Auto Pilot - July 2016

Demystifying Car Warranty Options

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Everyone loves the idea of purchasing a new (or new to them) vehicle and often will research the smallest details of their new car purchase. I have friends who will quote me volumes about safety features and “5-Star” ratings, even about how well the audio interfaces with their iPhone. But when they call me and ask a maintenance question, and I give my opinion and ask about the car's warranty coverage, I often get a blank stare.

Vehicle warranties can be confusing, and many times even the dealer salesperson knows very little about warranties. I’ll try to break down the different types of warranties and their plusses and minuses:

New Car Warranty: This is what you receive from the manufacturer when you buy a new vehicle off the dealer’s lot. Most of these warranties include a “bumper-to-bumper” portion and a “power train” portion. The bumper-to-bumper portion covers everything between the front and rear bumper of the car. Most of these warranties exclude wear items like tires and brake pads, but cover all the non-wear mechanical portions of these systems. This warranty typically expires in a few years and/or 36,000 miles or so. Then your Power train warranty takes over coverage for the remainder of the warranty period.
Power train warranties usually cover the engine, transmission, differential and drive shafts—basically the parts that keep your car moving down the road. It does not cover such things as a broken radio or sagging headliner. Power train warranty typically covers a new car for approximately five years or 60,000 miles (whichever comes first). New car warranty claims are handled by the dealer network of the manufacturer who built your car, e.g. Ford dealers take care of Ford cars. Most new car warranties have no deductible, with 100 percent of repair costs reimbursed to the dealer by the manufacturer. It is a great system and generally works very well, and its cost is included in the price of a new car.

Certified Pre-Owned (CPO) Warranty: A CPO warranty is something new car dealers can purchase from the car manufacturer (typically costs the dealer between $2500-$5000, which is normally included in the price of the car) and it covers relatively new trade-in vehicles that are in excellent condition with good maintenance history and normally no accidents. The selling dealer performs a very thorough mechanical and cosmetic inspection, repairs anything wrong and then certifies the car. CPO warranties often have a bumper-to-bumper component of about one year and a power train warranty to 100,000 miles, often with zero or very little deductible.
I am a fan of purchasing CPO cars or trucks and currently have a 15-month-old, CPO Ford F250 I purchased earlier this year. It gives me the security of knowing the power train is covered up to five years or 100,000 miles and offers one year that Ford will cover anything bumper-to-bumper (although, I am currently working to resolve a denied claim, but I am sure they will make it right, and I’ll let you know the outcome in an upcoming article). Overall, purchasing a certified pre-owned vehicle is typically a great purchase option.
The third warranty is the one that generates the most email and questions, as well as the one clouded with the most confusion and mystery. This warranty is the third party aftermarket service contract.

Third Party Aftermarket Service Contract: These contracts can be daunting to understand. For one, they rarely mirror a new car’s power train, bumper-to-bumper warranty. Instead, they can be a mixed bag of coverage, often seemingly administered by a team well versed in the use of smoke and mirrors. These policies can cover anything from the power train to the electrical system to that thumping audio system the last owner installed, though some will only pay a portion of the repair costs.

To better understand these warranties, I’ll try to explain a bit more:

Extended Service Contract: Often called service contracts, these programs are at face value designed to protect used-car purchasers from costly failures down the road, in some cases more than 100,000 miles. These policies come in all shapes and sizes; some cover only the most serious engine trouble, while others include everything short of the driver. Basic low cost policies usually carry higher deductibles than pricier ones.
These policies often allow any certified maintenance shop of your choosing to perform the repair. But often times the amount they will pay, or the parts covered are very minimal, and the car owner ends up out of pocket for a large sum of money. One example is a friend of mine whose 5-year-old Audi, which was covered by an extended service contract, began consuming oil at an unhealthy rate. She took it to Audi and the factory-trained technician determined that the engine had one severely worn piston ring, with the others close in condition. He recommended all be changed. A call to the service contract company revealed they would only pay for the worst cylinder. That left my friend paying about $1500 of a $2500 repair bill. Yes the service contract helped, but simply not enough in this case.
My advice with service contracts (and all warranties) is read the fine print. Make an educated decision if this is something you will need/use.

Also, worth mentioning is the most basic of warranties:

AS IS: In most states, dealerships and private parties are allowed to sell a car as-is, without a warranty. Basically, you bought it; you own the repair. Small dealers will sometimes offer a minimal warranty (perhaps 7 days love it or leave it to help sell the car). This is the perfect option for an inexpensive car purchase for a new driver. But, I recommend you shy away from it for anything that may be very expensive to repair in the future.

Jay Ramowski is a commercial helicopter pilot, automotive consultant and professional driver based in Charleston. Jay brings an easygoing love of all things mechanical and a particular passion for cars and the people who drive them.

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