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New Car Extended Warranties Offer Peace of Mind
You?re miles from home when suddenly, your car sputters and grinds to a stop. You have the car towed to a local dealership, which informs you that your transmission is damaged beyond repair and needs to be replaced. Worse, your factory warranty has expired.
Fortunately, the extended warranty coverage that you purchased ? as a precaution against precisely, this type of breakdown ? will cover almost, the full cost of the repairs and offset some of your hotel costs. Down time will be an inconvenience, but at least you?re not burdened with a huge and unexpected repair bill. Conversely, less flattering, consumer comments about extended warranty plans include:
- ?These plans are nothing but a profit center for the dealership and they provide no value to me.?
- ?My car needs $200 worth of repairs, and wouldn?t you know it - my plan doesn?t cover these repairs!?
- ?I have spent my full budget on the car purchase ? I have no money left to spend on an extended warranty plan.?
I have observed new car purchasers who refuse to hear any details about the availability of extended warranty contracts.
A new car extended warranty is really an insurance contract that covers the cost of repairs after a vehicle?s factory warranty expires. Extended warranties, bought at today?s pricing, will also protect you from future increases in parts and labour pricing.
With the improved quality of today?s automobiles, and the enhanced, basic coverage of manufacturers? warranties, many new car owners are less inclined to consider added warranty protection. However, customers who put high mileage on their vehicles and/or plan to keep their cars beyond the basic warranty coverage, are prime candidates for extended warranty plans.
I recommend that purchasers consider a plan which covers the big-ticket items (engine, air conditioning, cooling system, transmission, etc.) that are costly to repair. A plan that covers every $100 component would be wildly expensive.
No extended warranty plans cover components that are subject to everyday wear and tear: tires, brakes, clutches, alignment, etc. The misconception, that everything is covered, is responsible for the majority of customers? disappointments.
A variety of new vehicle, extended warranties are offered by most automotive manufacturers, and prices range from approximately $1,000 to $2,500 and higher. The price is determined by the type of vehicle purchased (4WD, engine size, etc), the vehicle?s history of repair costs, covered components, deductible amounts, etc. The cost of a $1,200, 3-year warranty plan averages out to $33/month ? a little more than a dollar per day.
If a manufacturer is offering low rate financing (i.e., 0%), extended warranty plans can usually be included in your vehicle purchase. In other words, you can purchase the extended warranty plan and finance it at 0%.
Most extended warranties are transferable from one owner to another. With transferable warranties, expect to pay a nominal administrative fee of $75 to $100.
Each car owner must decide for him/herself whether investing in an extended warranty is worthwhile. Will you trade the vehicle in after four years? Will you keep it for 10 years? Give it to a family member? Buy out the vehicle at the end of the lease?
If you do purchase an extended warranty and then sell your car after four years, will you recoup any of your investment? Ask yourself: What extra amount would you, as a used car purchaser, pay for a four year-old vehicle with an extended warranty? From my experience, used car purchasers typically prefer, and will pay extra for, added protection on a three or four year-old vehicle over a similar, non-warrantied vehicle.
Consumers who say that they can?t afford an extended warranty should reconsider their decision carefully. If a customer truly can?t afford a few extra dollars per month, then how will he/she afford a large and unexpected repair bill? These customers probably need the coverage more than they realize.
Obviously, the more comprehensive the coverage, the more an extended warranty is going to cost. But, with the cost of repairs today, this extra protection can easily pay for itself with one repair bill claim. When you average out the cost of an extended warranty over the lifetime ownership of a vehicle, it is a minimal investment to ensure peace of mind driving.
Ken Shaw Jr. is President of the Toronto Automobile Dealers Association and is a new-car dealer in Toronto. E-mail comments to president@tada.ca
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