All About 3rd-Party Extended Warranties
So, you hear radio/TV commercials or dealer sales pitches on the merits of buying a “worry-free” Extended Warranty for your aging vehicle…
You’re considering an extended warranty for your car. You hear that you can take your car to any place of your choosing to have it repaired, and that the warranty will take care of everything; you merely pay your deductible and avoid paying $10,000+ repair bills.
Unfortunately, the real world experiences too often don’t resemble anything described in the sales pitch. Here is what actually happens with many of these policies, saddling the customer with some unanticipated out-of-pocket expenses…
How an Extended Warranty Works
Your vehicle’s engine has stopped running. You have the vehicle towed to a repair facility with very good- to-excellent reputation (could be your current service provider). If your coverage provides it, you get a rental/loaner vehicle, and leave the vehicle at the repair facility. The repair facility performs a thorough diagnosis of the root cause problem(s) which resulted in the engine failure, identifies all the required parts and labor to return the vehicle to its pre-failure state, and submits an estimate to the warranty company.
Next, the warranty adjuster visits the repair facility and goes through the items in the repair estimate, line-by-line. He/she mostly focuses on the symptoms of the failure and removes some of the items that in his/her judgement are not required. For example, if the engine damage is caused by a broken cam timing belt and the intake camshaft and valve-train show visible damage, they only approve replacing that cam and its subordinate valve-train. A reputable repair facility will recommend replacing the similar items on the exhaust side, backed by years of experience. Avoiding this added repair can be like a “time bomb”. As the owner of the vehicle, you won’t know if the exhaust side is also damaged (thought it most likely is), and take the vehicle back after repairs, not knowing that your vehicle is susceptible to further damage, and another warranty repair. Many will try to blame the next failure on improper repairs as well, to avoid paying for the items that were previously advised to be replaced.
In most cases, the warranty company dictates the type of parts (new, used or refurbished), parts manufacturer (factory, factory-like, imitation, or obscure suppliers), and labor amount. A reputable repair facility will not accept these terms, and your vehicle may be sent to another facility of lesser stature, who is not on your preferred list. This can prolong the repair interval, and you may exceed the loaner vehicle provisions of your policy. Most cover the loaner car for one (1) day per 8 hours of paid labor. For example, 22 hours to replace an engine = 2 days of loaner car. Of course, this assumes that a reputable facility will dedicate a technician for 22 uninterrupted hours to the replacement. The real world does not work this way. Often, on high-end cars, special parts will have to be sourced at the factory in the country of origin, which significantly increases the wait time.
In cases requiring a major sub-system repair (e.g., engine, transmission, electrical, suspension, braking system, etc.), the warranty company may source an “equivalent” used sub-system from a salvage facility, with a limited warranty. While on the surface this may appear fair, the history of the replacement equipment is not known, and it may well have (or will) experienced similar problems as yours. This approach will also require a complete reworking of the original repair estimate, review, substitution and approval by the adjuster, and eventual swaps, which seldom go smoothly. Most vehicle manufacturers revise designs and features of major sub-systems during a production model year, and replacement sub-systems will seldom be an exact match for those on your vehicle. Again, this prolongs the repair interval and who will left adrift to experience the ensuing inconvenience? You, the policy holder.
8 things to consider when choosing an extended warranty for your car.
Speaking from personal experience, I once tried to make a warranty claim on my own car only to be told that my “10 Year/100k Mile” power-train warranty didn’t apply to internally lubricated parts. Let that sink in for a second. How many power-train parts are left once you exclude the internally lubricated ones? Effectively none.
As in any business and profession, there are the stellar ones and the not-so-stellar ones. So, what to look for in selecting an extended warranty policy to avoid wasting money on the latter type? Before you buy a specific policy, consider the following suggestions based on our extensive experience with many customers and extended warranty policies:
- Read the policy (and its footnotes and “fine print”) very carefully and thoroughly. Leave nothing to chance. If you are not sure of any provision, have an attorney, your repair facility, or a knowledgeable acquaintance read and interpret it. An automotive contracts attorney may cost you $200-300, but may save you much grief, frustration, and disappointment down the road.
- Take the policy to your preferred repair facility and ask them if they can provide the warranty service, as stipulated in the policy, exactly the way they would do it if you were paying for the repairs yourself. If the answer is no, look for another policy; will save you much headache.
- Beware of “Power-train only” or “Drive-train only” policies. They usually do not include parts or subsystems essential the operation of your vehicle. Unless specifically included in writing, they exclude Alternator, Starter, Air-conditioner Compressor, Fuel System, Intake System, and even Cooling System. These items can cost you perhaps more than the faulty power-train item. Along the same line, “Bumper-to-Bumper” coverage is not necessarily all-inclusive; speaking from personal experience, I once tried to make a warranty claim on my own car only to be told that my “10 Year/100k Mile” power-train warranty didn’t apply to internally lubricated parts. Let that sink in for a second. How many power-train parts are left once you exclude the internally lubricated ones? Effectively none.
- Examine the parts of the policy which address the types and quality of parts and labor, and their coverage limits. Most reputable repair facilities use factory-level new parts with 2-3 years parts & labor warranty. Find out specifically if the policy requires use of lower quality parts and labor. The labor rate for very good-to-excellent repair facilities is in the $135-160 per hour range (2018). Some warranty companies place a cap on the labor rate, say $90/hour, which guarantees you a middle-of-the-road repair jobs, especially on modern and complex vehicles, and forces you to absorb the difference, which can be substantial.
- Some policies place a maximum amount of repairs coverage, based on the value of the vehicle. As the vehicle ages, even if it is kept in an immaculate condition, the book value decreases, and so does your coverage cap.
- Some policies place a cap for various sub-systems such as engine, transmission, suspension, etc. This practice further complicates the matters by covering the specific repair only once while you own the vehicle. The future similar repairs would be excluded, and would be your responsibility.
- Some policies do not pay for everything that is required to return your vehicle to its pre-failure state. Examples include lubricants, fluids, hoses, gaskets, and so on. These becomes an out-of-pocket expense for the owner, and can be substantial.
- Some policies provide a list of what they cover (“inclusive list”), which on the surface may appear to be rather comprehensive. Unfortunately, when it comes to actual major repairs, the list of requirements can be quite exhaustive, and the policyholder would get stuck with paying the difference. A better alternative would be policies which specify what they don’t cover (“exclusive list”), which is much smaller than the “inclusive” list, and reduces surprises at the check-out.
In summary, spending thousands of dollars to buy an extended warranty policy requires much diligence on the vehicle owner’s part. Unfortunately, online reviews can be misleading, uninformed, and irrelevant. One bad experience by you can offset a thousand good reviews. The best approach to buying a pricey extended warranty policy is before you buy the policy, take the policy and your vehicle to your preferred reputable independent repair facility, have them examine the policy along with your vehicle, and get a list of policy pitfalls. Then negotiate with the policy provider to eliminate the pitfalls; or, better yet, look for another source. This service by the repair facility may cost you a few hundred dollars, but compared to a $10-15,000+ policy premiums on high-end and performance vehicles, it would be money well spent.
If you’re considering an extended warranty for your European car, Autoscope can assist you with choosing the right one for you. Give us a call at any of our three convenient DFW locations or set up an appointment online today. Our experienced and helpful service advisers will be happy to help you navigate this territory so you can make a confident and informed decision.