Again: New car extended warranties

[pb4uski]

Must be different engine... the Grand Priz never had the 5 cylinder to my knowledge.

 

[Closet_Gamer]

I'm a fan of only one type of car extended warranty - the added mfg. warranty that comes with the purchase of a certified used car. I bought a used 2015 car with three years remaining on the new car warranty, and the certified qualification added another year/12,000 miles to the bumper-to-bumper coverage.

We're cpo buyers and I agree with this being a great benefit, tho we're actually out shopping for a car now and the various mfgs have started to really played with the terms of these cpo warranties, so you have to ask more questions now.

I had a BMW that was such a maintenance nightmare I appreciate longer warranties now. I would have saved a bunch if I had bought an extended one on that car.

With all the electonics in cars now, it's sort of like buying a $40k smartphone. We added a seven year bumper-to-bumper to my Acura cpo and I'm glad I did. Cost about $1000 if memory serves. We're close to buying either a Toyota Highlander cpo or Lincoln MKT cpo...will likely add some extra bumper-to-bumper on that if we can get it for the right price.

 

[RetireAge50]

Cancel all. Easier to pay for any unlikely issues with cash than try to make an insurance claim.

 

[Bamaman]

I worked 24 years at a major auto manufacturer's captive finance company, and one of my jobs was to approve outside extended service plans to be included for financing. I am also fully trained to be a F&I man in a dealership--Finance and Insurance.

Bear in mind that any dealer can go and setup their own ESP company--with or without adequate capital resources to back it up. And realize that failures are the norm in this business with companies that are not extremely financially stable.

But it's ultimately the customer that ends up holding the bag on unsuccessful ESP companies. And because of this, any ESP company that's worth doing business with must be backed by an insurance company. Without insurance, it's just a worthless piece of paper. There are relatively few insured ESP companies.

Let me just say that you wouldn't believe how profitable the ESP companies are. Especially since modern drivetrains are so reliable. And dealers' commissions for selling ESP are also substantial.

Auto and truck dealerships are extremely competitive businesses. You can tell that by all their pricing in advertising. But dealerships' real profits often come from the "back end'--ESP, credit and disability insurance, GAP insurance, etc.

And please save your pocketbook if a dealer rolls you into a lease--commonly written at full MSRP. Leasing is highly profitable for the dealer. Although lease payments can be negotiated, few customers know enough about the subject to minimize payments.

When I go into a dealership to buy a car, I'm after the most trouble free brands and those with relatively low depreciation. And I quickly tell the F&I guy I'm not buying any add-ons. Presently, we're driving a Honda Civic SI, Lexus IS250, Ford Explorer and a 3/4 ton diesel pickup. If I thought I needed ESP, it'd only be with the manufacturer's ESP company.

 

[JOHNNIE36]

Thanks for all responses on this topic. I called my auto insurance agent yesterday and added GAP coverage to my policy. Auto Owners Insurance does not offer Anything in the way of extended warranties. Think I'll wait until original warranty is about to expire and then consider extending it. So, today I will cancel all four policies from the dealer. Even though I said this may be our last vehicle purchase, never say never applies in this case. Again, thanks for all the replies, information and recommendations. They were all helpful in making my decision.

 

[REWahoo]

Even though I said this may be our last vehicle purchase, never say never applies in this case.

+1

I remember my dad saying that, and saying it again a few years later, then saying it again more than 15 years after saying it the first time...

 

[MichaelB]

Thanks for all responses on this topic. I called my auto insurance agent yesterday and added GAP coverage to my policy. Auto Owners Insurance does not offer Anything in the way of extended warranties. Think I'll wait until original warranty is about to expire and then consider extending it. So, today I will cancel all four policies from the dealer. Even though I said this may be our last vehicle purchase, never say never applies in this case. Again, thanks for all the replies, information and recommendations. They were all helpful in making my decision.

Good luck, hope the cancellation goes well.

+1

I remember my dad saying that, and saying it again a few years later, then saying it again more than 15 years after saying it the first time...

So, when do we know we are buying for the last time? Or should we assume (like in FIRECalc) that our needs will continue beyond the averages for our age?

 

[REWahoo]

Or should we assume (like in FIRECalc) that our needs will continue beyond the averages for our age?

^ This. I see little to recommend setting an arbitrary driving expiration date.

I suspect I will have outlived my teeth, probably have a bypass surgery, a hip replacement, new knees, be fighting prostate cancer and diabetes, be half blind, can't hear anything quieter than a jet engine, take 40 different medications that make me dizzy, winded, and subject to blackouts, have poor circulation, bouts with dementia, be unable to remember if I'm 85 or 92. But I'll be OK with that - as long as I still have my driver's license.

