My Experience with Warranty Direct

Six years ago I bought an extended warranty for my 2001 Chevrolet Prizm at Warranty Direct. Here are the details of the warranty:

• 6 years (starting at year 3 of car's age) or 75,000 miles
• MajorCare Coverage with $100 deductible
• Emergency Roadside Assistance up to $50 per occurrence
  
• Paid $583 in February 2004

My Chevrolet Prizm has proven to be very reliable. I never had anything go wrong with the car. So I never had a chance to test how Warranty Direct handles claims. Also, I never even had a chance to use their roadside assistance.

According to Warranty Direct's terms and conditions book, you have to instruct your repair facility that they must obtain authorization prior to making repairs. The Administrator will then reimburse the repair facility for the cost of authorized repairs, less the deductible.

This is often where you learn of the quality of your extended warranty provider. Will they authorize repairs or will they claim that it's not a covered item? Unfortunately for this blog, I don't have personal experience with this.

Before the contract expired, I called Warranty Direct to see if I could get anything back for not having filed any claims through the six years. No luck. They did try to sell me a new plan, but it was much more expensive. For a 5-year PowerShield (covers engine, transmission, air conditioner, etc.) the cost was $1909. They offered another special plan with a $0 deductible for $1609. I decided it was too much. With the car 9 years old, I'll just keep some money in a savings account to cover future repair costs. If too many major problems arise, I'll just get a new car.

One thing to note is that Warranty Direct did survive over these 6 years. One of the main concerns with non-manufacturer's extended warranties is the question of if the company will hold up. Many have gone out of business leaving customers with worthless policies.

Money-Back Extended Car Warranties and Aftermarket Warranties

The consumer advocate Clark Howard discussed money-back car warranties last week (see his show notes). These extended automobile warranties allow you to get the money back if you never make a claim. In the last 3 years since I started this blog, I can't remember seeing any companies that offer these cash-back warranties.

In Clark's opinion, you should avoid warranty companies that offer these cash-back policies. In fact, Clark warns against buying warranties from any company except the manufacturer. Here's the problem as Clark describes it:

But the warranty company itself doesn't even have enough underwriting to pay for repairs. They just collect money with no intention of paying it back out. Then they do what's called a "bust-out," which is essentially like filing for bankruptcy, and disappear with their share.

As I mentioned in this previous post, don't assume that your dealership is selling a manufacturer's extended warranty. It could be an aftermarket warranty. As Clark mentions, dealers often sell aftermarket extended warranties due to the high profit margins.

One important point that Clark doesn't mention is that you don't have to buy the manufacturer's extended warranty at the dealership where you bought the car. As I described in this previous post you can often get a better deal if you shop around. The service that I described in that post is designed to help you with this search.

Clark mentions that:

If you do buy a car warranty, you want to be sure it is the manufacturer's own. Otherwise, it only has a marketing company backing it up, and it isn't worth the cost of the paper it's written on.

There are other alternatives besides the manufacturer and marketing companies. Many insurance companies sell mechanical breakdown insurance. I describe these in this previous post. Geico is one insurance company that offers these. Two commenters in Clark's show notes reported being happy with their Geico mechanical breakdown coverage.

Shopping for Auto Extended Warranties - Some Useful Resources

If you're looking for extended auto warranties, you may want to review these previous posts of mine:

• Mechanical Breakdown Insurance (MBI) Policies and Credit Unions Part 2
• MBI Policies and Credit Unions Part 1
• MBI Policies from Geico and MBA Direct

Mechanical Breakdown Insurance (MBI) policies are sold by insurance companies and are different than the typical extended auto warranties (also called vehicle service contracts). As mentioned by this California government website:

Consumers may get the most for their money with a mechanical breakdown insurance policy, especially one purchased directly from the insurance company. The price of MBI policies is regulated by the CDI to make sure it is not excessive.

Credit unions can offer both VSC and MBI policies through affiliates. I've mentioned Pentagon Federal Credit Union (PFCU) in previous posts. They offer MBI policies in California and VSC policies outside of California (California does not allow VSCs to be sold on the web). The nice thing about this credit union is that they allow you to get immediate quotes with no email address and with no personal information. Just enter your car information. If you're trying to shop around for the best price, this is a good resource to use.

