The cost of extended watranties

When we bought our 2014 Honda Odyssey about 8 years ago from a friend as a lease return, I opted for an extended warranty through a 3rd party.  I had heard the Honda's transmissions could let go and figured it would be smart.  
 

I think it was $1500 for 3 years.  Never used it. 
 

we just got a used Audi q5 from an Audi dealer that still has one year on the factory warranty and they asked if I wanted an extended warranty.  
 

two options: from Audi or from a third party.    For an 8-year policy from the 3rd party, I would pay $7500. For a 6-year policy from Audi, it would be - gulp - $12,000.  These are all with a $250 deductible. 
 

apparently, the same Audi plan two weeks ago was $7500.  Not sure what happened but wowwwwwwww.   
 

I have until the factory warranty runs out to make a decision and I am scared.  

Put the $7,500 into a personal savings account.  I suspect you'll never drain the account.  

The loopholes in these programs that allow them to non-aurhorize the needed repair are all done in the favor of the company.  

They probably realized how badly they're getting beat up on those extended warranties, you know, Audi being Audi, and that's their berkeley off we don't want your business price.

Simply from a business standpoint, the cost of the warranty from Audi may indicate that Audi knows its products, has the data on its vehicles, and is pricing the warranty accordingly.

A used Audi. 

Want me to send Mike Tyson over to the house for a liver punch?

When I bought my used car this year from another make's dealer, they tried to guilt me into an extended warranty.  It was aggressive and persistent.  They were literally trying to sell it to me as I pulled off the lot.  "You can always come back for it."  The "discounted" rate was $4,000 on a car that cost $19k.  

Extended warranties are a scam.  You won't change my mind. 

z31maniac said:

A used Audi. 

Want me to send Mike Tyson over to the house for a liver punch?

Dunno who at GRM picks the forum quotes for the magazine, but that's a contender! 

In reply to Scotty Con Queso :

I bought my E46 as a CPO lease return in 2006.  It wasn't technically an "extended warranty", but at that time at least the BMW factory CPO warranty was excellent and rock solid, well worth the upcharge for a CPO car.

A coworker and his wife bought a used 2012 Equinox (?) a few years ago (whatever it was, Nick D basically said "hoo boy, good luck" when I mentioned it here).  They are automotive babes in the woods and bought an extended warranty at significant expense.

It has actually served them quite well, covering some camshaft issues that are genetic to these cars and recently replacing a clogged cat.  I'm not sure how they lucked into one that was actually worth something.  At this point I think the warranty has paid for itself.

At those prices, I'd probably bank the money and take my chances. 

I have bought two extended warranties for used vehicles. One through Ford, the other through Dodge. Both were under $2k on $15k-$19k vehicles. Both more than paid for themselves. One on a front-end rebuild including I-beams and two sets of brakes on an E150. The other paid to replace an engine in a Dodge Caravan. 

I bought a new Jeep Gladiator in Feb 2022 which came with a 3/36 factory warranty. Now I do drive quite a bit and in March of this year I was close to my 36,000 miles and was at the dealership for a fluid service. I spoke with the service writer about an extended warranty and the options and she took me over to the Jeep F&I guy to discuss what was available. Now I'm a mechanic and certainly wouldn't normally purchase any type of service contract or warranty, but since this vehicle is new and Implan to have it for many years, I was considering it. Fast forward about 2 weeks and I get a transmission code while the Jeep slowly coasts to a stop on the side of the road. Not good! I get it going again, limp it to the dealership and leave it for them to figure out. Now it was time to seriously weigh whether to buy the extended warranty or simply roll the dice for the foreseeable future and hope nothing goes wrong with it after the warranty expires. After getting the truck back from the dealership with no explaination of what caused the transmission issue, I decided to buy the warranty. The question then becomes which one? I spoke with 3  local dealerships and they all quoted a different 3rd party warranty company. I listened, took their paperwork and went home to do some interwebs research. I also asked each one about the factory MOPAR extended warranty and they all said their 3rd party company was better. Again, more research led me to a Jeep dealership in the MidWest that has a person who does nothing but sell MOPAR warranties online and over the phone for $50-100 over cost(a or so they say). After a longer phone conversation and exchange of paperwork, I decided to buy the longest term and mileage warranty available. I'm covered for 8 years and to 125,000 miles with the factory MOPAR coverage and hoped to never use it. Unfortunately here's where, in my case, this is going to pay off. 3 weeks ago while washing and detailing the truck, I noticed some bubbles under the paint on the hood and drivers side rear door. Strange because the Jeep never goes off-road, lives in a garage, gets washed/dried regularly, it's 100% stock and lives a pretty easy life as my DD. I had read on the one Jeep Gladiator forum that bubbles under the paint due to oxidation of the aluminum body panels was a thing  because of poor paint prep, I would have never guessed mine would do it. Back to the dealership to have them take a look and sure enough mine is one of the unlucky ones with panel prep and eventual oxidation issues. Because of the extended warranty, the issue is covered and will be repaired with a $20 deductible. Now I don't know anything about paint and bodywork, but they are replacing the hood, rear door shell, 2 hinges, repainting them and blending the adjacent panels. How much would that cost, I have no idea, but I'm thinking a few thousand maybe? The warranty cost me $3600, so I'm going to say that in my situation, buying the factory extended warranty is going to be worth the investment. It's also transferable should I decide to sell the Gladiator, the new owners will have piece of mind knowing that any issues that had popped up in the past were taken care of by the dealership and moving forward any issues up to the expiration date/mileage will be covered. 
 