 

[athena53]

I worked 24 years at a major auto manufacturer's captive finance company, and one of my jobs was to approve outside extended service plans to be included for financing. I am also fully trained to be a F&I man in a dealership--Finance and Insurance.

Bear in mind that any dealer can go and setup their own ESP company--with or without adequate capital resources to back it up. And realize that failures are the norm in this business with companies that are not extremely financially stable.

Thanks for your insights. I got royally ripped off on the financing of a Toyota in 1991 (to be brief, they rolled the costs of the add-ons such as rustproofing and a security system into the loan when I wanted to pay up front, I added the amount to the first payment and made extra payments along the way and found out I still owed $1K at the end when, according to my compound interest calcs, it should have been paid off- because the finance charge is fixed when you sign the loan). The last 2 cars DH and I bought were off rental and we wrote them a check from our HELOC account. No BS, no upsells. Perfect.

But, to get back to the OT and your second paragraph- extended warranty coverage on any product with a life of many years is notoriously hard to price and properly account for. Think about it- they collect the money when your car is shiny and new and not likely to need repairs, and if they don't keep enough in the cookie jar (the official term is "loss reserves"), when you get near the end of the warranty period and things start to fall apart the money may not be there to pay claims. You can keep writing new business to pay the old claims but eventually the house of cards will fall apart. I'm an actuary and Extended Warranty business is a specialty.

 

[pb4uski]

.....Let me just say that you wouldn't believe how profitable the ESP companies are. Especially since modern drivetrains are so reliable. And dealers' commissions for selling ESP are also substantial.
....

....But, to get back to the OT and your second paragraph- extended warranty coverage on any product with a life of many years is notoriously hard to price and properly account for. Think about it- they collect the money when your car is shiny and new and not likely to need repairs, and if they don't keep enough in the cookie jar (the official term is "loss reserves"), when you get near the end of the warranty period and things start to fall apart the money may not be there to pay claims. You can keep writing new business to pay the old claims but eventually the house of cards will fall apart. I'm an actuary and Extended Warranty business is a specialty.

One of my major clients was an insurer that specialized in extended warranties and it was an obscenely profitable business. Reserving was not a particular issue because claims were reasonably predictable (stable historical loss development triangles).

I totally disagree with the "house of cards will fall apart" comment with respect to these insurers.... it is unnecessarily alarming. These entities are regulated like any other insurer... they have adequate reserving practices that are audited annually, examined regularly by the regulators, lots of surplus and very strong RBC ratios. Can you cite any examples that have failed?

 

[athena53]

Can you cite any examples that have failed?

OK, this is ancient history and regulation has probably stepped up since then, but in 1997 I was a part of a board handling a case against an actuary who certified reserves of a Canadian Auto Warranty company that eventually became insolvent. (He was based in the US, as am I.) I still remember reading through a pile of disciplinary hearing proceedings, many of which were in French.

 

[GTFan]

I'm a fan of only one type of car extended warranty - the added mfg. warranty that comes with the purchase of a certified used car. I bought a used 2015 car with three years remaining on the new car warranty, and the certified qualification added another year/12,000 miles to the bumper-to-bumper coverage.

But you can even get that stripped off of a used car and save money (if it's a good reliable car). I've had dealers tell me that they can take $1k or more off of a used car simply to ditch the 'certified' label (and warranty). On top of whatever deal I negotiated beforehand.

Kinda tells you upfront how shady the whole business is, especially with used cars. They're not doing anything special with 'certified' cars vs. their other late-model cars, they're just charging you more for the extended warranty.

 

[pb4uski]

OK, this is ancient history and regulation has probably stepped up since then, but in 1997 I was a part of a board handling a case against an actuary who certified reserves of a Canadian Auto Warranty company that eventually became insolvent. (He was based in the US, as am I.) I still remember reading through a pile of disciplinary hearing proceedings, many of which were in French.

So you rang the alarm bell based on an ancient and isolated example that wasn't even in the US? Were any claims not paid?

At least in the US as you know, it is very possible for a troubled company to go into receivership but all claims still get paid as they blow through reserves but not through surplus or another insurer picks up the book of business.

 

[pb4uski]

Thanks for all responses on this topic. I called my auto insurance agent yesterday and added GAP coverage to my policy. Auto Owners Insurance does not offer Anything in the way of extended warranties. Think I'll wait until original warranty is about to expire and then consider extending it. So, today I will cancel all four policies from the dealer. Even though I said this may be our last vehicle purchase, never say never applies in this case. Again, thanks for all the replies, information and recommendations. They were all helpful in making my decision.

So Johnnie, how did it go canceling the four policies with the dealer? Did they pressure you not to cancel? Do you think they will give you a prompt refund?

