contract provides.

Service contracts are not for everyone, but the wise buyer understands the protection they are purchasing beforehand and buys only the contract that fits their need and budget.

More Tips....

Who really owns your warranty? Who really has your money?

You need to know about the "transfer of risk" associated with warranties. A transfer of risk is when the dealer pays money to an administrator that assumes the risk for the service contract. These monies are used to pay for future repairs. Why is this important?

Some dealers DO NOT pay into the reserve, they do not "transfer the risk". They are gambling with your money. Your warranty is only as good as the financial condition of the dealership. If they hit hard times, your warranty is in jeopardy.

If the dealer hasn't transferred risk to an administrator that maintains an excellent claims paying ability and the dealership is sold or goes out of business, you're out of a warranty, and you're out of the money you paid for that warranty

Why should I care about Mechanical Breakdown versus Wear and Tear?

You should care because you may be covered for one (breakdown) failure and not for another (Wear and Tear) failure with your current warranty.

A failure occurs when a component or part BREAKS. A wear and tear failure occurs when a component breaks AND/OR fails to perform at manufacturer's specifications.

For example, piston rings do not break. They wear out. This is wear and tear failure, not breakdown failure.

Another example: Suspension items normally do not break. They wear out. This is wear and tear failure, not breakdown failure.

This is a critical distinction because many manufacturer's warranties and after market warranties do not cover wear and tear failures

Is your vehicle covered for overheating?

A little known section of the fine print in most manufacturer's and after-market warranties is an exclusion that reads something like this: "This contract does not cover overheating regardless of the cause."

Most people have seen steaming and smoking vehicles at the side of the road due to city traffic, heavy snow, or extreme heat. Your current warranty may not cover this situation. It probably has an "overheating exclusion." This is a very expensive repair and is specifically excluded in most service contracts.

With your current warranty, do you have one deductible?

Probably not. You could be under a warranty that has a deductible for EVERY repair, as opposed to one for a single repair visit.

For example: During a repair visit you have the brakes, air-conditioning, and transmission fixed. If you have a deductible for EACH repair under your current warranty, it could take hundreds of dollars out of your pocket

With my current warranty, can I go anywhere for repairs?

Probably not. Many factory plans require you to go to factory shops.

For example, as of 1999, with a Chrysler warranty you must go to a Chrysler facility.

Many dealer service contract programs (which are different from the manufacturer's warranty), have an unbelievable exclusion: They make it uniniviting for non-dealer repair facilities to honor their vehicle service contracts, which means that you end up having the vehicle repaired at your dealer's repair facilities!

Double Dippers - How Dealers get paid twice from one repair.

Occasionally manufacturers will make exceptions in their warranties to cover special problems or defects with their products. Such exceptions are referred to as "hidden warranties" (as opposed to vehicle "recalls" which are items that relate directly to the safety of a vehicle). An unethical repair facility may charge both the customer and the manufacturer when repairing a defect covered by a "hidden warranty."

For example, a consumer may find a problem with their vehicle, bring it into a dealership for repairs, pay for that repair, and never know that the problem was actually being paid for by the manufacturer of their vehicle at the same time.

One reason this happens is because it is not mandatory in most states that a manufacturer reveal to consumers that their vehicle has additional "hidden warranties" not expressed in their original manufacturer's warranty. The manufacturers know that service facilities "double dip" on occasion. They do little or nothing about this practice because it is in their best interest not to disclose defects, newly covered items, or get repairs done at their expense.

Many service facilities know that consumers are unaware of "hidden warranties" and can take advantage of consumers that have a real defect in their vehicles. A consumer can read their manufacturer's warranty countless times but it will never reveal the "hidden warranties."