Just my current experience.

How long was the $12K Audi warranty?  I agree that seems really high.

Personally, the only extended warranties I will buy are the ones branded by the manufacturer.  I've had Audi-branded 3rd party extended warranties on 3 cars so far, and will like buy one on the 4th (it's only a few months old, so still covered by the factory one) and they have yet to try to actively scrwe me.  They aren't as good as factory warranties (deductible, delays in approving work mean it often takes an extra day to get anything done, and the inevitable crap like "we don't pay for alignments" even when an alignment is a required step in replacing a covered part).  That said, to get a parternership with the manufacturer they have to live up to a certain level of service.

Keep in mind that an extended warranty is not really the same type of agreement as a warranty.  It is better thought of as an insurance plan -- you are paying up front for a contract that manages your downside risk.  Statistically the average customer will always pay more for the contract than they get back in claims, otherwise the warranty company wouldn't be in business. 

These companies don't lose money selling extended warranties. In the long run you'll be better off saying no every time. This approach does require you to keep some cash on hand. 

I avoid the warranties and after 5 cars I believe I'm still ahead of the game.

They do like to scare you though.....

In reply to Duke :

Bought a 5 year warranty on our 2019 6.2 Silverado. 

With all the AFM junk in these, it doesn't take much to eat up $5k in engine or transmission troubles on new vehicles.

z31maniac said:

A used Audi. 

Want me to send Mike Tyson over to the house for a liver punch?

We bought a used RS6. And Mike Tyson has done nothing to deserve a liver punch from me.

z31maniac said:

A used Audi. 

Want me to send Mike Tyson over to the house for a liver punch?

He will have to get in line behind me and myself. 

Our one 'extended warranty' (CPO) car happened to pay for itself, but none of the others would have. So taking a bigger picture view, even if we didn't have the CPO warranty we would still have saved more in the long run by not having them. As would hold true for most people on any given car, and the more cars they do this over, the more it will approach holding true for all of them. There is an emotional hit that people struggle with that comes with big ticket repairs too though.

Another way to think of it is this. Divide the warranty price you're willing to pay by the amount paid for the car. That fraction is what you're basically saying is the likelihood of a defect happening that would cause you to walk away from the car at a massive loss and buy something else. If you're willing to pay 25% the price of the car, then you're saying there is a 1 in 4 chance... And if that's the case, perhaps it wasn't a wise purchase.

In reply to lotusseven7 (Forum Supporter) :

I thought the factory Jeep corrosion warranty was 5 years for finish painted metal and 3 years for everything else, unlimited miles on both.

lotusseven7 (Forum Supporter) said:

I bought a new Jeep Gladiator in Feb 2022 which came with a 3/36 factory warranty. Now I do drive quite a bit and in March of this year I was close to my 36,000 miles and was at the dealership for a fluid service. I spoke with the service writer about an extended warranty and the options and she took me over to the Jeep F&I guy to discuss what was available. Now I'm a mechanic and certainly wouldn't normally purchase any type of service contract or warranty, but since this vehicle is new and Implan to have it for many years, I was considering it. Fast forward about 2 weeks and I get a transmission code while the Jeep slowly coasts to a stop on the side of the road. Not good! I get it going again, limp it to the dealership and leave it for them to figure out. Now it was time to seriously weigh whether to buy the extended warranty or simply roll the dice for the foreseeable future and hope nothing goes wrong with it after the warranty expires. After getting the truck back from the dealership with no explaination of what caused the transmission issue, I decided to buy the warranty. The question then becomes which one? I spoke with 3  local dealerships and they all quoted a different 3rd party warranty company. I listened, took their paperwork and went home to do some interwebs research. I also asked each one about the factory MOPAR extended warranty and they all said their 3rd party company was better. Again, more research led me to a Jeep dealership in the MidWest that has a person who does nothing but sell MOPAR warranties online and over the phone for $50-100 over cost(a or so they say). After a longer phone conversation and exchange of paperwork, I decided to buy the longest term and mileage warranty available. I'm covered for 8 years and to 125,000 miles with the factory MOPAR coverage and hoped to never use it. Unfortunately here's where, in my case, this is going to pay off. 3 weeks ago while washing and detailing the truck, I noticed some bubbles under the paint on the hood and drivers side rear door. Strange because the Jeep never goes off-road, lives in a garage, gets washed/dried regularly, it's 100% stock and lives a pretty easy life as my DD. I had read on the one Jeep Gladiator forum that bubbles under the paint due to oxidation of the aluminum body panels was a thing  because of poor paint prep, I would have never guessed mine would do it. Back to the dealership to have them take a look and sure enough mine is one of the unlucky ones with panel prep and eventual oxidation issues. Because of the extended warranty, the issue is covered and will be repaired with a $20 deductible. Now I don't know anything about paint and bodywork, but they are replacing the hood, rear door shell, 2 hinges, repainting them and blending the adjacent panels. How much would that cost, I have no idea, but I'm thinking a few thousand maybe? The warranty cost me $3600, so I'm going to say that in my situation, buying the factory extended warranty is going to be worth the investment. It's also transferable should I decide to sell the Gladiator, the new owners will have piece of mind knowing that any issues that had popped up in the past were taken care of by the dealership and moving forward any issues up to the expiration date/mileage will be covered. 
 

