Pam Young was shopping for a used Saturn sedan and found a fully loaded 1993 SL2 with 34,000 miles on it. Turned out that the car was on the lot of her uncle’s dealership in Plymouth, Mich.
Despite the family connection and the vehicle’s relatively low mileage, Young said she still intends to buy an extended warranty for the Saturn, just in case unexpected repairs pop up.
“I’m going for the extended warranty for several reasons,” said the 43-year-old director of public information at Eastern Michigan University. “First, my brother, who is a car mechanic in Houston, recommended it. And I’m buying used, so it makes even more sense to have the extra protection.
“But mostly, I had a 1990 Ford Econoline conversion van with 75,000 miles on it that I just got rid of, and it didn’t have an extended warranty. That was a mistake because over the last three years, I’ve spent about $5,000 on repairs.”
Besides, Young drives a lot what with a 32-mile round trip from her home in Redford Township to her job in Ypsilanti, not to mention bagpipe lessons in Chatham, Ontario, and ski patrol work in Brighton, Mich.
Once Young’s van hit 60,000 miles, she said she had to replace items such as the brakes and radiator, and fix the climate-control system. Not only were the repairs expensive–often $1,500 each–she also had to pay an extra $26 a day for a rental car to get to work whenever her van was in the shop.
But an extended warranty, which can cost from several hundred to several thousand dollars (and is often negotiable), may not be for everyone.
Like Young, many shoppers believe an extended warranty–basically an auto service contract that costs extra and helps protect against unexpected and costly repairs–is a prescription for worry-free driving.
Even Big Three automakers such as General Motors pitch their warranty plans as a way to deal with automotive anxiety.
“When you consider that today’s GM vehicles have about five times the computing power of the on-board guidance system used in the Apollo moonshot, good coverage could be a smart investment,” says GM’s Internet page in describing the company’s Major Guard extended warranty.
But experts such as Lesley Hazleton, author of “Everything Women Always Wanted to Know About Cars,” tend to discourage consumers from buying extended warranties, which usually add three years to the automaker’s coverage.
There’s “an amazing array of exceptions built into the small print of extended warranties,” she said. “They are expensive and generally not worth the money unless the car you are buying has a lousy reputation for reliability–in which case, why buy it?”
The Federal Trade Commission and consumer activists such as R. Rand Knox, on-line author of “CARveat Emptor–Tricks of the Great American Car Deal,” echo her sentiments, telling buyers to proceed with caution.
Another tip from the experts: Because extended warranties often are marked up more than 100 percent, don’t be afraid to ask for a discount.
“An average dealer cost on a five-year/50,000-mile warranty is less than $400 for a car priced under $12,000 and less than $750 on a car priced over $25,000,” reports Autopedia, the automotive on-line encyclopedia. “And yet some dealers often charge up to $2,000 for these extended warranties. At a few hundred dollars, an extended warranty may not be a bad idea. However, at a few thousand, you are much better off putting that money in a money market account to cover any future repairs.”
The Delphi Study from the University of Michigan’s Office for the Study of Automotive Transportation observes that though vehicles have become more complex, reliability also has improved. Increased use of on-board diagnostics in new cars translates into faster and better service, it reported. And advances in this area are expected to continue.
Though they may sound like a good idea, do not sign on the dotted line of an extended warranty until you fully understand its terms and who is providing the coverage if you blow a transmission or need new windshield wipers.
“Don’t pay extra for overlapping warranties that cover the same repairs during the same period unless you really enjoy paying too much and don’t mind inflating the costs of products unnecessarily for others,” advises Knox.
Read the factory and extended warranty contracts carefully and determine when each warranty starts and stops. For example, if you buy a five-year extended warranty and the car comes with a three-year factory warranty, the total coverage should add up to eight years, not five.
“Do not let a dealer `double cover’ your vehicle for the first few years,” Autopedia warns.
A factory warranty comes with every new car and is included in the original price, whereas a service contract may be arranged at any time and costs extra. That separate and additional cost primarily distinguishes a service contract from a traditional warranty.
A manufacturer’s warranty on a new car usually offers coverage for at least one year or 12,000 miles and many for three years or 36,000 miles. Some warranties last much longer and even used cars may be covered.
The FTC warns consumers that though a service contract is sometimes called an “extended warranty,” it is not synonymous for warranty. But like a warranty, a service contract is a promise to perform (or pay for) certain repairs or services.
Service contracts for new and used vehicles are available from a variety of sources, including manufacturers, dealerships and independent companies. It’s even possible to get an extended warranty estimate on your vehicle from several providers via the Internet.
A manufacturer’s contract may be a good idea if you travel out of state a lot, though it may cost more than that of an independent operator. GM’s extended warranties, for example, are backed by 9,000 dealers around the country. They vary in price depending on the coverage.
Many manufacturers, including Ford Motor Co. and General Motors Corp., offer extended service contracts even on used cars. And some manufacturers such as GM also offer to cover the rental on a replacement vehicle or pay for public transportation.
But independents such as National Auto Care or Warranty Gold argue that their programs are better because they are cheaper, and you can pick your own mechanic instead of being forced to work with a dealership.
When shopping for a used car, look for a Buyers Guide sticker on the side window. This sticker is required by the FTC on all used cars sold by dealers. It tells whether a service contract is available.
THINGS TO LOOK FOR IN SELECTING A SERVICE CONTRACT
According to the Federal Trade Commission’s Auto Service Contracts Fast Facts, consumers shopping for an extended warranty on the vehicle they are buying should:
– Read the contract.
– Know who backs the contract–the manufacturer, the dealership or an independent company.
– Check whether the company providing the contract has a toll-free number or whether you must call long distance for repair authorization. You may want to test the toll-free number before you buy the contract to see whether you can get through easily.
– Ask whether there are deductibles in addition to the contract price.
– Ask whether you are permitted to do your own routine maintenance.
– Ask whether repair costs are paid by the company directly to the repair shop or whether you will have to pay and be reimbursed.
– Ask where the repairs are to be performed.
– Ask whether new or reconditioned parts are used. Some consumers are disappointed when they find out reconditioned engines are being used as replacement parts under some service contracts.
– Ask for procedures on filing a claim: Do you need prior authorization for specific repairs or must you meet required vehicle maintenance schedules?
– Not pay extra for coverage you may already have. Compare the service contract with the factory warranty, and make sure the former begins when the latter ends.
– Ask whether the contract provider has sufficient funds to pay claims. Find out what happens if the provider goes bankrupt.
– Ask whether the contract is transferable if you sell your car while it’s in effect and whether there is a fee for switching the contract to another owner.
– Investigate the reputation of the service contract company by checking with the state attorney general’s office or local consumer protection agency.