I've also found another credit union that offers a similar service. It's the Agriculture Federal Credit Union (AFCU).

Here are the links to get quotes from these two credit unions:

• Agriculture FCU's Mechanicale Repair Coverage
• Pentagon FCU's Mechanical Breakdown Protection

I gave both sites a try with the following 3 cars: 2005 Ford Mustang, Jeep Grand Cherokee - 4dr and Honda Accord 2WD. I specified each to be 3 years old and with 36,000 miles. Each quote came with dozens of different coverages. For simplicity, I'll just give the cost of the highest coverages that I received.

• Ford Mustang
  PFCU: 6/21/2013 or 100,000 miles, $0 deductible - cost: $2,120.00
  AFCU: 60/ 60000, $0 deductible - cost: $2,194.00
• Jeep Grand Cherokee - 4dr
  PFCU: 6/21/2013 or 100,000 miles, $0 deductible - cost: $2,735.00
  AFCU: 60/ 60000, $0 deductible - cost: $3,007.00
• Honda Accord 2WD
  PFCU: 6/21/2013 or $100,000 miles, $0 deductible - cost: $1,200.00
  AFCU: 60/ 60000, $0 deductible - cost: $1,235.00

People from any state can qualify to become members of both of these credit unions by joining an association with a one-time fee. Also, both credit unions allow you to join the association at the same time you apply for credit union membership. Refer to this PFCU membership page and this AFCU membership page for more details.

Final Notice to Extend Your Factory Warranty Coverage?

Every few months I receive a letter in the mail trying to sell me an extended auto warranty. I received one last month from Dealer Services of Wentzville, MO 63385. The envelope as you can see here makes it look like it's an important notice from my car dealer or automaker. The first line of the letter states:

This letter is to inform you that this is your FINAL NOTICE to extend the factory warranty coverage on your vehicle.

Twice on the page it states that this offer expires in 72 hours. This is underlined and in bold letters.

As this MSNBC article describes, I'm not the only one receiving these kinds of offers. Some of those interviewed by this article have reported receiving couple of these notices a week, and even worse, some have reported receiving non-stop calls from these companies.

According to the article, many warranty companies are located near St. Louis. The Missouri Attorney General is now investigating many of the companies. In addition to deceptive advertising and high-pressure sales tactics, customers have reported problems getting the companies to cover their repairs.

It turns out that Dealer Services is in fact located 25 miles northwest of St. Louis. I was able to find the company listed in the St. Louis Better Business Bureau website. In addition to Dealer Services, the company goes by National Auto Warranty Services Inc and NAWS. Their website is at www.enaws.com. It has an unsatisfactory record with the BBB with a total of 424 complaints in the last 36 months.

The reporter of the MSNBC article reports on his experience responding to one of these companies. The one he replied to was Vehicle Services in St. Peters, MO. He describes the high pressure sales tactics they used. He was quoted a policy price of $3,110 for a 4-year coverage. The company refused to send out the paperwork without receiving a down payment.

As you would expect a consumer advocate interviewed by the reporter was appalled that anyone would be pressured into buying an extended service contract without seeing all the details in writing. He pointed out that he could get a similar extended warranty at the car dealership for $1,795.

So don't be pressured into any extended warranty. I would recommend against buying any from unsolicited mailings. Review my blog to see the various auto warranty alternatives. I described some of these alternatives in this previous post. Also, in that post, I have a link to a service where you can get instant auto warranty quotes without having to provide any personal info.

A Different and Safer Type of Extended Auto Warranty

As I first described in this older post, there are two basic types of extended auto warranties. The first is the most common kind that is sold by dealerships and by aftermarket sellers on the web. The technical name for these are vehicle service contracts. The second type is much less advertised since it's not nearly as profitable. It's called mechanical breakdown insurance (MBI). Unlike the first type, this is an insurance product that is regulated by a state for both coverage and price. MBI contracts can only be sold by licensed agents. The advantage of MBI policies is that they're backed by large insurance companies.

