Extended auto warranties – buyer beware

If you haven’t gotten any of those auto-warranty telemarketing calls that so many people have complained about earlier this year, then you may have received countless letters from companies urging you to “act now before it’s too late” and buy an extended warranty for your vehicle.
The letters often have phrases like “Final Warranty Notice,” “Motor Vehicle Notification” or “Notice of Interruption,” but aren’t from the auto dealer or manufacturer.
And several of these warranty companies also have been advertising on television.
The commercials, like the letters, suggest that buying an extended warranty will take care of expensive repairs drivers might face.
Note that the federal government doesn’t call these plans “extended warranties,” instead calling them “auto service contracts.” According to the Federal Trade Commission, an auto service contract is a promise to perform – or pay for – certain repairs or services and is not a warranty as defined by federal law.
These service contracts, which the FTC admits are often called extended warranties, “may be arranged at any time and always costs extra; a warranty comes with a new car and is included in the original price. This separate and additional cost distinguishes a service contract from a warranty.”
Regardless of what they’re called, these plans involve a fee since they serve much like an insurance policy.
But can you really put a price on peace of mind?
For companies in the extended automobile warranty business, the answer is a resounding “yes.”
U.S. Fidelis, which bills itself as one of the nation’s leading providers of such coverages, has been one of the higher-profile companies blanketing the airwaves with commercials touting its program. It’s even recruited former NASCAR driving great Rusty Wallace as a spokesman.
But the company also has received thousands of complaints nationwide, according to the Better Business Bureau. In Mississippi, the company has been hit with about a dozen complaints.
Bill Moak, president and CEO of the BBB in Mississippi, said U.S. Fidelis is among a handful of extended warranty companies that have gotten consumer complaints.
“We’ve had 35 complaints against these type of companies in the last year,” he said.
The other companies include Great Atlantic Warranty in Florida; Auto One Warranty and Continental, both from California; and Dealer Services of New Jersey.

Looking for coverage
The Daily Journal called U.S. Fidelis to see what it might have to offer for a 2007 model Honda Odyssey EX minivan, which has about 72,000 miles on it.
Auto manufacturers’ warranties vary, but for the Honda, it was three years or 36,000 miles.
U.S. Fidelis offered a comprehensive “bumper-to-bumper” program that would cover another 60,000 miles or four years on the Honda, depending on which came first.
After a $100 deductible, U.S. Fidelis “will pick up any difference” in the cost of any repair work, the representative said.
The cost of the plan – $695 per year, for a total of $2,780. The price quote, however, was good only for that day. Payment plans also were offered.
Contacted next was Carchex Direct, which gets quotes from other companies. Alpha Warranty Services of Utah offered a “Supreme Coverage” plan for $2,148, even though the suggested retail price was $2,527.
A six-page sample contract spelled out what was covered – and not covered.

The devil is in the details
And it’s those little details that might catch a consumer unaware.
Said Moak, “We’ve heard from a number of Mississippians who thought they were buying coverage for their vehicles, but then the companies didn’t pay and the consumers were left to pay the bill.”
Jeff Robertson, owner of Tom’s Automotive Service in Tupelo, said he’s seen that situation play out several times, too.
“Some of the policies that the customers buy will say that if it’s not specified in the warranty, then it’s not covered,” he said. “We had one lady recently who had one of these policies, and we had to replace a wheel bearing. But because it wasn’t specified in the contract, it wasn’t covered.”
The cost to that customer, including parts and labor, was more than $1,000.
And even if a part is specified, that doesn’t necessarily mean the company will pay for it.
“They’re going to do everything they can not to,” Robertson said.
In many contracts, if the automakers’ maintenance schedule isn’t followed – and if you don’t have records of that work – then your warranty is void.
Bubba Franks, the service manage at Dossett Big Four House of Honda, said extended warranties are offered by the automobile manufacturers and can be bought at dealerships.
“You can add it to your purchase price, so that it may be only another $3 or $4 a month to your payment,” he said. “And you can always come back and buy one. You shouldn’t have to feel pressured to buy a plan from anyone.”
And Franks said customers can talk to local auto dealerships face-to-face, rather than having to deal with someone over the phone or online.
Also, not everyone needs to buy an extended service plan.
If you don’t plan to own the car for more than four or five years or plan to trade the vehicle within a couple of years, it doesn’t make since to buy one.
But if you’re hoping to keep your car for several years, buying a plan that covers high-cost repairs like engines, transmissions and air conditioning might be worthwhile.
“If your standard warranty is out and your transmission goes, having an extended plan will pay for itself right then,” Franks said.
Before buying an extended plan, check with the BBB for a reliability report on the business offering the contract, and with any regulatory agencies that oversee these types of companies.
“Check out the company as thoroughly as you can,” Moak said. “The Internet is a great resource, and you can find out histories, complaints and even positive experiences.”
Robertson, Moak and Franks all agree that consumers should read the fine print in the contract and make sure they understand the agreement thoroughly.
“But you have to remember that you can never insure yourself totally,” Robertson said. “There’s really not a true bumper-to-bumper warranty. If you could really cover everything in between, you couldn’t afford it.”

Dennis Seid/NEMS Daily Journal