The first thing to know about any car warranty is that it’s basically a bet.
But is it a good one . . . for you?
The issuer is like the guy running the baccarat table at The Sands in Vegas. He is wagering that you’ll definitely pay him – and that he probably won’t have to pay you.
He’s not the mark, in other words.
You are.
Warranties aren’t randomly selected time and mileage intervals. Those time and mileage intervals are based on extensive in-house durability testing of the vehicle – and meticulous cost-benefit analysis.
The “house” is betting that the warranted vehicle won’t need more than the usual maintenance-related things while the warranty is in effect. That’s how money’s made, you see.
It is always possible something will go wrong, of course. And it’s actually likely that something will go wrong. Nothing made by man is any more perfect than the men who made it.
But the odds are it won’t be a big thing that goes wrong.
And no matter what goes wrong, you’ve already paid for it anyway.
It’s just a question of how much.
The car manufacturers do a lot of heavy math. Whatever the car’s sticker price is, it includes the potential cost of the most-likely big-ticket repairs that would be covered under warranty – factored out over what it charges for all the cars it sells.
If the manufacturer has to pay out some money to a dealership to fix your car, that cost has already been spread out over what it charged everyone who bought a car. It’s a business, remember.
The new car warranty only seems free.
It’s also why aftermarket or extended warranties – the post-warranty warranty coverage often offered with used vehicles – almost always cost obviously extra.
In the first place, because they have to charge you extra.
It is not easy to fold the cost of a post-warranty warranty into the price of a used car, because used car prices aren’t set inscrutably – by the manufacturer, behind closed doors and according to their own internal formulas – but by the market. Which only places a value on the car itself – not the car plus what it’s likely to cost to fix it.
It is also more likely that it will need fixing – because it’s used and no matter how well-maintained and treated, things just wear out over time. The degree of wearing out may vary from one car to another, but no car is immune.
The older the car – and the higher the miles – the worse the odds.
And (usually) the more expensive the post-warranty warranty.
The prices of these post-warranty warranties also vary according to the particular make/model and year car being covered. Because some cars have better track records than others. And because some cost more to fix when something breaks than others do.
But the thing to keep in mind is that if you purchase one of these post-warranty warranties, you are pre-paying for what the issuer of the warranty calculates it may cost to fix the car.
Just the same as with a new car, only it’s more obvious because you have to cut a separate check.
The worst part of this deal, though, is that if nothing does go wrong, you’ve still paid.
A better deal might be to pay yourself – by setting aside a sum equivalent to the cost of the post-warranty warranty in a “just in case fund.” The big upside being that if the car doesn’t need an expensive repair, you won’t have to pay for it.
Or, haggle the price of the post-warranty warranty down. Better yet, get them to include it at no additional charge as part of the deal.
This is one of the great upsides of both the used car and the used-car post-warranty coverage: Everything’s negotiable.
One caveat.
Two, actually.
The first is that post-warranty warranties sometimes contain dodgy fine print written specifically to avoid paying on a claim. It is at least as important to read – and understand – what’s covered (and not) as it is to decide whether it’s worth paying for the coverage.
Two, post-warranty warranties are often not issued by the manufacturer (something you never have to worry about with a factory new car warranty) and the company which issued it may or may not be around in two or three years from now – leaving you holding the bag for both the transmission repair your car needs and the cost of the warranty which you assumed would cover it.
. . .
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Great points, Eric!
When I just purchased my nearly-new 2008 Miata for just under $7k, the dealer offered one of these extended warranties. The car already had 107,000 miles so it seemed like these possible breakdowns might possibly occur sometime. But the price? $2,339 extra!
In other words, the charge for this was an additional 33% of the base purchase price!
Believe me; I know how to say, “This is ridiculous!” And I can probably say it in several different languages, with many of those translations being four letters long.
Thanks,Travis!
I’ve been at this a long time and while I recognize that sometimes warranties can pay off – just like insurance – it’s usually a bad deal. And because I’ve saved lost of money I could have spent on “coverage,” even when the “policy” does pay off, it really doesn’t.
I seem to see a pattern in the way these warranty companies operate:
Charge several thousand bucks for the coverage- enough to cover the automatic transmission when it breaks- since they basically all cover the power train; and exclude coverage on just about anything else- i.e. electronics, suspension; electrical components; climate control…. If such things are not out-right disclaimed in the fine print, you can bet that they will find a way to deny coverage when you put in a claim, anyway…..
Only time the warranties work out to be a good deal, is if one has a super-unreliable vehicle that is uber-expensive to repair- like a Land Rover….. Although given their recent history, I’d hate to think of what a legitimate after-market warranty might cost on one of them!
Warranties are a perfect way to solve asymmetrical information issues.
For example, Italian cars had a (justified) reputation of being junk so, when FIAT designed the new 500 they made genuine efforts to address this.
