Warranties are where the action is

A few years ago, when you purchased a new car your car came with a two- or three-year warranty that covered basic repairs and you were pretty happy to get it. Unknown to you, the dealership was pretty happy about the length of the warranty as well because of a simple fact, cars don’t tend to run into problems until their fourth or fifth year of ownership, well after the initial new-car warranty is long gone.

Of course, this left a very fertile ground for the dealership to sell extended warranties that took over where the new-car warranty left off, after, say, three years. The extended warranty – usually quite extensive and quite expensive – provided you with full coverages for just about every system in your car. Extended warranties – usually not transferable except for BMW – were based on the estimated length you planned to keep your car, how much your car cost and a host of other factors. At the same time, the insurance guy – who is usually also the finance manager of the dealership (is this a bit of a conflict?) – will try to sell you gap insurance to make up depreciation losses for your car as a car’s value will drop at least a-third when you drive it off the lot. And, the same person may try to sell you credit/income protection insurance – not a bad idea – which guarantees to pay off your car should you lose your job or become disabled and are forced to stop working.

Noticing this fertile ground, though, the new-car industry began to move its coverage forward under the radar so that two-year/24,000-mile warranties became three-year/36,000-mile warranties and soon they were stretched to four-year/48,000-miles and so on. When Chrysler Corp. offered a seven and 70, the industry really sat up and took notice. At once, the warranty industry, which seemed so placid and easy-going, became turbulent and as the bottom seemed to drop out, overnight.

Suddenly, warranties were in play. Indeed, they became an important part of the new-car sales process and customers – who have access through the Internet to just about every detail of any car ever built – were asking questions that dealerships, believe us, were uncomfortable answering. The questions included:

What does your warranty cover
What is the term of your warranty
Is your warranty limited or full
What are the “gotchas” in the warranty list, for example, is evidence of all service work required

These are questions that no dealer wants publicized, but they are questions that should be asked. Indeed, many dealers, seeing the inevitability of the warranty wars, go out of their way to ensure that you have all of the information available, especially on extended warranties, which is where they do make a lot of money. There are other companies out there that also offer extended warranties but, to paraphrase an old phrase, the quality of each warranty offered can be very strained. We would suggest checking not only with AAA but also with the state car dealers association in your state, the attorney general of your state or the Better Business Bureau.

The ultimate in new-car warranties has to be the one offered by Hyundai which has practically stood the industry on its ear is its 10-year/100,000-mile warranty. They offered this much longer warranty in the realization that people actually do keep their cars for 10 years and they do need help with repairs.

Granted, it’s also a great marketing plan and it is guaranteed to build a customer base, however, it is also a great consumer-oriented tool and now the industry has to come up to an ever-more important car company from, of all places, Korea.

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