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Extended Warranties



  • dwynnedwynne Posts: 4,018
    You'll probably still have that money (plus interest) in 3 years.

    Not unless they make BMWs better than when I had mine :D . One good thing is that you can get an independent shop work on the BMW rather than the dealer. Most BMW dealers are super high on parts and labor and you can get most stuff done a local shop that specializes in BMWs for less money. You might not get a Z3 or 330i loaner car like I used to get from the dealer, but repair costs will be less.

  • mikefm58mikefm58 Posts: 2,882
    You won't find any recommendation for an EW other than a manufacturer backed one from any of the regulars here. Too many of us have been burned by the 3rd party kind.
  • jontyreesjontyrees Posts: 160
    Hi - I just bought an 08 Taurus Ltd (fabulous car, btw - crazy price), and declined the EW given that I hadn't researched it. I probably missed the boat on rolling it in with the financing, but I'm still interested in getting some extended coverage. The dealer offered the basic coverage extended from 3/36000 to 5/75000 for $1200. 2 extra years or 39k miles for $1200 seemed steep to me - was I right?
  • wlbrown9wlbrown9 Posts: 867
    I researched this a couple of years ago (did not buy Ford) and found at a discount for Ford ESP warranty. Just now did a web search and there seem to be a number of legit Ford Dealers selling these at a discount over the web. So, do the search and contact 6-8 of them for pricing and take the best price.

    One other thing to consider, many states can not collect sales tax on this if you purchase from a dealer in another state, but if you had purchased when you bought you Taurus you probably would have paid state sales tax. I'm in Tennessee and our rate is 9.25%, so a $1000 purchase in state would add $92.50 in additional cost for sales tax.
  • euphoniumeuphonium Great Northwest, West of the Cascades.Posts: 3,425
    I don't buy frequently, but when I do, I look over the EW at the time.

    Since 1980, I've owned three Town Cars and the only major expense of repair was on the current 1994 to replace some parts in the differential. All other costs were related to maintenance. The repair cost to the differential was a lot less than buying EW & applying their respective deductibles.

    I believe when you buy a quality automobile, you don't need any EW, but if you buy a marginal quality vehicle, perhaps an EW is to be considered.

    Previous to 1980 and going back to 1967, we purchased two Ford wagons, but no EW on either. Our 66 Mustang GT, 134,000 miles never had an EW either. :)
  • dtownfbdtownfb Posts: 2,918
    There's a regular poster, joel6622, who is a finance manager for a Ford dealership in TN. He can probably help you with an extended warranty.
  • wisemoneywisemoney Posts: 42
    Rules of Car Buying.

    1. Never use your precious, hard-earned money to pay for an expensive and unreliable car.
    2. Only buy the best value, or the lowest cost and highest quality combination.
    3. Never buy Extended Warranties. A reliable car doesn't need one, and you should only buy a reliable car.
  • euphoniumeuphonium Great Northwest, West of the Cascades.Posts: 3,425
    Excellent advice.

    On The Reliability Scale where would you place the 2005 Jaguar XJ8 L ?

    The style is appealing, but the nearest dealer/service is in the next state.
  • wisemoneywisemoney Posts: 42
    Well sure the maximum benefit for collision on a 100,000 Lexus would be more than the maximum benefit for an extended warranty. But you're paying a LOT more in premiums for 100,000 Lexus than you are for a simple extended warranty.

    Because you're paying a lot less for an extended care warranty, of course the maximum benefit is a lot less. That doesn't make it less of a value. Is Fit collision insurance less of a value than the Lexus insurance because the maximum benefit is less? Of course not.

    Let's look at two separate ratios to explain things more clearly. The ratio of a car's depreciated value over it's collision coverage premium is one ratio. The other ratio is the ratio of a car's largest repair expense over it's extended warranty cost. These are analogous measures of value for collision coverage and extended warranties. The largest claim over the premium cost is shown below.

    1. (Car Value)/(Collision premium)

    2. (Largest repair bill)/(Extended warranty cost)

    The point that I'm trying to make can be summed up in one equation as shown below:

    (Largest Claim = Car Value)/(Collision premium) is much greater than
    (Largest Claim = Largest repair bill)/(Extended warranty cost)

    for newer vehicles.

    For any particular vehicle, you need to analyze the above equation very carefully. This equation is the mathematical explanation and proof of my argument.

    Whether it's a Lexus or a Honda Fit, Ratio number 1 is always greater than Ratio number 2 for newer vehicles.

