Extended Warranties

To EXTENDED WARRANTY COMPANIES!!! Oh how I hate extended warranty companies. Oh, how they screw their customers, let me count the ways….

  1. Nothing is covered. They give you a huge list of covered items, looks like everything, right? Wrong. There are over 30,000 parts on a modern (since 1990) car. The warranty lists about 1000 of them, if that. Phrases like “internally lubricated components only”, “no coverage for seepage”, “electrical parts not covered”, “diagnostics time not covered” are key phrases. These guys are not dumb. Theses warranty companies are run by investment firms that know exactly how frequently things fail on cars. They stack the deck against you in a way that would make Vegas wince. Don’t buy what they are selling because all those “covered repairs” they advertise get really spotty when the chips are down.
  2. They don’t PAY! When it comes time to get your car fixed and get it covered, you will have a deductible (WAIT! That makes it Insurance! You’re right- next chapter). Also, they will typically pay MSRP for dealer parts or 10-20% markup  (not margin, markup) on aftermarket parts. This is usually at best 60-75% of the retail cost of the part. Good shops with good clienteles are not going to offer to cut their profit margin but so much. Why should we? We do a quality job and expect to be rewarded accordingly, why should the fact that the “warranty” company doesn’t feel like paying reduce our profit level? The warranty company will also tell you that the reason they are not covering everything is because the shop is too expensive. In reality, they are simply covering their butts and trying to have you be ticked off at someone else.
  3. They aren’t warranties! That is correct, what you are buying is mechanical breakdown insurance. Just like cheap health insurance never wants to cover anything, these guys do things the same way. These companies are started and managed by investment firms and they know exactly how to make a profit. They pray on your fears of having to come off of a large chunk of money for a severe failure when severe failures just don’t occur. Most cars come with pretty extensive factory warranties for engine, transmission and emissions systems. The minimum engine and transmission warranty on late model vehicles is usually 5 years, 60k miles. The odds of the warranty company ever having to pay to cover a severe failure is very slim. Keep in mind, if it was typically working out in the consumer’s favor, they could not stay in business.
  4. The sales people get a commission for selling the warranty. That is correct. That is a good chunk of the cost of the warranty. They are heavily incentivized to get you to purchase that warranty.
  5. Take other people’s word for it:  http://www.bankrate.com/brm/news/auto/20021007a.asp

So to sum it up, just stick that two or three thousand dollars in a savings account and use it if you need it!!!

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