Automobile extended warranties/service agreements

[Bill George]

We almost purchased a Subaru before the second RAV4 because my wife liked and her friend had one but the salesman and I use that term carefully was a blank hole person and we just ended up walking out and back to the Toyota place. To bad as we had the money in hand as my wife just got her inheritance.

[Jerome Stanek]

Attachment 507463

I have a 2007 Ford Eddie Bauer Explorer

[Bill Howatt]

We almost purchased a Subaru before the second RAV4 because my wife liked and her friend had one but the salesman and I use that term carefully was a blank hole person and we just ended up walking out and back to the Toyota place. To bad as we had the money in hand as my wife just got her inheritance.

I guess that can happen with any salesman/dealer. I had a similar problem at a Toyota dealership. It was obvious they could care less if we bought or didn't buy and it reminded me of the Japanese car dealers of years ago when they were a hot item - take it on our terms or just don't bother.

[Doug Garson]

Here are some of my thoughts on this subject. One, companies selling extended warranties do so to make a profit and thus they must charge more in total for the premiums than they expect to pay out in claims. If they get that math wrong they will lose money. Two, if you buy an extended warrantee, you will probably pay out in premiums more than you will receive back in claims but in return you are protected in case you one of those in the minority who have a claim that exceeds your premiums. It's no different than buying fire insurance on your house, odds are you will pay more in premiums over your lifetime than you will ever collect but you have protection "just in case".

[John M Wilson]

It's no different than buying fire insurance on your house, odds are you will pay more in premiums over your lifetime than you will ever collect but you have protection "just in case".

I've been sitting on the sidelines watching this discussion play out, and finally decided to add my 2 pfennings.

Intellectually, I do very much "get" the reasoning that over a large population, the issuer of the policy is going to make money. They have the data, and have a very, very educated guess on what those policies overall are going to cost them. In any good casino, the house always wins.

But (and there's always a but), in my sometimes irrational brain, I do the calculation a little differently.

If the car has a problem, I've got some coverage, and I'll feel pretty smart.

If the car never has a problem (and I tend to keep cars 7 - 10 years) then I'm very happy that I bought such a good car, and I'll feel pretty smart. The cost of the warranty has faded from my memory years earlier.

Either way, I'm happy.

I see both sides of the discussion, and can agree with points on each side. One of our members here at the Creek used to have an epigraph after his signature, something like: "It's my shop, and that's what makes me happy". If buying an extended warranty/service policy brings someone peace of mind & makes them happy, I'm all for it!

[Bill Howatt]

Regardless of economics, "peace of mind" is a huge factor in these decisions. It all boils down to, "you pays your money and you takes your chance" since nobody has a good crystal ball.

[Dan Friedrichs]

Probably because say 90% (?) of people who pay for extended warrantees never make a claim. It's definitely a moneymaker for the dealer. When my wife worked at Best Buy we could buy extended warrantees at cost which was about 10% of retail.

Yes, that's exactly my point. 90% of people are paying for a product they lose money on.

The value of insurance is that it spreads risk across a pool. If you can afford to cash flow the risk, you're overall financially better off not buying the insurance.

[Pat Germain]

- Dealers typically have a HUGE markup on extended warranties. I like to offer them half of the price they quote. Sometimes they say, "OK" which makes me wonder just how much that markup really is.

- After declining an extended warranty for a new Subaru, the dealer offered me a super-low-interest loan if I bought the extended warranty. Dealers get only so many of these loans per month and they tend to save them for hard negotiations. The money I saved on interest paid for the warranty. (Of course, this doesn't apply to people paying cash for a vehicle.)

- Extended warranties don't apply to wear items like tires. If a tire is defective, the tire manufacturer's warranty will apply. Surprisingly, you can take a new vehicle to Discount Tire and they will you sell you their Road Hazard warranty on the tires for about $35 a tire. I have used the Discount Tire Road Hazard Warranty extensively. My wife's previous Subaru came with Bridgestone tires which were extremely delicate and extremely expensive. She got five free tires from Discount Tire.

- Be aware extended warranties won't cover maintenance items like hoses, spark plugs, oil changes, cooling flushes or timing belt replacement.