    A Lexus extended warranty will cost more than a Honda Fit extended warranty, but a Lexus will have potentially larger repair bills than a Honda Fit. Therefore ratio 2 will stay relatively constant.

    A Lexus collision premium will cost more than a Honda Fit collision premium, but a Lexus costs way more than a Honda Fit to replace. Therefore ratio 1 will stay relatively constant.


  • euphoniumeuphonium Great Northwest, West of the Cascades.Posts: 3,425
    What government job do you have? :(
  • joel0622joel0622 Posts: 3,302
    WOW!!! Here I thought it was always just a matter of a persons particular budget on any given month could absorb a $500 to $5000 repair bill or would they rather pay $20 a month to ease the burden. :D
  • jimbresjimbres Posts: 2,025
    I share your confusion. I've read that post 4 times & couldn't explain it to you if you held a gun to my head.

    I pretty much agree with your summary, although I'd rephrase it a bit: if you're handling your finances like a grown-up - if you've got money in the bank & a handle on your debt, then you don't need an extended warranty. But if you're living from paycheck to paycheck - if you're one step ahead of the sheriff & generally clueless when it comes to money management - then an extended warranty might not be a bad idea for you.
  • tidestertidester Posts: 10,059
    But if you're living from paycheck to paycheck ...

    Just to be clear, many (most) people who live from pay check to pay check DO handle their finances like grown ups, know about money management and are not scofflaws on the run. You might have worded that a little better to avoid possible misinterpretation.

    tidester, host
    SUVs and Smart Shopper
  • jimbresjimbres Posts: 2,025
    Remember that I'm talking about the people who come to this particular forum. Most of them are in the process of buying new cars, which come with factory warranties. Those warranties give them 3 or 4 years to build up reserves against post-warranty repair costs. If they can manage to put a few dollars a day into one of the online savings accounts (ING Direct, for example), they'll have several thousand dollars when the factory warranty runs out. And if they can't do this, then perhaps they're in over their heads & they should be shopping for less expensive vehicles.

    Sorry for the harsh words, but I firmly believe that you should budget for car repairs just as you should budget for the other stuff that you need. That means setting something aside from each paycheck so that you can cover unexpected expenses.
  • Kirstie_HKirstie_H Posts: 10,996
    It is a personal choice, regardless of finances. It's also a gamble - the extended warranty may cost you more or less than you get out of it.

    My parents have a very healthy income, and they choose to buy the manufacturer-backed extended warranty every time. That pretty much "fixes" the cost of their repair bills for the duration of their vehicle ownership, and they don't even have to think about it. Something seem wrong? Take the car in. They're old, and they just prefer not to have to consider the cost of long-term problems with the car.

    For some people, this peace of mind and level of simplicity is just what they're looking for. Others prefer to pay as issues arise. The decision to purchase/not purchase an extended warranty isn't always as simple as bad vs good money management.


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  • euphoniumeuphonium Great Northwest, West of the Cascades.Posts: 3,425
    EW=Mechanical Insuance. The purpose of insurance is to prevent a financial catastrophe, it is not a maintenence contract. The amount you can afford to absorb in a claim should be your deductible.

    If the engine blows, needing replacement, it will cost a lot more for the luxury car than the sub compact to replace it. If you can afford the luxury car you can afford the replacement w/o an EW because the cost is not catastrophic to you who has the Bucks in the first place.

    Putting the amount of the EW premium into an Aggressive Growth fund will profit you more in the long run.

    So, what price is Peace of Mind? The premium you paid plus the gain you didn't get in the stock market.
  • tidestertidester Posts: 10,059
    So, what price is Peace of Mind? The premium you paid plus the gain you didn't get in the stock market.

    That's your metric. We all have our own.

    tidester, host
    SUVs and Smart Shopper
  • fiprofipro Posts: 1
    One of the big perks of a service contract is to keep your ownership costs of your vehicle predictable, if you think you will keep your car for 6 yrs and 85000 mi you can purchase a service contract and maint plan along with your new or used auto. Now if your total payment is something you can afford you can be confident that this is your total cost of ownership. Most people who say the words always and never show that they haven't thought things threw. Why would limiting your risks be a bad thing? If you deal with an ethical dealer they will advise you as to what options are available and let YOU make an informed decision as to what protections would be beneficial to you. If the finance department starts telling you that more than 1-3 plans are a good idea for you they are probably not looking out for your best interests and it is time to go to an ethical dealer. I have been a Finance and ins professional for many years and commonly tell my clients that no options make sense for them and others 2-3 things may be a good idea. Just find a dealer you can trust!!!
  • jimbresjimbres Posts: 2,025
    For a long time, my mother-in-law did pretty much the same thing as your parents. I really couldn't see why - after all, she sees cars as appliances (not such a bad thing, really) & always buys the cheapest car that meets her needs. This leaves her with loads of money in the bank - enough to buy the same car 2 or 3 times over. I didn't see any reason for her to buy an EW, but she was always a pushover for the first salesman to cite "peace of mind" (great marketing phrase!) as a reason to get one. She grew up during the Depression & that was all she needed to hear.

