Warranties, Snake Oil, and, Protection Packages; Things I Advise Considering and Those I Decline in The Finance Office
I was sitting in a dealer’s finance office today going over the bill of sale on a Honda Insight with my clients when the finance officer made us an offer on a product we had already declined. He offered an extended warranty backed by the manufacturer, at half the price of what he offered it to us at a few days ago, so we took it.
Extended warranties from the company that original built the vehicle we are buying are one of the few things I will generally even let the finance person tell my clients about. When you buy a vehicle, from a dealership, the, store management generally prefers to first exhaust you with the purchase of the vehicle and price. Then after protracted negotiations, they move you into a finance office to go over add-ons. Even if you are buying a vehicle with cash, the finance person goes over all the add-ons. I generally try and get the add-ons priced out in the initial negotiation to make things more holistic and increase our bargaining power. This also speeds things up and puts them on the back-foot. Their exhaustion tactic does not work on me.
These upsells generally fall into three categories: snake oil from third parties, protection plans from companies pretending they are not insurance companies, and manufacturer-backed warranties, protection plans, and service contracts.
The first category is the easiest to dismiss. They are goods sold by companies that promise to protect your car from various nightmares, such as: rust, sun-damage, interior wear, etc. They promise to do these things with chemical treatments, or sometimes even, electronic modules based on widely disproven pseudo-science.
Next, protection plans from companies that claim they are not insurance companies but are basically selling you a flat-rate, anti-theft systems they offer are usually simply stickers, and acid etching in parts. Yes these make it easier to track stolen car parts, but these days, stolen cars don’t usually get chopped up, they get exported. Also they usually promise that if you sign up for this service, and your car is stolen but either not recovered or deemed a write-off, they will give you an extra payout on top of your insurance (the sum varies by dealer but ranges between $3,000 and $6,000). Dealers also offer protection for dings and scrapes.
This started as something offered to lease customers who needed to return their vehicles in mint condition. I generally find that the fine print on dent and scrape coverage makes it unlikely that customers will get their money out of their initial investment. Because these are generally offered and backed by a third party contracted by the dealership, you will be dealing with the third party every time you make a claim. I rarely recommend buying anything provided by a third party as I know how reluctant they are to pay out for claims.
That is the crux of these protection plans, they are investments for you to get your money’s worth. Now that modern car key fobs are generally over $400 to replace and sometimes double that price, dealers offer fob loss or damage replacement. If you are the kind of person like my father who on multiple occasions dropped his car keys down an elevator shaft, or you have young children who are obsessed with your car keys, and you expect to realistically spend more on replacement keys than the price of this protection plan, it is worth considering. But I have as yet to meet a person who genuinely needs it.
Wheel and tire protection is a plan I sometimes say is worth considering, especially as they are sometimes (but not usually) backed by the manufacturer of the car. Now I am reluctant to usually recommend these because the companies that sell these don’t want to pay out on them. If they do need to replace a tire, they certainly don’t want to replace two of them, which is what you generally are supposed to do. Unless you are replacing a nearly new tire, you need to replace tires in at least pairs. Certain vehicles with very sophisticated 4WD systems such as Jeep Grand Cherokee need their tires replaced four at a time. But this is generally the cutting edge of serious 4WD vehicles. I don’t want to see my clients pay out for a tire protection plan, get a blowout, and then be told that while their tire is half worn, the plan will only pay for one tire.
I once bought a wheel and tire protection plan from a dealer on one of my own cars despite the fact that it was provided by a third party. I did so because I have a habit of sometimes scraping against curbs when parking, causing cosmetic damage to my rims. I was assured by the finance officer that this plan would give me unlimited cosmetic repairs to my rims. When I first curbed my rim, I pulled out the contract to find that the dealer had skipped the cosmetic coverage. A few calls later, I arranged for the dealer to reimburse me for the package they had misled me about. Dealers can also scare customers with stories of complex windshield replacements and some offer windscreen coverage. Most windshield damage if repaired quickly can be fixed in under 15 minutes by drilling and filling the chip in the screen. The repair is usually invisible and costs under $30. That being said, I understand why some people pay for this coverage, even against my advice because it offers peace of mind.
Now onto the real deal warranties. The finance person will sometimes offer third party warranties on used cars. If you are buying a used car from a dealership that does not sell new cars, or does not a dealer for the brand of used car you are buying, these third party warranties will be your only offer. I generally decline them. You don’t want to be fighting with a 3rd party if your transmission fails and they try to deny payment because you don’t have a receipt for a cabin air filter change last year.
For my clients buying cars at certain price points (those who are shopping in the nearly new space) I generally advise buying their vehicle from a dealer that sells new vehicles from that brand. This means you may be able to buy a factory certified pre-owned vehicle (a used car that meets certain standards set by the manufacturer and qualifies for warranty programs and finance discounts). Today’s Honda was a Honda CPO car with an extended warranty that covered the powertrain and hybrid system for seven years. When they first offered an extended bumper to bumper warranty (covers the entire car as new) we declined because we simply didn’t think we would come out ahead after the hefty price tag. But with today’s discount, and factoring in the years of roadside assistance provided, one or two moderate repairs and it will have paid for itself.
I have dried out my throat on at least one occasion repeating “no” to a finance officer trying to upsell us an on extended warranty that costs 10-30% of the price of the car, and is justifying it by quoting absurd repairs that would never happen in the real world (replacing an entire 360 camera system including the display, wiring, and all cameras.
I am here to help my clients weigh their options, see what makes sense and what offers peace of mind at a good price. If you want my assistance, reach out today.
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