- I disagree about issues likely coming up in the first three years of ownership. More often it's just after the manufacturer's warranty expires when the transmission melts down, the engine computer fries, a differential toasts or a turbo seizes.

Whether or not an extended warranty is a good buy depends on the vehicle and the customer.

[Brian Elfert]

If a vehicle is known to have enough problems that an extended warranty is a must, should you be buying the vehicle?

[Bill George]

If your concerned about losing a couple thousand on a Insurance policy You will never collect on, why buy Life Insurance you will never collect on it

[Pat Germain]

If a vehicle is known to have enough problems that an extended warranty is a must, should you be buying the vehicle?

That is a good point. It's kinda funny how Honda and Toyota will brag about the reliability of their vehicles then suddenly spin horror stories about expensive failures when trying to sell an extended warranty.

The reality is every manufacturer can have vehicles with problems. I can buy a Toyota Tacoma and drive it for 250,000 trouble-free miles. Then I can I can buy a new Tacoma only to learn it's plagued with problems. Two years later, they might be back to being reliable again.

[Alan Rutherford]

If a vehicle is known to have enough problems that an extended warranty is a must, should you be buying the vehicle?

If I know the vehicle has problems then surely the manufacturer does and that cost has been considered in pricing the extended warranty.

[Michael Drew]

If you are planning to keep the rig for longer than the manufacturer's bumper to bumper coverage, then I would suggest you look hard at an extended warranty. Or, if you're disciplined, set aside a 100 a month in a contingency fund for the eventuality of needing to use it. Vehicles are getting more complicated all the time, and the more bells and whistles it has, the more points of failure you will have. Standard shop rate nowadays is $150 an hour. That adds up pretty quick if you do not have warranty. A drive train failure can easily cost you 5K. Plus the down time and rental costs you will incur.

Having said that, shop around. There is significant margins on extended warranties. Stick to the manufacture, but check with other dealers to find out what they charge. There is no limit to the distance from you either.

I have a different approach..... I buy new every three-four years. I've been doing this for 30 years. I have an account that money is automatically transferred to, every payday. It builds up of time. When it's time to buy a new rig, I have cash to cover the difference between whatever I get from the sale of the current vehicle. Kinda like a lease, but I always own my vehicles outright. I get out of the vehicle before it needs the more costly maintenance of wear parts, and I always have full coverage.

[Pat Germain]

If you are planning to keep the rig for longer than the manufacturer's bumper to bumper coverage, then I would suggest you look hard at an extended warranty. Or, if you're disciplined, set aside a 100 a month in a contingency fund for the eventuality of needing to use it. Vehicles are getting more complicated all the time, and the more bells and whistles it has, the more points of failure you will have. Standard shop rate nowadays is $150 an hour. That adds up pretty quick if you do not have warranty. A drive train failure can easily cost you 5K. Plus the down time and rental costs you will incur.

Having said that, shop around. There is significant margins on extended warranties. Stick to the manufacture, but check with other dealers to find out what they charge. There is no limit to the distance from you either.

I have a different approach..... I buy new every three-four years. I've been doing this for 30 years. I have an account that money is automatically transferred to, every payday. It builds up of time. When it's time to buy a new rig, I have cash to cover the difference between whatever I get from the sale of the current vehicle. Kinda like a lease, but I always own my vehicles outright. I get out of the vehicle before it needs the more costly maintenance of wear parts, and I always have full coverage.

This is what most BMW and Mercedes Benz owners do. They know any repairs are EXTREMELY costly. They dump their BMW or Benz the instant the manufacturer's warranty is up. I know a tiny few people who had good luck with a used BMW. I know many more who regretted buying used BMWs and dumped them within a few months after many thousands of dollars in dealer-only repairs.

[Bill George]

This is what most BMW and Mercedes Benz owners do. They know any repairs are EXTREMELY costly. They dump their BMW or Benz the instant the manufacturer's warranty is up. I know a tiny few people who had good luck with a used BMW. I know many more who regretted buying used BMWs and dumped them within a few months after many thousands of dollars in dealer-only repairs.

Thanks for posting I have been tempted at times, they Look so nice even used!