    Then, one day, I pointed out that when she buys an EW, someone else got to earn interest on her money. (She pays cash for her cars & cash for the service contracts.) Like many retirees, she's income-oriented & wants any dollar not needed for current living expenses to be earning interest. But she had never stopped to think of the interest income that she was giving up when she bought a service contract. As soon as she did, she soured on the whole idea & turned down the offer of an EW when she bought her next car: a 2000 Camry stripper which has required nothing beyond routine maintenance. She's thinking of replacing it when the 2010 Camry hits the showroom - she likes a new car every 10 years - but she won't buy a service contract. In fact, she recently talked a friend out of buying one.
  • jimbresjimbres Posts: 2,025
    That's your metric. We all have our own.

    No argument. But it's still worth noting that a fundamental, time-honored axiom of casualty insurance is that you should purchase protection only against catastrophic losses & self-insure against everything else. That's why I pay extra to get the best homeowners coverage available in my area. I saw a small electrical fire do over $100K damage to my neighbor's house in less than 20 minutes. A loss of that magnitude would cripple me, & I'll pay whatever is necessary to protect myself from that.

    But I can handle a $2K auto repair bill. After I've paid it, I'll be lousy company for the rest of that week, but I won't have to postpone retirement or skip my vacation. I've made it a point to build up an emergency fund to cover this stuff.

    Incidentally, the largest repair bill that we've actually paid during the last 20 years was less than $1500. Keep in mind that we keep our cars for a long time: 1 for over 13 years & another for almost 12. So we have lots of experience maintaining cars after the factory warranties have run out.
  • dwynnedwynne Posts: 4,018
    It should be clear to anyone thinking logically that buying an EW is just like going to Vegas - the house always wins since they set the odds.

    If the EW for a certain model costs $1,000 at dealer cost then you can be sure that the warranty company knows the average repair for that make and model will be less than $1,000 over the life of the EW. So you buy in KNOWING the odds are not in your favor - you are not likely to come out ahead. If you were likely to come out ahead, the warranty company would just raise the price until they made money.

    That said, a lot of folks just like the peace of mind aspect of it and they often roll the cost in on top of the car so it is just a "little more each month" and frankly they probably do not have the cash on and to invest against future problems. True, if they put away that "little extra" each month they would have some money saved by the time the new car warranty ran out, but they know they will not do it - so they buy the warranty. Logic, investment, law of averages, Consumer Reports, etc - nothing will stop someone from buying an EW if they feel better with one.

    However, I am not sure the purpose of this forum is to endless argue the pros and cons of an EW - folks that check in here usually want to buy one already. The purpose should be to steer them away from 3rd party warranties with their long histories or trouble and onto factory backed plans and to help them find the best places to get these at a discount. Maybe there is a "why you should not by an EW" forum here, if not maybe the mods could start one and then everyone that wants to argue the merits could go and argue about it at length - and leave the EW forum for folks that have questions about where to buy one and what to pay. Everyone calling folks who want to buy one "stupid" or whatever is sure to make many of them not bother to post lest they be attack for their desire to buy a warranty.

  • euphoniumeuphonium Great Northwest, West of the Cascades.Posts: 3,425
    It is honest and it is true.

    Insurance including EW is NOT a gamble. It is a transfer of risk to a carrier who has the earned premiums invested in order to pay claims. In addition to paying claims, there are management costs plus very high commissions to the dealer's F & I guy. So - what's your metric? ;)
  • jimbresjimbres Posts: 2,025
    However, I am not sure the purpose of this forum is to endless argue the pros and cons of an EW - folks that check in here usually want to buy one already. The purpose should be to steer them away from 3rd party warranties with their long histories or trouble and onto factory backed plans and to help them find the best places to get these at a discount.

