Automobile extended warranties/service agreements

[Mike Mason]

A lot of people are saying that the primary reason to buy an extended policy is because there are a lot of expensive-to-replace electronics in cars.

There are, but it doesn't matter a bit; no matter how expensive it is to repair a car, the premiums for an extended policy necessarily exceed the average person's claims. If they didn't, the company offering them (no matter whether it is the manufacturer, dealer, third party or late night celebrity on tv) would be losing money. (The fact that there are so many late night poorly done, deceptive commercials is enough of a sign to steer me away, even if I was so inclined as to participate in the game).

Just like in gambling casinos, there will be some people who come out ahead with an extended warranty, and many who don't. Again, the premiums have to be more than the average person's claims, and the casino has to bring in more money than it pays out.

Then there are the possible headaches in trying to get a claim covered, the possibility that you sell or wreck the car well before the warranty is up, the possibility that the warranty company goes belly up, etc.

[Jim Becker]

There are, but it doesn't matter a bit; no matter how expensive it is to repair a car, the premiums for an extended policy necessarily exceed the average person's claims.

What data are you using to come to that conclusion? I paid $2100 for a manufacturer backed "exclusionary" plan (covers everything except a few specifically called out exclusions which are mostly wear and appearance items) and it covers me through 100K miles or 10 years, whichever comes first, with zero deductible. My vehicle is tech heavy and you can't just replace individual parts anymore...it's whole assemblies. This is an insurance policy. And if for some blessed reason I don't have $2100 worth of repairs over ten years, I'll not even blink about having paid that insurance premium. If I decide to replace it early...like I actually just did with my previous one...I get a prorated refund...which I also just did.

Now I do agree that people should stay really, really, really far away from those third party contracts like you mentioned advertised on TV, online and in print as most of those are not worth the paper or ones and zeros they are printed on. Manufacturer extended service contracts are a different animal from those "things".

[Brian Gouldman]

So, it’s not for you… got it

[Mike Mason]

What data are you using to come to that conclusion? I paid $2100 for a manufacturer backed "exclusionary" plan (covers everything except a few specifically called out exclusions which are mostly wear and appearance items) and it covers me through 100K miles or 10 years, whichever comes first, with zero deductible. My vehicle is tech heavy and you can't just replace individual parts anymore...it's whole assemblies. This is an insurance policy. And if for some blessed reason I don't have $2100 worth of repairs over ten years, I'll not even blink about having paid that insurance premium. If I decide to replace it early...like I actually just did with my previous one...I get a prorated refund...which I also just did.

Not sure what "data" you need. Is there anyone who would argue against the statement that, on average, whatever the cost of repairs is expected to be (and the people offering the plans are the ones that have the data from actual repairs, projected repairs based on life testing and suspended life testing, etc.) the premiums have to exceed the cost of repairs in order for the company to make money? If the expected cost of covered repairs over the life of the extended warranty is $1,500 then that is the minimum that they need to charge (also factoring in the time value of money, alternative investment options, etc.) in order to make money. If the expected cost of covered repairs over the life of the extended warranty is $15,000 because of those nasty electronics, then that is the minimum that they need to charge (also factoring in the time value of money, alternative investment options, etc.) in order to make money. There's no "data" required to see my point.

I think I've now explained this about 3-4 times in this thread, hoping to help out someone who hasn't thought it through, but everyone obviously can and will do what they want.

[Jim Becker]

We'll just have to agree that we disagree about the metrics. I will say that the contract cost isn't based on a single buyer; the risk to the the entity providing the contract is spread across many contract holders. Some or even many will not have substantial claims while a few will. This is no different than any other insurance situation in that respect.

And again, there are some crap products out there that need to be avoided...just like with any other insurance product

[Bill George]

What some of us are trying to point out the good factory warranty price is Not based on your Claim or might be claim , its based on tens of thousands of policy holders. Mine at $1800 for seven years or Jims at $2100 for ten years even if only 1 or 2 claims has paid off. Even if only 10% of the policy holders use or need its still there!

My wife had a Honda CRV we had lots of expensive repairs all covered by the extended warranty. When electronics are involved you will pay a lot as they replace parts until its fixed!

Some of you must have been very lucky not to have any repairs?

[Jerome Stanek]

We'll just have to agree that we disagree about the metrics. I will say that the contract cost isn't based on a single buyer; the risk to the the entity providing the contract is spread across many contract holders. Some or even many will not have substantial claims while a few will. This is no different than any other insurance situation in that respect.

And again, there are some crap products out there that need to be avoided...just like with any other insurance product

So your saying that the majority of people will not have problems that need the extended warranty. So that is not even a 50 50 Cr**p shoot. If the car is going to have problems most will show up in the first 3 years.

[Jerome Stanek]

What some of us are trying to point out the good factory warranty price is Not based on your Claim or might be claim , its based on tens of thousands of policy holders. Mine at $1800 for seven years or Jims at $2100 for ten years even if only 1 or 2 claims has paid off. Even if only 10% of the policy holders use or need its still there!

My wife had a Honda CRV we had lots of expensive repairs all covered by the extended warranty. When electronics are involved you will pay a lot as they replace parts until its fixed!

Some of you must have been very lucky not to have any repairs?

Would any of those claims be under the original warranty.

[Jim Becker]

So your saying that the majority of people will not have problems that need the extended warranty. So that is not even a 50 50 Cr**p shoot. If the car is going to have problems most will show up in the first 3 years.

