Auto Extended Warranty - Buying at the Dealership?

I just read this good article on auto extended warranties. It covers all the basics. It's a little too enthusiastic about the warranties in my opinion. There's not enough discussion of the pitfalls. But it does make some good points. For example, it says that it only takes one big repair bill that is covered for the policy to pay for itself. A replaced transmission can cost $2000. A/C repair cost can be over $700. So if your policy pays for one of these repairs, you'll come out ahead.

The article primarily looks at buying an extended warranty contract when you purchase your car. I don't know if this is the best approach. I think there's too much of a chance that you won't get the best deal. You can always easily purchase an extended warranty through out the period of your factory warranty.

If you do decide to purchase an extended warranty when you purchase the car, the article does provide several good tips. First, beware of dealers trying to sell you aftermarket extended warranties. Some dealers may only try to sell an aftermarket brand but they can also sell you the manufacturer-backed warranty. As I've described in my last post, there are many advantages of getting an extended warranty from the manufacturer.

Finally, the article listed some example of auto extended warranty costs. The example used a 2000 Honda Odyssey. The Honda Odyssey Honda Care Vehicle Service Contract (manufacturer brand) had coverages that ranged in price of $985 to $1435. An afermarket brand (CNA Warranty) had coverages that ranged from $989 to $1072.

I also did some research to help with comparisons. First I noticed this article is about 5 years old and originally from Edmunds. Not sure why ABC12 has it posted as a news story. So instead of a 2000 Honda Odyssey, I used a 2005 model, and plugged in this information at Penfed's quote system. I received a quote of $1,285 (plus $104 in taxes). This is a 7-years/100K-miles policy with $0 deductible. Refer to my previous post for more info on this Penfed extended warranty.

Honest Auto Extended Warranty Advice from an Insider

At ClarkHoward message forums, a lady provided some detailed advice regarding auto extended warranties. Of course you never can be sure about info from message forums. But her post seemed quite reasonable, and there was no apparent motive for her not to be honest. Her inside info comes from her husband who's a long-time mechanic who has done inspection work for the warranty companies. Here are her main points about extended warranties:

• Recommends extended warranties from the automakers (GM, Ford, Chrysler, Honda, Hyundai, etc.)


• Warranty often pays for itself IF you plan on keeping the car for a long time


• If your car is still covered by the factory warranty, you can buy an extended warranty. Don't be rushed into it.


• Here's an important one. Shop around for dealers with the best price on an extended warranty from the automaker. She said that by calling around she found a price difference of $800 for identical Chrysler warranties.


• Beware of dealers trying to sell you a non-automaker warranty. Some dealers don't even market the automaker warranty, because there are after-market warranty companies that offer a higher profit for the dealer.


• Beware of extended warranties marked by banks and credit unions. Just like the dealers selling non-automaker warranties, these make them lots of money but they have the same risk as any other after-market warranty.

Auto Extended Warranties and Credit Unions

Mechanical Breakdown Insurance (MBI) can be a good alternative to aftermarket extended warranties. I discussed the differences and advantages in this previous post.

A common place to purchase MBI policies is from a credit union. The problem with credit unions, however, is that it can be difficult to find one in which you are eligible to join and also offers MBI policies. I found two national credit unions that anyone can join and offer MBI policies.

The first is Lockheed Federal Credit Union. You can be qualified to become a member by joining the non-profit Achievers Club. Their MBI policies are only available to California drivers.

The second is Pentagon Federal Credit Union (PenFed). You can become eligible to become a member even without military affiliation by joining the National Military Family Association. PenFed has an extensive site on its auto extended warranty policy which they call Mechanical Breakdown Protection (MBP).

At first I was thinking that Penfed was offering a MBI policy which is typical of most credit unions. However, after some research, I'm not sure. It may be a vehicle service contract. The policy is administered and underwritten by Mercury Select Management Company. According to California Department of Insurance's database, this company is licensed to provide vehicle service contracts.

Whether Penfed's policies are MBIs or vehicle service contracts, the policies seem worthwhile and something to consider. PenFed provides an instant quote tool for their MBP policies which works well. Also, they have detailed information on their policies. Some of the notable benefits of their policies include:

• cover 100% of all covered components, parts and labor charges including applicable taxes
• seals and gaskets are covered for all covered components
• no overheating exclusion
• wear and tear covered which results in mechanical breakdown of the part (excluding routine maintenance items)
• You can take your vehicle for repair to any licensed repair facility
• Once the repair is authorized and completed, they pay the repair facility/dealership immediately by credit card.
• can be transferred to any private party who purchases your vehicle

Another benefit is that the term of the contract begins on the date of the quote, not the car's in-service date. So if it's a 7-year/75K policy and your car is 3 years old, the term may last until the car is 10 years old (assuming the car's odometer stays below 75K).

I gave their instant quote tool a try with some sample vehicles. Here are the quotes that I received for their Platinum Coverage, 6-years/100k-miles, $0 deductible policies. I assumed 2002 models with 30K miles on them since a 3-year/36k-miles factory warranty is typical.

• BMW 3-Series - Cost: $2,015
• Ford Mustang GT - Cost: $1,605
• Chrysler PT Cruiser - Cost: $1,420
• Honda Civic - Cost: $1,210