FIAT believed they had a reliable car but the public did not know so, when they launched in 2007, it came with extended warranty (at least 3 years, I don’t remember). This makes sense because the warranty was worth less to FIAT who trusted their product than to the customers who were more skeptical.
But of course, Fiats are still the junk they’ve always been, so now they’re likely going to pull out of US sales yet again (But of course, that hasn’t kept them from ruining Chrysler- whose vehicles are now contaminated with all of Fiat’s Italian crap).
The Fiat 500 is the most unreliable car on the US market, and I believe the worst selling….. Same thing happens every single time Fiat tries to compete on the US market. Why the hell can’t those pasta-fazools just make a decent car?!
Guess experiences vary. Bought the VW extended warranty for a 5 year old 2006 Phaeton, from a dealer who discounted these. Total price was $2500, good for 7/70k. Coverage will expire next month, ie. virtually full coverage for 12 years.
The payout so far has been at least 60% more than cost.
Just recently some gasket work on transmission and engine was authorized for 1900 total, including 9h of labor, at dealer prices, 125/h, haha.
(at a Philly-area VW dealer, the worst crook ever encountered btw… )
For expensive to repair vehicles like a Phaeton, this was a good wager.
However, if that same car had had a more typical mileage at age 5, like 50+k, price would’ve been closer to 8k for the policy, which clearly is too much.
They do indeed know how to calculate their prices.
discounted these = the warranty, not the car
Ive heard stories of buying the policy at carmax on mechanical horrors like Jag and landrover that have paid off big for the buyers.Without any hassles to boot.
CarMax no longer offers the warranty on some vehicles. Almost certainly because of people like Doug Demuro and his Land Rover.
Why would anyone but a warranty from a dealer? They get a huge cut of the action, meaning you’re overpaying. You’re better off getting one in the open market, possibly the same one they’re trying to sell you.
As my dad always told me and told the people selling extended warranties, ” if your first priority is to sell me a warranty on a new product, maybe I don’t want the junk you’re trying to sell me”. The appliance people started the trend 40 or more years ago…. I have no qualms to this day saying pack sand in yer arse when they try……..
Hi Duramax,
“…pack sand in your ass”…. hat tip, sir! You just made my day!
Ah, but that’s where the profit is. Certainly not from selling new cars.
I’ve bought a few used cars from an Acura dealer (both Foresters) that offered a lifetime powertrain warranty. The catch ws that you had to do all oil changes and tire rotations, on the factory schedule, with their service department. So you overpay for those services, but are covered if the engine or transmission goes.
Read the fine print carefully on these, I saw one that has tire rotation and balance every 3000 miles, who the hell has time to have your tires rotated every 300 miles even if free?
Right, there were several options. Every 5000 miles or on the factory schedule for example. Mine were on the factory schedule.
I think the reality these days is that most dealerships are more about selling finance, warranties, service packages and other crap you probably dont need like seat polish, rather than selling cars.
Just had an experience this weekend – was actually quite depressing. As cars are not selling anymore (even though they tell us the economy is booming) been seeing some crazy offers on JLR cars, so made my way to a JLR dealership over the weekend to check out the Velar and its sportier cousin, the F-pace. Now I thought used car dealers were not the sharpest bunch, but thought that the main dealer would have SOME understanding or passion about the cars, the engines, and the features they sell. Couldnt have been more wrong….. had hardly any clue about the difference between engines, i guess nobody cares anyways these days. Didn’t know much about differences in the sound systems. Didn’t even have a proper idea of what the different drive modes do… or what the adaptive dynamics package is, vs the adjustable suspension….. WTF wanted to pull my hair out…. really started to realise that regardless of regulation/electric/tax, these big manufactures have fundamental problems, in that there are no more actual CAR guys…. their whole focus was on providing some sort of a hotel service… i mean my kids were taken away to a play area and given toys, bimbo was there to serve coffee…. guy was all courteous and in a nice suit … but may well have been selling a washing machine because they didn’t know jack about cars….. (sorry about the little rant, but dont know anywhere else people would understand my pain 😛 )
Geeks of all sorts have been forced out of their professions. Knowledge in sales is pretty extinct. Most everything requires the customer know on his own. And then the sales people become an impediment.
Reviewing the paperwork afterwards, I realized that we were hosed on the cost of a Ford ESP by the F&I weasel at the Group One dealership where we bought my wife’s Explorer.
Fortunately, if the request is filed with Dearborn within 30 days, Ford will issue a refund on an ESP, but you will have to follow their process to the letter. In our case, the F&I manager at the dealer tried all kinds of games to keep the refund out of our loan balance, up to and including sending out fake “Refund Claim” paperwork.
The first mistake was buying anything from Ford…
Used to be Chevy dealers provided a warranty with all used cars. I believe it was only something like 60 days or several(?) thousand miles, but at least it protected the buyer from being sold a lemon with known existing problems, as it would probably show up in that time.