I think that the idea that most issues will show up in the first three years isn't as accurate as it was when vehicles were simpler. The level of electronics used these days is very high, even on lower trim levels because of the move to nearly ubiquitous safety features, etc. The systems used to provide required power but with reduced fuel consumption are also a bit more complicated than the simpler naturally aspirated engines. Continuously variable transmissions are more common now and even normal shifting automatic transmissions are at 8-9 forward gears. The sum of all this is that the risk is more spread out for anyone who chooses to keep a vehicle longer term. The choice on how to plan for it is an individual choice.

I think the common use of the words "extended warranty" also cloud things. They are not "warranties" legally, despite being called that by both consumers and many sellers. They are extended service contracts and those are the words used in most of the written contracts...they are a form of insurance and even regulated that way, strictly in some states like Florida even. They are a pre-paid contract that says if you have a covered problem during the coverage period (time/miles), it will get fixed during the contract period with your only repair cost being your deductible if you have one. The bigger risk is who is backing it. If you are one who buys this form of insurance for your vehicle for whatever your personal reason might be, the safest backer is the vehicle manufacturer. The riskiest is the third party marketer.

But if you're not one inclined to buy this form of insurance, that's no problem, too. Some folks prefer to self insure, at least to some degree. Self insuring for future potential issues on a vehicle is a valid choice. Many of us have life insurance, we likely all have home and auto insurance, most of us have health insurance, etc. We do that to protect ourselves from the unexpected. "Stuff Happens". The same decision goes into whether or not we might opt for an extended service contract on a vehicle...if it's meaningful to us to have it, we buy it. If not, we don't. Someone else's needs don't count because their situation is their own.

[Jim Becker]

Would any of those claims be under the original warranty.

Vehicle OEM warranties are typically 3 years/36K miles, whichever comes first and most have more coverage for come drivetrain components, often to 5 years/60K miles, whichever comes first. A few manufacturers have different time/miles. There would be no coverage for failure outside of those provisions unless a manufacturer provides "good will" for a failure shortly after the original warranty expires or some component received a warranty extension due to a recall, etc.

[Bill George]

Would any of those claims be under the original warranty.

No, the first was some sort of sensor and that was $600 or so because they had to replace something else also. Second was rear axle leaking oil and that was about $1200, and this was on the Honda CRV. The last one was just out of the extended. Check Engine light was on and they could not figure it out, and this was one of the dealers. They wanted to start replacing parts with no guarantees, the first was $870 and I said enough.

Went to the Toyota dealer and purchased new RAV4 with extra warranty of course and they took the CRV no problem. We have been with Toyota every since, only things replaced.... battery's and tires. My pickup is a 2015 Toyota Tacoma purchased used from a dealer, it was traded in for a new Toyota Tacoma. I loved my Silverado but it was one thing after another but it looked so nice.

Car electronics are not like your big screen TV, they are driven and used so things fail... even after the 3 years. Some of you folks must be driving cars and trucks that Never have major problems. But there lots of folks that do and buying the Right warranty will save you money if you do, and most can be passed on to the next buyer which increases the trade in value.
What some of you don't get, its an Insurance policy based on thousands of people buying... its not based on You as just one person but its spread out like car or house insurance risks.

[Mike Mason]

So your saying that the majority of people will not have problems that need the extended warranty. So that is not even a 50 50 Cr**p shoot. If the car is going to have problems most will show up in the first 3 years.

Jerome, you are wasting your time (as I did) - logic, math and basic business concepts apparently don't apply here. (Don't forget there are those who don't believe in science either).

Too often, people quickly respond without ever understanding what someone is trying to say. I'm sure that there are many who do understand, but aren't wasting time one this. I'm done posting further on it.

[Bill George]

Well you two I just turned 80 this summer, I changed the serpentine belt and (6) spark plugs on my Tacoma a couple months ago. Up until a few years ago I changed oil and filters on both vehicles and always have done my own repairs. So what I posted above is NOT made up or fiction as I know what I am talking about, yes I have Code readers for both and can fix simple things as a crash detector sensor showing bad. I know the newer cars and trucks have integrated and networked sub control modules that need replaced and programmed by the dealer.

So both Jerome and Mike what vehicles do you own?

Once again, its an Insurance policy.

[Patty Hann]

So both Jerome and Mike what vehicles do you own? ....

car.jpg

[Tom M King]

We decided it was a good time to buy Pam a new car in 2020. We found the Subaru online that she wanted, and she went the hour and a half to the dealer. It was a new model, but when she got there a young salesman told her about the 2019 they had that had been a customer loaner.

The one she originally decided on was a fairly plain Jane model. The loaner had 8700 miles on it, and every option available. She called me, and I told her I really wanted to start with a new one, and didn't want one that a bunch of other people had driven. I have my own break in procedure, and we typically keep cars as long as they last, which is a long time. My truck was new in Nov. 2000.

We have never had a warranty claim on a vehicle. They stay in a building when not being used, and never go on the road when there is salt down.

They offered the loaded car for some less than the cost of the new one we had been looking at. While I was on the phone telling her I really didn't want a used car, the dealer offered to throw in the extended 100,000 mile warranty. I told her I really didn't want a sunroof, so they took the retail of that off too.

So long story shortened some, she decided on the loaner. It had been detailed perfectly, and never had a scratch on it. That's the one she's driving now. This is the first extended warranty on anything we've ever had, and so far haven't used it.