Extended car warranties - don't be a pushover

Most people don't buy a new car without hearing the dealership finance manager warn about "how foolish it would be" not to protect your investment from unexpected repairs as you put on the miles. What comes next is a persistent sales pitch for a solution to your new fears: an extended warranty. "You could save the amount of the plan cost with just one covered repair!" says a brochure for Ford's Extended Service Plan.

But extended warranties sell costly "peace of mind" for repair nightmares that probably won't occur, according to a survey of more than 8,000 readers in December 2007 by the Consumer Reports National Research Center. We have long advised that extended warranties are a poor deal for almost every product. Now we have the first data showing that this advice applies to most new cars, as well.

To raise public awareness on the issue, Consumer Reports is launching a national advertising campaign this week targeting the car-buying public.

Sixty-five percent of the survey respondents said they spent significantly more for a new-car
warranty than they got back in repair cost savings. On average, dealers collected around $800 on each extended warranty they sold.

Respondents cited warranty costs of $1,000 on average that provided benefits of $700; an average $300 loss. Some 42 percent of extended warranties were not used, and only about a third of all respondents used their plan to cover a serious problem. About one in five respondents (22%) said they had a net savings.  Seventy-five percent did not buy extended warranties at all.

Extended warranties were, however, a better deal for those who bought more troublesome cars
scoring lower in Consumer Reports' reliability Ratings, such as those from Mercedes-Benz. Still, only 38 percent of Mercedes-Benz owners said they saved money. The average loss was $100. Lexus and Toyota owners lost the most money: $600 on average for Lexus and $550 for Toyota. Owners of Pontiacs and Jeeps broke even because on average they had covered repairs that equaled the warranty cost.

Our advice

• Don't feel pressured to buy an extended warranty at the same time as buying a new car. Instead, shop about six months before the vehicle's factory warranty runs out.
• Ask for and have a trusted mechanic review sample contracts before buying.
• Bargain hard, sales commissions can be large.

Read the complete report "Extended warranties: A high-priced gamble" to learn more about:

• How extended warranties work
• What the average by brand is for money lost
• Frequency of warranty use by brand
• Who should buy a warranty
• How to get a fair deal

Comments

[malcolm]

The difference between a car warranty and health/fire insurance is risk. Very few of us have enough money to recover from a substantial health issue or house fire. But, if you can afford 800 for the extended warranty and it's not likely to pay off, simply put the 800 in a bank account and spend it on the repair when and if it occurs.

[Wally R.]

I normally don't go in for extended warranties but decided on one while I was researching the purchase of a new Toyota. It proved to be the best thing I purchased for that vehicle. I've had the van in for a few minor repairs under the extended factory warranty but last year the air conditioning compressor failed and contaminated the entire refrigerant system with metal filings. The dealer replaced the entire air conditioning system to the tune of $5500. I realize that cost was the dealer's inflated quote, but even if that price included a 100% markup I'd still be way ahead with just this one repair.

The bottom line: When it comes to extended insurance, your mileage may vary. What works for one may not for another. Will I buy an extended warranty for my next new vehicle? It depends on what I learn about the car and how much the warranty costs.

[F&I manager in the south]

All this mark up you are talking about is not the same in the state of Florida it is all set by the state and most warranties are marked up about 450 to 600 to me that sounds like a fair profit when it means just a few exter dollards a month on your payment if you can handle the exter i say buy i have been a business manager for 10yrs and i have bought a lot of cars and i buy gap and warranty on every car i buy its peace of mind for me not to worry about it i just drop my car off to service and they fix and i pick it back up now that sounds like peace of mind to me about the aftermarket warranty and the factory some people dont know that the factory warranties are written by the same insurace company and some time the aftermarket warranty is a little better becacuse they cover what they call wear and tear and most factory warranties dont cover it so its all up to the customer buying the car but if you want someones adivce that dose it for a living buy the warranty and it is about money not going to tell you its not but when your car is broken down and you dont buy the warranty a consumer always points at the dealer its not the dealer fault that you where to tight to spend the exter 25 to 30 dollars a month for peace of mind good day to all

[Teron A.]

Many of these postings sounds like they are inverted sales pitches. ConsumerReports, a reputable not for profit organization in the business for consumer protection, who's findings are very respected, has put forward relevant data on their findings and it seems as if many has not taken the time analytically read the article before posting their comments. They (ConsumerReports) have taken the time to provide the data on the topic and it should taken as such. If you don't like it run the numbers yourself. Not one of these posting have provided more information than the article itself. I am upset that I had to read through all of the trash. It appears to me, that many of these postings appear to come from those that don't know what they read, but thought they did and tried to make it appear so.

[enyce]

Briefly, I purchased a warranty from CNA National Warranty on a Mercedes Benz. I think I paid $1500-$2000 for it. I have had both catylitic converter replaced $4000. The clock display repaired $500.00. The electric windows 2 of them-- can't remember how much. Transmission repairs $600.00.

I think it is worth it if you pay for a comprehensive plan and you are buying a used car.