Just my current experience.

The aftermarket extended warranties (they are not warranties, they are service agreements, a type of insurance) are not as good as the OEM backed ones.  There is so much profit in extended warranties that the dealers and dealer groups are creating and funding their own and they will obviously tell you they are the better ones.  Service advisors are now selling these too.

Let me explain how the numbers work:

$4,000 service contract retail price

$~1,500 cost from the finance/insurance company.  Yes, $2,500 pofit for the dealer.

$3-500 fee from the finance/insurance company.

$1,000-$1,200 left to pay claims.  If during the life of the policy, $500 is spent on claims, you have a loss ratio of  50%

Car companies' quality becomes rather apparent when you look at the loss ratios of the different car companies.  Most OEMs range from 40% up to 80%.  You will be pretty close if you guess on who is at each end of the loss ratio spectrum.  The finance/insurance company makes their money with these "free" assets to invest for the duration of the contract.  These monies are sent to an off-shore account where they pay little to no taxes.  At the end of the policy's term, any of the principle money left over are sent back to owner of the dealership.  Since it is coming from on overseas bank, there are no taxes on this money.  This is why dealers will sell over the web a contract with minimal upfront profit, they will get it at the end.

There is a reason why there are so many telemarketers selling these and the high pressure tactics of the F & I manager at the dealer.  

Most extended warranty pricing is insane. The only time I've ever had it make sense was the carmax maxcare ones. My m4 was $3k for 75k miles and 5 ADDITIONAL years. (car was 25k at the time) Most extended warranties run concurrently with your factory warranty from first sale date. I bought a x5 not too long ago and the one the bmw dealer quoted me was something like $7k for 2 years actual coverage. The car was like $28k and I drive very few miles since I WFH. There is no world in which that came close to making sense. I'd probably be paying a dollar a mile in warranty cost. Plus most of aftermarket ones are a nightmare to get claims handled.

Extended warranties are not warranties, they're insurance, and companies do their best to decline paying by using all the fine print.  After working in repair shops for a long time, some shops won't even accept it.  It's a sure-fire way to become the bad guy.  You become the middle man between a shady company trying to deny a clam and a customer who didn't read the fine print.  If your transmission had died and you brought it to my shop for a rebuild, chances are they would pay for the rebuild itself, but not the labor or any additional parts.  I would have to quote you $4000 self-pay, and $2900 through the warranty.

The reason they have enough money to hire celebrity spokespeople for nationwide commercials is because they collect more in premiums than they pay out in claims.  On the average, you're going to lose.

I only know of two people who have purchased an aftermarket warranty and came out on top: myself and Doug Demuro.

I paid $2k for the extended warranty on my wife's 2005 New Beetle Convertible back in 2009. My previous ownership of a 1995 Passat told me it would pay off and it did. All four window regulators died in one week, the convertible top mechanism took a crap, and weird electrical gremlins ran wild. Paid out around $4k in coverage before I dumped it on the next sucker.

As for Doug, we all know his story: https://www.autotrader.com/car-news/heres-final-update-my-range-rover-carmax-warranty-281474979901455

But like others have said the companies have gotten wise and fight every claim now, so it probably isn't worth it.

I think it's sad/funny how the same person telling you that the car you're considering is a cream puff and perfectly reliable - also says you better have an extended warranty, or you'll be sorry.

slefain said:

I only know of two people who have purchased an aftermarket warranty and came out on top: myself and Doug Demuro.

I'm #3 then.  2009 Mercedes SLK, I paid $4237  and the third party policy from the selling dealer paid out $7988 over two items.  The P0300 misfire that I chased turned out to be a bad cylinder head ($4662).  The AC, that I suspect was just the control module with online forum guides for resoldering, I took to the dealer and they replaced the module, compressor and a few more items for $3326.

Any car newer than about 2018 I'm likely to buy the warranty that the dealer's service department will accept.  Sad reality of the number of computers and complexity of newer cars.