In that previous post I mentioned some places where you can find MBI policies. One place is at credit unions. In this post I list a couple credit unions which offer these. I've found a few more credit unions which also offer MBI policies:

• Provident Credit Union
• Digital Federal Credit Union
• MidSouth Federal Credit Union
• KeyPoint Credit Union

To join a credit union you have to meet its eligiblity requirements. You can be eligible to join both Provident and Digital by joining an association for a small membership fee. Refer to the credit union's eligibility page for these details.

Note, you'll see many more MBI's being offered in California since only car dealerships in California are allowed to sell vehicle service contracts. So if you're in California, the MBI is the only option other than a dealership's VSC. More info on this is described in California's Guide to Auto Repair Agreements. This also states that consumers may get most for their money with a MBI policy since the price of MBI policies is regulated by the state.

Another credit union that offers MBI is Pentagon Federal Credit Union. I first described their policy in this post. This is another credit union that's easy to join regardless of where you live in the US. Their policy is called Mechanical Breakdown Protection. However, it's only a MBI policy for those in California. I just confirmed this last week. Nevertheless, this MBP page can be a useful resource to get quick quotes for extended auto warranty coverage without having to provide your email address or other personal information.

Another Failed Aftermarket Car Warranty Company

According to this Star Tribune article, the company Ultimate Warranty has essentially gone out of business and has left 137,000 people across the United States and Canada holding worthless car warranties.

In October the company filed a claim with its insurer, the Capital Assurance Risk Retention Group, to cover the warranties. The size of that claim had the potential to collapse Capital Assurance, which prompted South Carolina insurance regulators to put it in receivership, a process similar to a bankruptcy.

The South Carolina regulators are trying to get those who sold these policies (dealers, agents and finance companies) to cover the repair costs of the policy owners. Dealers made from one-tenth to more than half of every premium they sold. Also, many dealers in Minnesota were selling these Ultimate Warranty policies even though Minnesota had banned Ultimate Warranty from doing business in the state.

The article describes one person who had paid $1,600 for an extended warrany for his Dodge Durango. His dealership is offering to cover half of any repairs.

Dealerships Don't Always Sell a Factory Manufacturer-Backed Warranty

This is an important point that I mentioned in this previous post. Buying an aftermarket warranty from a dealer is no better than buying it online except that a reputable dealership may at least agree to cover some of the repairs at their own cost. So don't be pressured into extended warranties at the dealership. I list some safe alternatives to extended warranty contracts such as Geico's Mechanical Breakdown Insurance in this post.

24% Pay At Least $600 Above Dealer Cost For Auto Extended Service Contracts

You may be safest with an auto extended warranty backed by a car manufacturer like Ford or GM. If you choose this option, there are a few things to note:

• You do not have to buy the auto service contract at the dealership where you bought the car or where you plan to have it serviced
• You can often wait to buy the extended service contract just before the new car warranty expires or in some cases up to one year/12K miles from purchase
• Dealers make big markups on auto extended warranties

So it makes sense to shop around. A study has shown that 92% of customers paid at least $200 above dealer cost, 24% paid at least $600 above cost and 3% paid $900 above cost.

To make it easier for you to get a better deal on the auto extended warranties, CarBargains has put together a list of dealerships which had agreed to offer a fixed amount of markup on their plans. The markups range from $50 to $200. The dealerships include ones for Acura, BMW, Dodge/Chrysler/Jeep, Ford, General Motors, Honda, Hynudai, Lexus, Mercedes, Nissan, Subaru, Toyota and Volvo. The only problem is that these dealerships are probably not close to where you live. Most are in Maryland, California, New Jersey and Illinois. Even if you don't live close by, you can arrange by phone or by mail to purchase the extended warranty. At the very least, it can help you decide how much your local dealerships are marking up their cost.

A Good Auto Extended Warranty Company?

How can you tell if an automobile extended warranty business is a potential bankruptcy risk? As this article explains, it's not easy. The article looks back at previous bankruptcies of auto extended warranty companies. One of them was 1SourceAutoWarranty that I mentioned in my previous post. This was just one of three extended warranty administrators with the underwriter PrimeGuard Insurance Company Inc. The other administrators were First Assured Warranty Corp. and Warrantee Wise Inc. When PrimeGuard was shut down last December 21 by the Insurance Commissioner of the State of Hawaii, it also resulted in the shut down of these administrators. Customers of these companies are now left with worthless warranty policies.

