Advice: Long-term warranties
by Phil Bailey

As soon as a car is driven over the curb, it is, in effect, a year old and the valuation books will immediately begin to reflect this, although an allowance given in the book for extra low mileage will alleviate the depreciation pain somewhat. Over a period of ten years, there is no significant financial loss in buying a new car that is already one model year old. In the short term, however, it can be a big loser. Which brings up the subject of this article, the whole question of long-term warranties.

At this time of year, I get a lot of calls to discuss this subject from people who assume that because I repair them, I must know what's good and what's not. The problem is that the question "Should I buy a long term warranty?" is the equivalent of "How high is up?" Because we need to know the cost, the coverage period and the deductible, if any, before we could possibly voice an opinion.

Long-term warranties are actuarial in nature. That is, the manufacturer takes his claims experience for that particular model of car and estimates how vulnerable he is to claims and at what cost. The result is an amazing difference in price. Ranging from $850 for 5 years, and 100,000 Km in one case to $2200 with $100 deductible for every claim in another. These being comparably equipped cars in roughly the same price range.

Now the low cost warranty is likely to be a car that already has 5-year coverage on the engine and transmission, where as the other car stops all coverage at 60K, or 3 years. All the same, the confidence of one manufacturer that his claims experience will be small, contrasts starkly with the other manufacturer's assumption of major claims costs. I believe that any warranty that is so expensive does not bode well for the cars' long-term ability to give good service and should be avoided. It is also a very good idea to buy a warranty directly from the manufacturer. Third party warranty companies tend to come and go like the flowers in spring.

They also dictate where your car can be repaired. In one case recently, we reluctantly had to let a client go to a local gas station charging $39 an hour to solve a problem with an engine running on low oil pressure due to a defective oil pump. Hey, maybe the client struck gold and competence was in evidence, but at that labour rate, I doubt that there were too many grey-haired veterans in attendance.

The biggest single expense in the first few years of the life of a car is the air conditioning system. So if you are going to buy a long-term warranty, make sure ALL the A/C components are covered. We recently did a bumper-to-bumper inspection on a car and when it was finished and the report written, the owner smiled slyly and produced a "warranty". Obviously he was assuming that every single item was going to be covered by this wonderful document.

Well, you know what? That warranty was so cleverly written that the car had to practically explode before any coverage was applicable. Very clever, perhaps, but questionable ethics - something we're becoming more familiar with these days in all parts of the business world.

If you are a well known patron of a particular garage, then it is a very good idea to ask them to read the warranty fine print before you decide to buy the option. We can tell if the total cost is reasonable and such a document does not preclude our clients from coming to us for routine maintenance. On the contrary, if we know a warranty is involved we can advise him or her on how best to proceed in making a claim if indeed they qualify.

My one suggestion is to buy a extended warranty from the manfacter if you can. Meaning if you buy a Toyota, get a Toyota extended warranty, if you buy a Buick, buy a GM extended warranty. If you buy a extended warranty from a fly by night company they may go out of business. So if you buy a warranty from Acme, you might end up like the coyote does in the Road Runner comics.