Now, dealers push an extra cost warranty on you that does NOT cover the problem that they know about and have covered up (clearing engine light, etc). Of course they are willing to roll the warranty cost into the financing and add to the monthly payment.
My VW warranty wasnt worth the paper it was written on.Bye bye VW.
You know Fred, you can pick any car brand on the planet and survey the owners you can find xx number of people who hate the company and say the same thing you just said, however for everyone like you there are half a million people who are delighted and happy. I have my own stories of issues, but again the company I had issues with has a decent rep.
The company has virtually nothing to gain by denying you a legitimate warranty claim. The numbers are just so tiny that their reputation is way more important than an amount that is down to the 5th decimal place in their income stream.
The dealership has a bias too to approve since they get paid by the factory for the work. So going out on a limb here I’d say if they denied warranty coverage they probably had a good reason. Maybe one you would not agree with, but one nonetheless.
3rd party warranties are another issue altogether, the relationships and dynamics of these are different.
Honestly, I have never had to make a VW warranty claim, even after 12 VW’s over the past 45 years and well over 3 million driven miles. The issue I had was with Infinity/Nissan and we fought and battled and fought, but in the end they agreed to cover it feeling their rep was more important than a $1600 repair job.
If you eliminate any car company that has someone mad at them for warranties you will spend a lot of time on a bicycle.
No, they have a bias NOT to do the work, as a warranty job pays them far less than a regular repair job.
Bobster is 100% correct.I owned VW’s all my life BTW.As for my Jetta falling apart at 80-100k miles,thats a FACT and wasnt limited to me.Electronics sucked.Wheel bearings,all failed at 100k.Starters,alternators had real problems.Sensors were trashed at 100k.Comfort system sucked,A//C was a fungus pit.Yes,that was the experience at VWVortex too.
But go buy one.Or buy an extremely reliable toyota or an almost as reliable honda(Trannies are the weak spot,autotrans there) Honda tranny is a never known good or bad,some models are,some arent.
German cars,reliability just isnt there.
However,when it was new(er),it handled like a race car with the sports suspension,was quick enough,and was very comfortable with seats that were the envy of all others.I had the highest optioned sports model.Excellent paint too.Its issue was,CONSTANT expensive failures throughout the vehicle.
How about this…VW powered mirror that goes whirrrrr 24/7. Service manager tells me,I cant hear anything.I stuck my stethoscope on it….WHIRRRRRRRRR!!!!!!!! He cant hear anything and tells me a 750 milliamp draw is ‘normal’ Fuck you VW,never again!!
Yeah, Bobster- and the manufacturers usually only allow for some absurdly low flat-rate time for the warranty repair- and mechanics….errr….I mean technicians are more likely to do a botched job, since they’re hurrying as fast as they can to get through the low-paying job- and it’s often the newest techs that get the warranty work to do, since they’re lowest man on the totem pole…so they get the cruddy low-paying warranty stuff.
Nephew bought the Ford truck with the bad diesel engine.Bought the dealer warranty too.Got a replacement engine from it.Ford was NOT happy,and it didnt go smoothly,in fact took a YEAR,but it did get covered.
I have bought manufacturers extended warranties for approx. 20 years, about 10 vehicles. I buy the full boat, with some deductible, usually $100. In 20 years, I would say I’ve broken even, or slightly lost money. I only buy CPO (from the dealer) or new cars.
Some ways I’ve won was a certified-used Suburban that needed a head gasket and a new front differential. I think it was a flood car that the dealer got scammed on, but I was protected from approx. $8-10K in repairs.
On a Durango we also bought CPO, it need a new touch screen and computer, approx. $3-4K bill.
On most new cars I buy, I have probably lost money.
One thing that keeps me buying them is if I sell the car earlier than the term expires, they always send me a refund check for unused time, and they are almost always very fair.
The biggy for me is piece of mind. All I have to do is bring the car to the dealer and say ‘fix it’. No arguing, no anything. It’s nice.
But keep in mind these are manufacturers warranties, not 3rd parties.
ohh, with the newer cars coming with such low profile tires, I also always buy the tire/wheel insurance. I have definitely made out with these. My truck I smashed a wheel, two tires too, covered. My wife’s MB was 4 tires, two wheels. These have been so inconvenient that we now buy vehicles with larger profile tires, so I might lose in long run.
Just my 2 cents.
ohhh, i forgot a CPO Caddy DTS I bought. I wanted the extended warranty and the dealer refused to sell it to me. I insisted or I walked. They sold it to me. Glad I insisted. Ended up the car was in a bad wreck which damaged the engine internally. My local dealer was awesome, and GM made them take the bad engine apart to see what was wrong. GM stood behind the car and the warranty and replaced the engine at considerable expense. I’m guessing 10G’s. I learned later from the GM Rep that no way that car should have been sold as a CPO, so maybe the ‘other’ dealer got in trouble, don’t know. But I got the insurance that I wanted.