One thing to be careful about are web advice sites like CarBuyingTips.com. You can see how this site endorsed 1SourceAutoWarranty before the collapse with the help of the Internet Archive. Here is an archived page from April 2005. It considered 1SourceAutoWarranty and Warranty Direct as two companies that will be there to cover your claims.

What concerned me last September was that PrimeGuard, Inc. was not rated by A.M. Best. But there was suppose to be a backup, the reinsurer. In the case of 1SourceAutoWarranty, the reinsurer was United Insurance which had a A- rating. My question is why didn't the reinsurer step in and cover the policies? One interesting thing about United Insurance is that their address is in the Cayman Islands. As the article mentions, this is not a good sign for an insurance company.

My present concern is with Warranty Direct because they are currently insured by a company that's not rated by A.M. Best (National Service Contract Ins Co RRG). An A.M. Best press release back in December of 2003 reports on the downgrade of rating. The effective date of the non-rating is April 1, 2004. After almost 2 years, why hasn't Warranty Direct acquired a new insurer?

Here's a quote from Warranty Direct's website:

In addition to our financial stability, all our extended warranties are insured. For even greater protection, they are reinsured by an "A' rated A.M. Best insurance company with over $1 billion in assets. Insurance provides peace of mind but most important is the financial stability of the administrator, as they pay for your vehicle repairs.

Note how it doesn't mention the name of their primary insurer nor their rating. It only mentions the reinsurer. But as we learned from 1SourceAutoWarranty, the reinsurer may be of little consequence.

Popular Auto Extended Warranty Provider Goes Under

I hoped people who were considering 1SourceAutoWarrany had read my post last August and decided not to buy an auto extended warranty from them. Last month, a court ordered PrimeGuard Insurance Company which underwrote 1SourceAutoWarranty policies to liquidate due to its insolvency and hazardous financial condition. On December 21, the Insurance Commissioner of the State of Hawaii issued "Cease and Desist Orders" to 1SourceAutoWarranty and First Assured Warranty Corporation. This prohibits them from conducting business of a service contract provider and from selling any service contract that is insured by PrimeGuard Insurance Company. On January 9, 2006, the liquidator of PrimeGuard sent out a notice of liquidation with information on the cancellation of the warranty contracts insured by PrimeGuard. More information is available at the Hawaii.gov.

In my August post I had researched PrimeGuard's insurance rating. I had emailed them questions about their insurance status, but I received no response. The site carbuyingtips.com recommended them and claimed they were insured by PrimeGuard, Inc. So I checked out PrimeGuard on A.M Best and found it had a NR-1 rating which is a non-rating based on insufficient data. I found this worrisome.

Unfortunately, this lady interviewed by Northwest Indiana News did buy a 1SourceAutoWarranty policy in November. She had paid $1,780 for an extended warrany for her 2004 Yukon. Now she doesn't know if her money will be refunded.

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

Worries About Extended Car Warranties

Will they pay for my repair? Will the warranty company go out of business? These are two important concerns when you look for auto extended warranties. I did some research on a few extended warranty companies in which people have experienced these problems.

Will They Pay?

The first is Platinum Warranty Corporation. This company also goes by DealersProfit.com, Warranty Wizard, WarrantyCenter.org, and WarrantySolution.com. The Ohio Attorney General actually filed suit against Platinum Warranty Corp. for not honoring consumer warranty agreements. The press release said that there had been 140 complaints against this company. Cleveland's BBB has 424 complaints that have been processed in the last 36 months.

One person's complaint documented at Complaints.com described how the company gave the repair shop the go-ahead but then did not pay. The woman was forced to pay the repair shop and hope for a refund.

Some other complaints are listed at Ripp Off Report. The main complaint was that Platinum Warranty tries to find every loop hole to get out of paying the warranty claims.

Will They Go Under?

I'm not sure if this is worse than refusing to pay a claim. At least when they go under, you won't have to worry about fighting with the customer service representatives.

