If you know anything about the car business, you know that car dealers these days don't make much money from the sales of new cars - dealer profits are made from used car sales, financing, parts, service, and extended warranties.
Extended warranties are extremely important to the financial well being of a dealership... but are they necessary from a consumer's point of view? The answer is, it depends.
There is no question that new cars, whether import or domestic, are built better than ever and come with excellent factory warranties. The typical compehensive new car warranty now is good for at least 36 months or 36,000 miles, whichever comes first. Some manufacturers are even offering longer terms, up to 5 years and 60,000 miles from Kia Hyundai, and Mitsubishi.
The major components of the powertrain are often covered for longer, 5 years or 60,000 miles from most companies, and up to 10 years and 100, 000 from the three above. A few companies even give the original owner a “limited lifetime” warranty on the powertrain, with some dealers adding third party lifetime coverage as well. In addition, most cars now are covered against rust perforation for 10 years and 100,000 miles or more.
With the sheet metal of most cars being made from galvanized steel, it is unlikely that today's car will rust out like older cars used to.
Do you need an extended warranty?
Back to the main question: do you need an extended warranty? If you lease a car for 3 years at a time an extended warranty is a waste of money because your lease is going to be up at the same time as the factory warranty.
If you plan to keep your car 5 years or more, then it's a different story - especially if you plan to put a lot of miles on it. In that case, then it is probably worth it.
Cars are extremely complicated machines and they do not get better as the miles and years add up. The likelihood that something major is going to break increases as you rack up the miles.
If you read some of the consumer report type magazines, you’ll find that they are generally against purchasing extended warranties. They believe that they aren’t worth the money and that today’s cars don’t need them. Of course, I beg to differ and, cars don’t get better with age!
Everyone has some idea how expensive it can be to fix cars these days, even Toyotas and Hondas, which have reputations for affordability and reliability. The point here is to weigh the price of the warranty, versus the cost of a possible repair. One way to tip things in your favor is to save money on the initial cost, and be sure to get the right extended warranty.
Bargain the price down
Like everything else in a dealership, there is typically no "official" set price for extended warranties. The rule "charge whatever the market will bear" certainly applies.
This means, like the cars, they have room to deal. If you have a similar offer on a car from a competing dealer, see if they will throw in an extended warranty to tip the scales.
Another point to consider is what type of warranty. Usually, they'll offer you a range of warranties that have different time and mileage durations, as well as coverage limitations.
However, even the "Bumper to Bumper" warranties don't cover everything, so make sure you find out what they don't cover and read the fine print.
Typically they all do not cover wear and tear items such as belts, hoses, brakes, and clutches, and definitely not anything having to do with body work.
You can also buy "maintenance plans" which pay for a set number of oil changes and the like, but those are almost never worth it, and require all work be done at the dealer.
Whose warranty is it?
Another point to consider, and a big one, is whose warranty is it? Is it the car manufacturer's own plan? Or a company you have never heard of?
Stay away from companies you've never heard of, even if they tell you they are backed by a big, well known insurance company. Every insurance company wants to limit claims and if you have a questionable breakdown, they will just be looking for a reason to refuse to pay. Anyway, the insurance company is just there as a last resort should the warranty company go out of business.
The manufacturer's own warranty company might feel the same about claims, but they also want to keep you as a future customer, too. And dealing with a manufacturer's warranty is a lot easier.
All you have to do is to present the policy to the service manager (or tell him you've got one; it's all computerized) and there aren't any bureaucratic headaches with getting approval for a claim and so forth. Factory warranties do cost more, though.
Dealing with an unknown warranty company when you are out of town with a breakdown can be problematic. Of course, there are warranty companies, such as EasyCare and JM&A, that have a good reputation, and provide services to car buyers, dealers and direct to the manufacturer's.
Used car extended warranties
Finally, what about extended warranties for used cars? These are definitely worth considering, however some of these can get expensive if they offer real, comprehensive coverage. Extending the factory warranty on a certified pre-owned car (CPO) is typically a bargain, and gives you fully factory backed coverage.
If available, the warranty coverage on a complex and expensive luxury car can save you from being nickel and dimed when minor gremlins start to appear down the road.