Warranty companies analyze previous claims to estimate future repair and replacement costs. Extended warranty prices are set well in excess of anticipated costs to yield a 50- 60-percent profit margin.
Ah, so now it's the markup from the warranty company to the dealer that makes them bad. But then I thought there was supposed to be lots of room to negotiate? With the warranty company?
They are loaded with gotcha clauses that allow the provider to weasel out of paying. Many stipulate expensive dealer maintenance.
You have stated this many times. Do you have any examples? Which companies stipulate expensive dealer maintenance? I only have information on one company and I'm sure many others would appreciate knowing exactly which ones to avoid.
Better to put the $1,500- $4,000 cost into a long term Guaranteed Investment Certificate (GIC) and pay for repairs if needed after the factory warranty matures.
Yes that would be better...in the fantasyland where car buyers have the extra $1500-$4000 to keep in the bank and where they won't touch it for years.
When you invent a better mousetrap, the mice tend to get smarter. – Willie Gingrich
Honest and authoritative automobile reliability ratings are broadly available. If a car's quality of design and manufacture is so lacking the salesman recommends a costly supplemental warranty the shopper's best response is to say there is no way in hell he will buy a substandard car - and watch the expression on his face change. Priceless!
Item 1. The house always wins! Doesn't much matter how the grifters divvy up the action. Money is power. Everything is negotiable. Commission structures are outlined here:
Extended Warranties: To Buy or Not to Buy? - Automobile Protection Association (attached).
Item 2. Which extended warranties should be avoided? All of them! Carmakers are not renowned for their integrity. All automakers run customer care "No" lines that routinely stonewall unhappy owners. In the absence of lemon laws warranty denial adds millions to corporate bottom lines. That's why a knowledge buyer shops for car price only. By all reports aftermarket warranty providers are worse. Consumer advocates often publish articles regarding manufacturers, dealers and warranty providers deplorable business ethics.
Item 3. I'm misting up! Your concern for the purchaser's fiscal and psychological well-being is touching, and self-serving. A purchaser without the financial resources for a lump sum GIC purchase may also self-warranty. He can instruct his bank to auto debit a monthly sum equal to the extended warranty amount to a high interest savings account.
Bonus 1: He does not pay HST, interest, the salesman' vigorish, the dealer's commission or the warranty company's profit on the debit.
Bonus 2: More money is available for repairs, if needed, three or four years down the road after the new car warranty matures.
Bonus 3: Wanna talk real psychological betterment? There are no deductible, claim maximum, gotcha or weasel clauses for him to worry about. Preventive maintenance may be looked after anywhere according to whatever schedule he deems appropriate without risking a repair necessity or eligibility dispute.
Bonus 4: Repairs may be completed at a less costly independent repair garage.
Bonus 5: He retains the saved money if, as statistics confirm, repairs are fewer and cheaper.
Bonus 6, 7 & 8: If the car is written off, stolen or sold the extended warranty money is still in his bank account.
Prudent shoppers count their fingers after shaking hands with a car salesman.