 

[Big_Hitter]

OK, this is ancient history and regulation has probably stepped up since then, but in 1997 I was a part of a board handling a case against an actuary who certified reserves of a Canadian Auto Warranty company that eventually became insolvent. (He was based in the US, as am I.) I still remember reading through a pile of disciplinary hearing proceedings, many of which were in French.

the reprimand may be on the abcd website. were you on the abcd?

 

[JOHNNIE36]

So Johnnie, how did it go canceling the four policies with the dealer? Did they pressure you not to cancel? Do you think they will give you a prompt refund?

Well, you know how these dealers are. I called yesterday morning for the finance guy who handled my "deal" (as they call it these days). Left a message for him to return my call. Called again later in the day and left a harsher message about not having returned my call for the entire day. Told him in the message I had decided to cancel all four options. Never heard from him. So today I was loaded for bear. Called first thing this morning and left him another message. After a couple hours I decided to drive down to the dealer. They paged him and mentioned my name in the page. After a period of time I was told he was off for the day. I think he was there but didn't want to talk to me. I asked to see another finance manager. I discussed the situation with him, told him what I wanted to do and wanted it done now because I only had two days left on the "thirty days to cancel without penalty" clause. He went to his office, returned with a form that I filled out with all the details, he approved the cancellation, signed it and ran a copy for me. All done. No problem with that guy. Unbelievable how some things go. Can't wait for the next time at the dealer. I'm going to look up the original finance guy. I have a few words to say to him.

 

[Big_Hitter]

good call, all 4 of those things are rip offs

 

[MichaelB]

Way to go, Johnnie. An example we can all follow.

 

[pb4uski]

+1 but I probably would have gone on to the owner/general manager or whoever the first F&I guy who was unresponsive reported to and complained about him. Your leverage is the survey that Toyota will want on your "buying experience" and that dealerships are harshly penalized for bad feedback as I understand it. Stay hot on the trail until your refund money is in the bank.

 

[highlow65]

Consumer reports says a waste of money and that's why they sell them, but got a very good plan for my tundra for $1200 from from the dealer. It shows every thing they will fix and also its exactly what is not covered so no surprises. 7 years and no worrying then I get another one, Its worth it to me for peace of mind. I used it once in Two years and a minor fix would have been $435 and they bring a replacement car to my house while repairing, simple is good and to me worth paying for.

 

[aja8888]

Take a look at the CNBC American Greed program, session 8 (2014) #91 special called "The Car Con" where:

Brothers Darain and Cory Atkinson start a business selling vehicle service contracts, but the warranties prove worthless and the brothers pocket millions.

A good watch on what can go wrong. Entertaining and informative.

 

[athena53]

the reprimand may be on the abcd website. were you on the abcd?

I just sent you a PM on this.

 

[pb4uski]

ABCD.... quite creative!

 

[Bamaman]

I have a friend who had to have the engine replaced after about 5,000 miles... it was covered under warranty.... Pontiac Grad Prix.... he is up into the 60s right now and his second engine is starting to have problems... he does take care of them, so it is not lack of maintenance....

The big problem engine is GM's 3.6 315 hp engine going into many vehicles, including Camaros, the big SUV's and Cadillacs.

The problem is that their camshaft chains stretch and the engine will jump timing. There's been too large of a percentage of their engines cause problems. GM quietly dropped their original warranties from 100K to 36K. The problems often occur around 50-60K miles. Unfortunately the engine's got to be half taken apart to change chains and sprockets, etc. While they're apart, they also replace the water pump and coolant. Total repairs take 2 man/days and cost $2400 average.

My son was a victim recently. The internet is full of negative info on this engine.

 

[Bamaman]

One of my major clients was an insurer that specialized in extended warranties and it was an obscenely profitable business. Reserving was not a particular issue because claims were reasonably predictable (stable historical loss development triangles).

I totally disagree with the "house of cards will fall apart" comment with respect to these insurers.... it is unnecessarily alarming. These entities are regulated like any other insurer... they have adequate reserving practices that are audited annually, examined regularly by the regulators, lots of surplus and very strong RBC ratios. Can you cite any examples that have failed?

I've been away from the auto business many years by now, but I never knew any regulations on ESP companies. Most back in the day were Arizona Chartered corporations and later moved off shore to Bermuda and/or The Caymans.

A lack of regulations was the big problem. That's why we wouldn't do business with an ESP company that was not bonded/insured against failure.

The automobile business has changed over the years with big dealership chains buying out so many of the smaller dealership groups. I really don't know how the ESP industry went after the big round of wholesale sellouts, as some of the dealerships and their affiliates no longer exist. I was just glad to get out of the dog eat dog auto business as it was just too high pressure month after month.