Unintended Consequences: Consumer Reports makes the case for extended car warranties

Presumably without intending to do so, a recent Consumer Reports article, reporting the results of a recently conducted consumer survey, makes a pretty strong case for buying a “bumper-to-bumper” extended car warranty depending on which make you buy and how long you intend to keep it.

The article (“Extended car warranties: An expensive gamble – The majority of buyers never use the coverage”) begins with this question and answer: “Looking for an easy way to save hundreds on your next new car and simplify the buying process at the same time? Skip the extended warranty.” Its rationale: “[O]dds are you’ll never need the coverage, and even if you do, the money you’ll save in repairs won’t come close to what you paid for the added warranty.”

But Consumer Reports’ survey results showed that a significant number of car buyers who bought extended warranties derived substantial value from the purchase. Of the 12,000 extended car warranty purchasers surveyed, 45% made claims for covered repairs. Purchasers of “less-reliable brands,” that is brands “that have had average or below-average reliability in [Consumer Reports’] Annual Auto Survey” were the most satisfied with their extended warranties. The claims or usage rates for owners of the four “less-reliable brands” identified were 71%, 65%, 63%, and 60%. For the three most-reliable brands, claim rates came in at 39%, 39%, and 36%, respectively. The survey also found respondents who purchased factory-backed programs and bumper-to-bumper coverage had a substantially higher level of satisfaction than did purchasers of third-party plans and plans offering limited or targeted coverage.

The article acknowledges that “[an] extended warranty can limit the risks of expensive surprises,” and that “peace of mind was the most common reason given by our survey respondents for purchasing the coverage.” It wraps up by offering several “smart-buying tips”:

Don’t buy under pressure. Dealers often try to sell the convenience of rolling coverage into a new-car loan, but that means you may be paying up front for coverage that you already have with the factory warranty. You can purchase an extended warranty after buying the car, although you may find the cost increases as the vehicle ages.

Don’t be afraid to bargain. Among those who purchased an extended warranty, only a third of our survey respondents tried to negotiate a better price for their contract. Most of those who did haggle were successful, saving about $325 on average.

Shop around. You don’t have to buy an extended warranty through a dealership. In fact, you may find a better deal through your auto club or insurance company. But consider this: Satisfaction in our survey was highest among those who bought an automaker-backed warranty.

Go all in. Our survey found little difference in cost between limited and bumper-to-bumper coverage, which is more likely than powertrain plans to include reimbursement for towing, travel expenses, and a rental car. If you’re going to buy, get the full protection.

Read the small print. Before signing, be sure you understand what is covered and where you can take your car for authorized service. Third-party warranties, especially, may have notable restrictions on approved shops. Given how many dealerships have closed in recent years, the availability of participating repair shops is a particular concern.

Consider an extended warranty for the long haul. All cars tend to become less reliable over time, so an extended warranty might be worth considering if you’re planning to keep your vehicle long after the factory warranty runs out.

The bottom lines appears to be that if you opt to purchase a “less-reliable brand” or intend to keep the car beyond the warranty period, it makes sense to also buy a bumper-to-bumper extended warranty offered by the manufacturer or a reputable third-party, such as an insurance company or auto club.  Seems to me to be sound common sense advice.


Filed under Customer Experience, Service Contract, Warranty

5 responses to “Unintended Consequences: Consumer Reports makes the case for extended car warranties

  1. Pingback: Are warranties withering? Will service contracts surge? | Driving Value

  2. Found your internet site on Facebook, great post. Will share again.

  3. Some time Consumer faces some problems, when the warranty companies don’t fulfill their promises or services. But it not happen always, warranty is also like insurance. It helps us to repair our car or its accessories. Regardless of what some companies imply, don’t expect a warranty to pay for itself. It might, and it might not. On average though, the companies selling warranties expect to make money, which would be difficult if they paid more for repairs than the cost of their warranties.

    AMT Warranty Corp

  4. Pingback: Recent surveys bode well for extended service contract agreements | Driving Value

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