One example of a warranty company that went bankrupt is the National Warranty Insurance Company. It was also knowan as Triad Advantage Warranty or SmartChoice Warranty. An article from WYTV News reported that the same company was both the warranty provider and the insurance underwriter. The article described the experience of a woman who found out the hard way about her Triad warranty coverage. She had gone into the dealership for a repair job and was told that she would have to pay to have it fixed since Triad was way behind in paying the dealership. Some more experiences with Triad Advantage are listed in this Edmund's forum thread.

Another example of a warranty company that went bankrupt is Warranty Gold.

This article from the Lincoln Journal Star describes the problems with Warranty Gold. Warranty Gold was just a marketer of extended warranty contracts. National Warranty Insurance Group (NWIW) provided the insurance that backed up the contracts. NWIG went bankrupt in June 6, 2003. Warranty Gold then refused to cover car repairs for those who held its extended service contracts, and put the blame on NWIG. Warranty Gold then switched to a different administrator (First Automotive Service Corp.) to insure its contracts. This allowed Warranty Gold to continue to sell extended service contracts.

The Texas Deparment of Licensing and Regulation warned consumers of Warranty Gold with this alert. It has given Warranty Gold a notice of alleged violation charging Warranty Gold with multiple violations, including failure to provide financial security for the contracts previously insured by NWIG. The alert also stated that Warrany Gold filed for bankruptcy.

The issue of insurance backing of warranty companies can get complicated. A post at this Edmund's thread discusses the reinsurance company for Warranty Gold. One former customer of Warranty Gold was told that they were both insured and reinsured. But this reinsurance didn't seem to help Warranty Gold customers any.

Do You Need an Auto Extended Warranty

An important factor to consider for an extended warranty purchase is the reliability of your car. Many top rated cars can go 5 or 6 years without major repairs. Quality has improved over the years. Back in the early 90's, most domestic new cars only had 1 year/12K mile factory warranties. Imports then started having factory warranties for 3 years/36K miles. Then the big 3 were forced to follow. One thing to keep in mind regarding extended warranties is that a 5yr/50K mile extended warranty typically would only cover a car with a 3yr/36K-mile factory warranty for an additional 2yr and 14K miles. Like factory warranties, extended warranties usually start at the new-car purchase date.

So if you have a reliable car, it may not pay to have an extended warranty. To determine your car's reliability, you can check with the reliability ratings at Consumer Reports. In its spring auto guide, it includes ratings for predicted reliability. It's a forecast of how well a new car will likely hold up based on the model's recent history. The data is based on Consumer Report survey responses from their subscribers. The reliability scores are divided into 5 categories from best to worst.

Some examples of cars with top reliability ratings include the ones you would typically expect such as Toyota Prius, Toyota Corolla LE, Honda Civic EX, Toyota Camry LE, and the Lexus LS430. There were a few surprises in the top reliability ratings such as the Pontiac Grand Prix GT V6. The Chevrolet Impala LS V6 scored didn't get a top score but had a respectable second best score, likewise for the Hyundai Elantra GT and the Nissan Maxima 3.5 SE V6.

Then there were those that scored in the middle that I expected would have been either the first and second best. These include the Volkswagen Passat GLS and the Nissan Altima 3.5 SE V6. The other midpackers were more of what I expected such as the Dodge Neon SXT, the Ford Taurus SEL V6, and the Hyundai Accent GL.

And finally, there were many with the lowest two scores. For these, it's probably a good idea to get an extended warranty. I was surprised to see many BMW models with these low scores. They included the BMW 530i and the BMW 745li luxury sedans, and the BMW X5 3.0i mid-sized SUV. Also, I was surprised to see the Saturn Ion, the Saab 9-3 Aero and the Nissan Sentra 1.8s near the bottom. Then there were the models that didn't surprise me. These included the Chevrolet Trailblazer EXT LT, GMC Envoy SLE, Pontiac Bonneville SE, the Cadilac SRX V8, and the Chevrolet Malibu.

Another good source of car reliability information is J.D. Power Consumer Center for Autos. I did a little comparison of J.D. Powers with Consumer Reports using BMWs. There was some correlation with the 2003 BMW 7 Series. J.D. Powers had a score below average on overall quality. However, the other models scored okay. It had an average quality score for the BMW 5 Series, and an above average score for the X5 series.

