Extended automotive warranties: Security or risk?

by DAVID MELLON

Extended automotive warranties: Security or risk?

The new or pre-owned car buying experience for most people is one of improvement, reliability, security and peace of mind that repair costs will be minimal. This is the main reasons most folks shell out extra cash for extended warranties. But this security doesn't come cheap or necessarily as a bargain.

You know the drill. You are now in the finance office closing your deal on your new car or truck and the question comes: ��Would you like to have an extended warranty?��

These extended warranties can increase your final bill by as much as $2800 and your friendly dealership will go out of their way to make this purchase simple by offering to wrap this cost into your finance package �� but is it worth it?

Lets take the cost of money alone (your loan) into consideration. The $2800 additional cost on your loan, amortized at 6% making monthly payments for 5 years is $432.66 So��now we can see the extended warranty is actually costing $3,089.75 for the life of the loan.

Now let��s take a look at what is NOT covered as identified in the small print on a typical Bumper-To-Bumper extended warranty.

-Paint/carpeting, frame or structural separation -Manual/hydraulic clutch assembly, trim, hoses and rubber parts

-Fiberglass top repositioning, refitting or realigning, moldings.

-Distributor cap/rotor

-Tires/wheels

-Air bag/supplemental restraint system -Lenses

-Battery and cables

-All maintenance service and items such as alignments, wheel balances, engine tune-ups

-Spark/glow plugs, plug wires

-Brake pads, linings & shoes -Filters, lubricants & coolants, hoses, and v-style belts

-Light bulbs/headlight or taillight

-Exhaust system -Weather stripping

-Body panels

-Brake rotor/drums -Normal fluid/oil lubricant seepage (hold on a second��what is ��normal�� seepage? It was not normal new!)

-Canvas, vinyl or fabric tops

-Satellite/GPS systems, video systems, remote compact disc changers

-Shop supplies, hazard waste removal, body adjustments, buttons, handles

-Door hinges, glass and glass assemblies

-Service adjustments and cleaning

-No repairs will be covered unless all factory recommended maintenance has been keep up to date

-No repairs will be covered if it is deemed to be caused by driver error or neglect

-No repairs will be covered without pre-approval

**Absolutely no claims will be paid without prior authorization

**Customer will be responsible for a $100 deductible for all claims approved

Extended Warranty a Security or Risk?

��Just bring it back in and we will fix it.�� That��s what you may be told when approving the addition of this policy to your loan, but consider this: The list of items/repairs above are almost certainly NOT covered, and are considered wear items. We must now think about the cost of repairs of what IS covered and the probability of failure. The majority of repairs left are major items such as engines, transmissions and differentials also known as the powertrain components. (so much for Bumper-To-Bumper right?)

Your new car came with at least a 3 year 36,000 mile warranty. Many new cars come with a 5 year 50,000 warranty and Jeep, Dodge and Chrysler now come with a lifetime power train warranty! So the value of an extended warranty is what?

Let��s look at a transmission failure and a Ford Escort with a 3 year 36,000 mile Ford Factory warranty. Let��s say we did buy this extended warranty for $3089 and our vehicle makes it to 95,000 miles but 6 years later the transmission fails. We are covered right?

Let��s see: Your Dealership or Ammco Transmission can rebuild your transmission with maximum part failures considered for around $3000. So now we pay the $100 deductible and our extended warranty cost went up to $3189!!!!! But wait��. what if we have multiple failures? Wouldn��t we save?

Answer:

Yes, but consider first how long you are going to keep your car and # 2 how many cars have you had where you needed more than one new transmission or engine? I have been in this business for 20 years and in my experience, total Powertrain failure (both engine and transmission or one component multiple times) without abuse or neglect is highly unlikely. The odds of winning the lottery are much greater! Then consider this: Auto manufacturers such as Jeep, Chrysler & Dodge would not offer a lifetime warranty if there was a considerable risk of failure.

These extended warranties are like an insurance policy in case your product breaks down after the manufacturers warranty runs out. It promises more protection. Some manufacturers will increase the length of the original warranty for a fee or you can buy a third party extended warranty.

After taking a calculated and researched look at typical extended warranty coverage, my standing is solid: extended warranties are not a good investment.

�CDavid Mellon (DLM-Distribution)