See why I believe in manufacturers warranties now? At least I know GM’s have been rock solid in the past for me. Too bad I don’t like their cars much anymore.
I’ve read that ‘CPO’ and similar terms are generally meaningless because of how much not only the programs vary but how the execution at the dealerships varies.
Brent, I have bought many CPO vehicles over 20+ years and 99% of the time never had a problem getting something fixed at no cost to me, or just a $100 deductible. The 1% was a caliper that they said was a ‘wear’ part and not covered. I talked to the service mngr., that it was not a wear part and he agreed and got it covered for me, so 100%. But I agreed to pay for the brake pads since they got destroyed, but were very worn at the time. Fair. However, I only buy from reputable dealers, and yes I pay more for cars at reputable dealers than not-so. But I also buy lots of cars/trucks from a few of the same dealers so maybe I have a little more clout?
Chris, there is no such thing as a ‘reputable dealer’. How much did you have to pay for those brake pads, which you could have bought at the auto parts store for $20?
CPO is just a marketing gimmick- it means nothing; it is just a way of extracting more money out of a customer for a car that is the same as any other.
Here: This lawyer explains:
https://www.youtube.com/watch?v=f037K2Fr2FU
Sad thing is: In many cases, if you compare the total price of what you pay for the CPO car deal to what a brand new one costs when they’re running a sale/incentives/etc. you can often get a brand new one for same price, or even cheaper than the used CPO….
To each his own. I know may reputable dealers. The relationships I have with the ones I like are good for me and good for them. One of them taught me how we could both win when I was putting 40-50K miles/year on cars. Could I have driven said cars for 200K miles and taken a chance on them not leaving me? Sure, and I would have saved money, but I would have lost a big sale if I was late or missed a meeting. Time and availability is how I make my living.
Think about this. When doing 50K miles a year, that’s a lot of oil changes, tires, brakes, etc… and the good dealers would have a rental waiting for me so I wouldn’t lose 5 minutes of my day. One even got really good and would have it filled up for me, and said ‘don’t worry about filling it up coming back, we’ll take care of it’ smart guys. So $40 for me giving them profits of approx. $5-10K a year. Good business. I got what I wanted and they did too.
No offense, but $40 dealer brake pads vs $20 is a non issue to me. What is more valuable to me is my time. The dealers who make it easy and painless for me gets my business. Yes , it cost more to buy, but I make more in my profession with the saved time than having problems with vehicles. They are tools to me.
So again, to each his own.
My sister fell for a warranty scam. She bought a brand new toyota corollo a 2012 at the time. It came standard with the 3 year/36k mile warranty and she extended it another 3 years. I found out and told her to try and cancel that extended warranty. She just bought the most reliable compact on the market she won’t have problems until she hits 100k (timing belt) and they don’t cover maintenance. Some how she was able to cancel the extended warranty.
My nephew also fell for the scam and bought bumper to bumper coverage and auto loan insurance on his 2015 wrx when it was brand new. All in all it ended up costing as much as an sti and with insurance for a 24 year old with a new wrx total monthly payment came out to 1000 a month for 60 months!!! The dealership even told him he had 3 days to change his mind. He kept the car but moved in with his parents and is still there to this day.
Does ‘the longer the warranty the more you should worry’ make sense? As in Nissan’s 100k mile warranty on the Titan vs Chevy’s 30k mile warranty on the Silverado.
Hi Brazos,
Warranties are also expressions of confidence; the best example of this being Hyundai/Kia – which had a bad rep for poor quality. They needed to convince people it was safe to buy their vehicles – and thus was born the 10 year/100,000 mile warranty. They would have gone bankrupt if the cars didn’t generally hold up well for at least that long.
And, they did.
Warranties are also expressions of confidence…My Jetta they cut waaaaay back on warranty period after my generation,the 2001.Because they were getting hosed on claims.So collecting on claims was like arguing with the mob.Of course we all know VW and honesty isnt much.
Eric,
Would like your opinion on Warranty Forever (R). We have a dealer here in Phoenix who highly promotes it. From what I can tell, you have to get the issuer’s prior permission for literally everything including oil changes. It looks like the whole scheme is to build in escape points so when you really need the warranty they can claim you didn’t get all of the maintenance approved and deny you.
D
Hi D,
The thing to keep in mind is that these are really insurance policies – and when you think of them that way, you understand the object is to avoid paying a claim.
If a warranty is free – included with the car – I’m all in because there’s nothing to lose. But I am hugely suspicious of any other warranty for the same reason I’m suspicious of insurance.
It’s not a bad idea in principle – but it has morphed into yet another con.