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HOW WARRANTIES WORK
May 29, 2012 - Larry DeHays
Some new cars are warranted for 30,000 miles, some for ten years, some drive train only, some include free oil changes and any other repairs needed. Then there are extended warranties. What’s up with this? Is it a good deal for us consumers? Naturally the answer is “sometimes”. We have to keep in mind that the people setting up these plans are not dummies. They are going to make money on it or they wouldn’t be doing it. That doesn’t mean we shouldn’t use them though, because they are actually just insurance policies, where you pay in advance for repairs, whether you will need them or not. The advantage for us is that it saves us the trauma of paying for repairs, especially for catastrophic repairs. If we don’t need many repairs the warranty companies make money. The definition of “many repairs” is the tricky part. The actuaries weight the odds in favor of the companies, and that is a guaranteed fact. When new car warranties expire, aftermarket warranty companies take up the hue and cry and pester you to “continue” your warranty. It is not a continuing, it is a new contract with a new company. You might want to look at whether it will transfer to the next owner. Some do not. Since the car is older, repairs are expected, and these policies are expensive. You will have to decide how much you can self-insure, and how lucky you feel about the big stuff. Transmission repairs can exceed one thousand dollars, and engines could triple that. Although these failures are rare, There is no guarantee that they won’t happen. Most people misunderstand repair job warranties. Repair work should always come with parts warranty and labor warranty. Many replacement parts are now warranted as limited lifetime. This means they are warranted against manufacturing defects, but not against wearing out, (the limited part) for the lifetime of the purchaser, but not for the next owner (more of the limited part). The manufacturer of the part is then released from the warranty. A labor warranty is assurance that the part has been correctly installed. There is usually no warranty that the labor was necessary or appropriate. That is where the most conflicts arise because it can be a difference of opinion between the technician and the owner. Labor warranties are usually shorter, because if the dummy put your water pump on up-side-down it would be evident pretty quickly. They usually expire before the parts warranty does, so if your (replaced) lifetime warranted alternator failed after five years, you might expect a free new one, but to pay for the installation labor, because the failure was not the fault of the installer, and manufacturers almost never reimburse installers. In fact, if a defective part fails during the labor warranty, the installer has to pay for the labor. That’s guaranteed to put a dent in the ole profit margin for the shop. A pro-rated warranty means you pay for the time you have used the part (possibly a battery) as a percentage of the warranty time period, and then the warranty starts over again. Unlike a dated warranty whereby the part is replaced for free in the last month of the warranty, but the warranty on the new part still expires at the end of that month. If you read this column aloud, your lips will go numb from saying warranty so many times. I guarantee it.
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