    Well, as a long-time lurker & occasional participant in this discussion, I've noticed that quite a few people come here to ask if they should buy EWs at all. This question is often raised by folks who have just bought or are about to buy a car with a reputation for reliability - Toyota or Honda, for example - & they're wondering if the purchase of an EW is the best use of their money. It doesn't hurt to let them know that there are other - and, to my way of thinking, better - ways to manage repair costs. That's certainly within the scope of this forum.
  • budhbudh Posts: 109
    Hypothetically, let's say a sedan of Japanese or South Korean origin about 4 to 5 years old starts acting "funny" but continues to be driven, and then a warning light such as an oil pressure or high coolant temperature illuminates. And the car is driven "a little farther" before being stopped. Can the car's computer be accessed afterward by the dealer and determine that the car was driven 10 miles after a warning light came in instead of a fraction of a mile? And if so, how would one clear out that type of information from the car so the information cannot be used to prove a manufacturer's allegation that the car was driven several miles with an important warning light illuminated continuously for many minutes in order to avoid paying on a bumper to bumper warranty repair for major work on this car?
  • dwynnedwynne Posts: 4,018
    I would say you (or your wife or kid) should have stopped the car when the light came on, thus avoiding ruining the engine.

    In any case, only the codes thrown are stored in the OBDII computer as far as I know. There COULD be other black boxes in the car that we can't access without dealer equipment. I know some cars have black boxes like this.

    In any case, factory powertrain warranty only covers the "internally lubricated parts" of the engine. So if a coolant hose or the radiator sprang a leak and the car overheated and was still driven on until the engine seized, they are going to deny the claim anyway. Something covered caused by something not covered - is not covered. They usually find ways to weasel out of covering stuff even if you did nothing wrong, and in this case you did so most hope is lost.

    I would get it towed to the dealer and just see what they say. If asked about what happened, don't lie just tell them it quit running.

  • euphoniumeuphonium Great Northwest, West of the Cascades.Posts: 3,425
    Why should a warranty cover flagrant abuse? Choosing to ignore and to not comply with the warning light should not be rewarded with your scam plan. :mad:
  • Hypothetically, let's say someone from the manufacturer or the EW company comes over to your house and robs you...
  • The point that I'm trying to make can be summed up in one equation as shown below:

    (Largest Claim = Car Value)/(Collision premium) is much greater than
    (Largest Claim = Largest repair bill)/(Extended warranty cost)

    for newer vehicles.

    For any particular vehicle, you need to analyze the above equation very carefully. This equation is the mathematical explanation and proof of my argument.

    I'm sorry, but speaking as a mathematician, that's hardly a mathematical proof... if you've ever seen a real proof, you would know what I mean. ;)

    While I get the gist of what you're saying, you've over simplified it and weighted it to greatly benefit the collision ratio. I won't hide the fact that I'm a pricing actuary for an EW producer, so some of you may think I'm biased (maybe), but to really compare apples to apples, you would need to:

    1) use the premiums over a comparable time period: If you have a 5-year EW, you would also need the premium paid over 5 years for the collision coverage.

    2) use the average value of the vehicle over that same time period.

    3) use total claims, not one time greatest claim. While the largest claim on the collision would be a one-time occurrence, the largest repair bill does not preclude more of the same large repair bill(s) in the future (ask your shop how long it guarnatees replacement transmissions and rebuilt engines).

    4) use frequency of claims. While I don't specialize in auto collision pricing, I had had been told in the past that the chance of a total loss claim is about 1% a year; that amounts to about 5% over a 5 year period. Compare that to the approximately 30% chance of a powertrain claim over $500 (based on my company's data, ~3M contracts) over the same period.

    I'm not saying that this will completely reverse your findings, just that this will make the ratios much less disproportionate.
  • tidestertidester Posts: 10,059
    if you've ever seen a real proof, you would know what I mean.

    I have and I do. :)

    to really compare apples to apples

    As a mathematician I am surprised you would even go there. There are many ways of comparing apples to oranges not the least of which are topological and chromosomal properties.

    this will make the ratios much less disproportionate

    That's an interesting observation. Is it possible for a proportion to be disproportionate? But then it is not a true proportion. It's not even an equation. It is an inequality.

    Just kidding of course but I do agree with the thrust of your arguments.

    tidester, host
    SUVs and Smart Shopper
  • mitzijmitzij Posts: 613
    You say there's a 30% chance of a powertrain claim over $500? During what time period? After 3/3600 and before 100K miles? After 100K miles? That seems to be a high percentage. Do you mean to say that 30% of your contracts have at least one claim over $500?

    In a game of chance, your 'chance' doesn't add up over time. If a slot machine's chance of a big payout is, say, 3%. You have a 3% chance each time you pull the lever. Five pulls does not equal a 15% chance of a big payout.
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