Other Auto Extended Warranty Options

There are two types of extended warranties. The first is what is most commonly sold by dealerships or by aftermarket sellers on the web. These are known as service agreements or vehicle service contracts. The second type is not as well known. It's called mechanical breakdown insurance (MBI). Unlike the first type, this is an insurance product that is regulated by a state for both coverage and price. MBI contracts can only be sold by licensed agents. The advantage of MBI policies is that they're backed by large insurance companies.

There are several places where you can buy mechanical breakdown insurance:

• Geico - In addition to regular auto insurance, Geico also sells MBI policies. But you have to have Geico auto insurance to get their MBI coverage. One advantage is that MBI price can be included as part of your car insurance premiums. It's intended for cars less than 15 months old. The coverage can last for up to 7 years or 100K miles.
• Credit Unions - Your local credit unions may offer MBI. If you're not a member of a credit union, you may be able to join one just based on where you live. The National Credit Union Administration can be used to find a credit union in your city. Here's one example of a credit union's MBI policy, and here's more background on credit unions and MBIs.
• MBA Direct sells MBIs directly to consumers on their website. Since they sell MBIs and not vehicle service contracts they can even sell on the web to people in California (California had passed a law banning the sell of vehicle service contracts from the internet.) Their policy can last up to 10 years or 100K miles. Many of the details are available at their FAQ.

Deals on Factory Extended Warranties

After some investigation at Edmunds, I found another way to get a good deal on car extended warranties. In this case it was a Ford extended warranty. The thread mentioned two websites that offered Ford extended service plans. One was Ford Warranty Central. This site sells service plans backed by Ford Motor Company, not aftermarket car warranties from independent warranty companies. Unfortunately it requires a phone call to receive quotes. The post mentioned a quote that was given for an Escape 4x4 that ranged from $1,045 to $1,400 for a 5yr/100K contract.

The other website for the Ford extended warranty was at Mid-States Ford. Someone in this thread considered this site very competitive, and provided a quote that he was given for his Ford Mountaineer: $1045 for 6 year/75K miles.

In both of these cases, they mentioned that they received much better deals than the 'best quote' provided by the local dealer.

I then started looking for similar websites for Honda, Toyota, GM, etc. I couldn't find similar websites. However, I did find another mention of a Toyota extended service plan deal. The person claimed to get a 7 year/75K mile $0 deductible extended warranty for $690 on his Toyota Tundra at a preferred dealer. He claimed it would have been $1300 for the same plan if bought directly from Toyota.

As I've mentioned in previous posts, be sure to check all of your local dealerships for the best deals on factory extended warranties.

A Few Tips for Extended Car Warranties

If you're searching for a new or used extended auto warranty, knowing a few important things can help you save money. Edmunds.com has several articles discussing car warranties. Here are some tips that I found useful:

• If you're considering an manufacturer's extended warranty, check prices at several dealerships. Don't hesitate to ask about their markups and to negotiate for the best price.
• Beware of dealers pushing aftermarket car warranties. They usually only offer these to make more money.
• Some extended warranties have buy-back clauses that allow you to get some or all of your money back if you don't use the contract.
• If you don't have an extended warranty, you sometimes can get after warranty assistance from a dealership if you've dealt with the dealer for maintenance and have kept the car well maintained.

One of the articles gave an example for a Honda car warranty. The exmaple included a 2000 Honda Odyssey. The Honda Manufacturer's Limited Warranty that came with the purchase was the typical 3 years/36K miles. The manufacturer brand Honda extended warranty ranged from a retail price of $1435 that covered 7 years/100K miles with $0 deductible to a price of $965 for 4 years/60K miles and $50 deductible.

It gave an example of a comparable aftermarket Honda extended car warranty. In that case the maximum price was $1072 for 5 years/100K miles with a $100 deductible. The other options were comparable in price with different year and miles.

Info on Warranty Activation Headquarters

A few months ago I received in the mail an ad from Warranty Activation Headquarters. They claimed that I was pre-selected for a special offer for an extended vehicle warranty policy. So I did some searching to see what kind of history this company has.

First, I found them mentioned on Rip-Off Report. A lady told how she had paid $1870 for a policy and when she had a problem with her car's horn, they refused to cover it. An employee for this company added a rebuttal to her charge describing why the problem with her horn is not covered. Perhaps this bad publicity made the company think twice. The lady followed up with another two posts saying that the company finally agreed to pay for the repair.

