So you’re at the dealership and about the purchase your vehicle. The sales staff member comes over and offers a vehicle warranty- something he or she says will fully protect you in the event that your engine, transmission, or any other large fault happens with your vehicle. What they don’t tell you is that according to consumer reports, the majority of those that purchase the warranty end up losing money on the investment. The rest of this blog is set to examine why.

Let’s start with the obvious: The extended warranty company is a BUSINESS- meaning they exist to make money. According to consumer reports the median investment in a warranty program is $1200.00 so let’s work with that figure. Keep the $1200 in the back of your mind and think of all the costs the warranty company is paying:

  1. The sales staff member that sold you the warranty is compensated
  2. The warranty company employs former automotive industry professionals to validate your claims over the phone
  3. The warranty company employs adjusters to come out and validate your claim in person
  4. Keep in mind that if the warranty company doesn’t have enough staffing your claim will take much longer to be addressed.
  5. Remember the pamphlet that you were handed at the dealership? The warranty company paid someone to develop those and paid for them to be printed.
  6. The warranty company subscribes to a lot of the same labor guides and directories that we as shops do- these all come at a high cost and many are based on amounts of users.
  7. And last but not least- let’s remember the owner of these companies don’t work for free.

Adding all of these costs up in your head- how much of your 1200 is going to pay those costs?

The next step to examine is the cost to you that they don’t explain fully- the rental car. So you buy the warranty and you have a break down. Most warranty companies tell you that you have rental car coverage BUT they fail to tell you that you don’t get that coverage until after the claim is accepted. This means the following all has to take place before you get a paid loaner car:

  • + You get your car into a shop
  • + The shop works you into their schedule and checks the car
  • + The service writer at the shop prepares an estimate
  • + The service writer then calls you to update you and let you know they are about to call your warranty company
  • + The service writer calls the warranty company to start a claim
  • + The warranty company debates the claim and decides to send out an adjuster to rule out abuse or neglect (Most companies make no promise on the time this step will take and from our experience can take several days)
  • + The warranty company will eventually call the shop and approve or deny the claim

After all of these steps they will finally begin paying for your rental car- in some cases we have had customers without car coverage for over a week- think of the rental car cost you would incur!

Third, we examined already that the warranty company is a business but, let’s talk about how they keep some of their profits when you have a legitimate claim. A lot of policies and contracts will stipulate how much they are willing to pay for a shop’s labor and that they either supply their own parts or pay a certain amount for parts. There are several issues with this for us as automotive professionals:

  1. Stipulating the amount they will pay for labor and parts would cause us to lose money in many ways.
    • + The warranty jobs require much more time on the phone for our advisors (something figured into our labor rate)
    • + The amount of time the job spends on hold takes up a spot on the lot or worst case scenario- one of our lifts- where other cars can’t be worked on while we are on hold.
    • + We do make a little profit on each part- if we are doing a job it is only right for us to make some money as well.
    • + Our labor rate is figured on our costs for technicians, writers, and overhead. Limiting this would mean that we would not take in enough to cover our costs.
  2. We, as automotive professionals, are held liable if a part fails- regardless of the provider (a big reason we do not install customer supplied parts). The warranty company may sometimes get a part that we don’t believe is best for your car and therefore we will not put it in.

Therefore, we as a shop have come up with the only alternative possible. We fight as hard for you as possible with the warranty company and get you as much coverage dollar wise as possible. However, the downside is that you would still have to make up the difference. Therefore, you still have an out of pocket expense for the repair bill itself plus the first period of a rental car and the contract to begin with.

With all of the costs you have to outlay as the customer, both at the initial time of sale and when the vehicle fails- we believe it is much more beneficial for you not to buy the warranty and receive the limited benefits. We are happy to review any warranty contract with you as one or two have proven to be good for the customer- but they are very limited in our experience.