Extended warranties: A high-priced gamble
Our survey of 8,000 new-car buyers shows they are usually a poor deal
Most people don't buy a new car without hearing the dealership finance manager warn about "how foolish it would be" not to protect your investment from unexpected repairs as you put on the miles. What comes next is a persistent sales pitch for a solution to your new fears: an extended warranty. "You could save the amount of the plan cost with just one covered repair!" says a brochure for Ford's Extended Service Plan.
But extended warranties sell costly "peace of mind" for repair nightmares that probably won't occur, according to a survey of more than 8,000 readers in December 2007 by the Consumer Reports National Research Center. We have long advised that extended warranties are a poor deal for almost every product. Now we have the first data showing that this advice applies to most new cars as well.
The survey included buyers of extended warranties for cars in the 2001 and 2002 model years. That allowed sufficient time for the factory warranties to expire, as well as several years of extended coverage. The chart on
Costly contracts lists results for makes for which we have sufficient data; note that models within a make may vary. Some owners in the survey might have had coverage remaining, but our analysis shows that the need for serious repairs is uncommon.
The main reason is that automobiles today are more reliable than ever. "The odds are that what's covered won't fail," says Terry Wynter, who owns Terry Wynter Auto Service Center in Fort Myers, Fla., and is helping to write an extended-warranty guide for the Automotive Service Association (ASA). The sellers of extended warranties know what parts tend to break within the coverage time and mileage, so buyers are betting against the house.
In fact, that's a lesson many people already know. About 75 percent of all respondents in our initial screening did not buy extended warranties, with more than two-thirds saying they didn't think it was a good value for their money.
The best course of action for most consumers is to buy a car that gets top reliability scores in our Vehicle Ratings (accessed by pulldown menus on major pages within the Cars area or through our interactive
New Car Selector, available to subscribers), and you probably won't need an extended warranty. But if your heart is set on a car with a below-average reliability record, it's more of a toss-up. You can decide for yourself how much "peace of mind" is worth. For example, the highest usage claims were for Mercedes-Benz, for which we have no recommended models due to below-average reliability. But only 38 percent of those owners said they saved money with the extended warranty; the average loss was $100.
The experience of our readers who bought extended warranties and a closer examination of
how they work (available to subscribers) show why the odds are stacked against you.
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