Next, I went looking for the Better Business Bureau of Eastern Missouri and found a long page describing Warranty Activation Headquarters. It doesn't look too good. At the time of this post, the company's membership has been suspended for non-compliance with the Bureau's membership standards. This BBB does a good job at giving details of the 158 complaints that have been processed over the last 36 months. The BBB mentions that "some of the complaints were resolved. However, for other complaints, the consumer remains dissatisfied despite the company's reasonable effort to resolve the complaints."

Biggest Concern about Auto Extended Warranties

The most worrisome issue about auto extended warranty contracts is the possibility that the company will go out of business leaving you with a worthless contract. This is why Clark Howard (nationally renowned consumer advocate) recommends against any contract other than one from the manufacturer or from your car's insurance company (like Geico). He's usually against all extended warranties but is neutral on auto extended warranties due to the fact some people may not be able to afford a costly repair.

Warranty Direct's Insurer Strength

The auto extended warranty companies try to ease our concern over this by advertising that their plans are insured and reinsured by financially strong insurance companies. For example Warranty Direct says all of its contracts are insured by National Service Contract Insurance Company (this is based on an email they sent me in response to my insurance question.) It claims that this company has a financial stability rating of A (exceptional).

I did a check at A.M. Best on this company. Currently this company (National Service Contract Ins Co RPG) has a NR-4 rating which took effect on April 1, 2004. NR-4 means that the company has requested a non-rating. This non-rating seems to be a way for companies to hide their true rating. A.M. Best had a press release dated December 23, 2003 which stated:

A.M. Best Co. has downgraded the financial strength rating to B++ (Very Good) from A- (Excellent) of National Service Contract, RRG (NSC) (Honolulu, Hawaii).

Warranty Direct says its contracts are reinsured with Hannover Reinsurance Ltd., (A Excellent rating). The current A.M. Best rating seems to corroborate this. I've heard stories about Warranty Gold having a reinsurer with good financial strength, and this proved not to help when Warranty Gold's insurer went out of business.

1SourceAutoWarranty Insurer Strength

I also checked on the insurance status of another popular auto extended warranty provider, 1SourceAutoWarranty. At least Warranty Direct responded to my email question (in less than a day). I never received a response from 1SourceAutoWarranty regarding its insurance. The site carbuyingtips.com claims 1SourceAutoWarranty is insured by PrimeGuard, Inc. A.M. Best has a NR-1 rating on this company. This is a non-rating based on insufficient data. It's interesting that carbuyingtips.com doesn't discuss these issues in its review of 1SourceAutoWarranty or Warranty Direct. Since it's an affiliate with these companies, there's no incentive to say anything bad.

Auto Extended Warranty Plans from Manufacturers

Another interest claim I read was from sites that are advertising auto extended warranties from the auto manufacturers. The claim is as follows:

The 10 leading independent providers 10 years ago are all out of business today. That means a large number of customers who had valid claims were not paid or received only partial reimbursement.

I wonder where they got this from. Of course these sites have a bias to make the independent auto extended warranty providers look bad. Searching for this quote led me to the following sites:

• Honda Care Extended Warranty
• Ford Extended Warranty
• Subaru Extended Service Plans

All of the above sites offer extended warrany plans backed by the manufacturer. These are probably more expensive the what you could get at independent providers, but you know they'll be around when you need them.

Some More Extended Auto Warranties and Better Business Bureau Links

Here are some Auto Extended Warranty companies with BBB info and links. One thing I've noticed is that it's not too hard to get a satisfactory rating by the BBB. These 3 all have satisfactory ratings by the BBB. I've also included the original business start date and when they joined the specific BBB. The ones who've been around longer may have better chances of being around when you need them.

• AA AutoWarranty.com - Delaware BBB report - Original Business Start Date: June 2002, Joined this BBB: Februrary 2004



• Warranty Warehouse - Trenton NJ BBB report - Original Business Start Date: 1983, Joined this BBB: 7/31/2003



• Extended Auto Warranty Corp. - Cleveland OH BBB report - Original Business Start Date: 1/1/2001, Joined this BBB: 9/2002