Extended warranties aren’t for everyone. However, they are a great idea for many people. Having sold extended warranties for an number of years, here is what I’ve found.
1. If you have the cash for an expensive repair, skip the warranty.
If you can afford a $2,000 bill to rebuild your transmission, skip the warranty. The likelihood of an expensive repair happening while your vehicle is under warranty is less than 20% (in my experience). However, when that expensive repair does need to be dealt with, be prepared to pay a hefty price.
2. Skip the warranty if you’re going to keep the car less than 5 years.
A service technician that I worked with always said, “If something is going to go wrong, it will go wrong when the warranty expires.” Unfortunately that is very true. The last time I bought an extended warranty my car blew the head gasket at 103,000 miles. Of course my warranty ran expired at 100,000 miles. While this seems like just bad luck, an expensive repair is more likely to happen as a vehicle gets older. If your vehicle is 2 years old and has 20,000 miles, your transmission is likely to be in proper condition, especially when compared to a vehicle that is 5 years old with 80,000 miles.
3. Buy the warranty for luxury (or high end) imported vehicles.
BMW, Acura, Audi, Mercedes-Benz, Jaguar, Lexus, Infiniti, Volkswagen, Volvo, and other high end luxury vehicles have most of their replacement parts imported from their country of origin. This makes the price of those replacement parts extremely expensive. Just as proof of this fact, I checked RockAuto.com for a replacement master brake cylinder for a Cadillac STS and an Acura TL. The Cadillac brake cylinder was $61.97 (2007 STS 3.6L V6). The Acura TL master brake cylinder was $129.79 (2007 TL 3.5L V6). Just as a little more proof, the Lincoln Town Car master brake cylinder is $71.79 (2007 Town Car 4.6L V8), and the Volvo V70 has a price tag for the master cylinder of $122.79 (2007 V70 2.5L Turbo).
From those numbers the imports (Acura and Volvo) were nearly double the price of the American cars (Cadillac and Lincoln). Consider the manufacturer when considering a warranty.
4. For a low end vehicle, skip the warranty.
If you’re buying the least expensive model that a manufacturer sells, there is a much better chance that you won’t have any repairs for a long time. Consider the options on the least expensive vehicle. You probably won’t have power windows (4 motors that fail often), you won’t have a 6 disc CD change (single CD player has less moving parts), I doubt you’ll have traction control, all wheel drive, 4 wheel disc brakes, etc. The less moving parts, the less likely they’ll fail. A fully loaded vehicle has every option available, and has a greater chance of a sunroof leaking and needing to be resealed, or a power window motor failing.
5. Not all warranties are created equal.
I would never, and I mean never, buy an extended warranty from any company other than an auto manufacturer. That means I would only buy a warranty from GM, Ford, Honda, Toyota, etc. I have seen too many people come into a service department with a valid warranty from XYZ Warranty Insurance and get turned down for what should be a covered repair. If the service manager on duty has never worked with your 2nd tier insurance company, there is a chance he will not perform any work on your vehicle. I have personally talked to a warranty company on behalf of a customer trying to get the warranty company to pay for a covered repair only to have them tell me it wasn’t covered. At that point the customers only option is to sue the warranty company for breach of contract which will end up being more expensive than the repair.
On the other hand I’ve never had any trouble with a manufacturer honoring their warranty and have frequently seem the manufacturer go farther than they needed to in order to help a customer.
I would strongly caution you to think about and decide on what you’re willing to pay for a warranty before you speak with the Finance and Insurance (F&I;) Manager about the warranty. Depending on the level on warranty and the length, most warranties cost between $500 and $2,500. Most major repairs are over $2,000 so one major problem usually covers the cost of your extended warranty.
