Many finance experts view extended warranties as a virus. Stay away! I’m not convinced and I’ll tell you why.
Full disclosure. I worked for 6 months as a part-time used car salesman. I know. Pretty glamorous, huh?
Most of us car sales folks get paid when you purchase an extended warranty. Which is unfortunate, because that automatically puts our goals (making money) against your goals of getting the best deal.
Complexity
Before we even discuss warranties, let’s talk a bit about the complexity of the automobile.
My first vehicle was a 1971 Chevy Monte Carlo. Here’s a nice one. Picture this car with lots of bondo and 5 different shades of paint.
But look at that the hood!! You could play a full-court game of basketball on it.
This came in handy for repairs. I could climb into the engine compartment and stand upright while working. And I spent at least a day or 2 a week in there so the extra room was nice.
Water Pump
One of the many repairs I did was to replace a leaking water pump. The water pump was a simple mechanism. It was attached to the fan belt, along with the fan and the alternator, and its job was to pump coolant through the engine, through the heater core (which warmed the car, but usually only in the summer) and back to the radiator. The radiator was cooled by the wind coming through that lovely front grill, and by the fan, which was hooked up to the fan belt.
I climbed in, loosened a bolt on the alternator to allow some play in the belt, pulled out the 2 bolts on the water pump, pulled it out, put the new one and a new gasket on, put in the bolts, pulled on the alternator to snug up the fan belt and tightened the alternator bolt. Who needs YouTube?
Heat Management Module
What the heck is that?? Stay tuned.
Last month, my 2021 BMW 5 series was nice enough to let me know that the coolant was low. Let’s see a ’71 Chevy do that!
Surprisingly it needed about 1/2 gallon. I checked again a few days ago and it needed another pint. No bueno.
I couldn’t see anything leaking and no puddles in the driveway, so off to the BMW dealership.
That’s how I learn that there is a problem with the Heat Management Module. I asked Grok, “what the heck is a BMW heat management module.
That’s a water pump on steroids. It seems to work as advertised because my car warms up in a jif, and I’m still amazed that I can get 36 miles per gallon in a vehicle that weighs more than my Monte Carlo, which got 8 MPG.
I also notice that my car opens and closes the grill to maximize heating and cooling. In the winter it is closed to maximize the heat in the engine compartment and in the summer, it opens to cool things down. I suspect that the heat management module is involved.
Back to Complexity
The point of this fascinating story is to demonstrate how complex vehicles have become. This is just one example.
We all need a touch screen, Apple CarPlay, all-wheel drive, traction control, antilock brakes, intelligent cruise control, heated seats and steering wheels…
I love these things as much as the next guy, but every single one adds complexity.
According to Grok, the heat module costs about $1,000 to replace. Yikes. I think I did the Monte Carlo water pump for less than $25. It involved a stroll through the junkyard, but that’s half the fun.
Cost
And complexity means cost.
Last year, my wife’s license plate light bulbs went out – suspicious that they both went out together. I went to Amazon, ordered a replacement, popped them in, nothing.
I spent some time searching for a cut wire or other cause but no luck. It turns out there is a footwell module that controls, among other things, the license plate lights.
This was $1,700.
Warranty
Apparently the footwell module problem was pretty common because BMW extended the warranty and we ended up getting it replaced for no charge on a 2013 BMW 3 series. Sweet!
And to my delight, my heat management module was covered under my Certified Pre-Owned (CPO) Warranty.
My car has a kick-a$$ sound system by Harmon Kardon. 2 years ago, the amplifier died and AC/DC started sounding like Alvin and the Chipmunks. This was replaced under warranty.
These are not cheap repairs. It wouldn’t have forced me to eat cat-food, but it would have been quite inconvenient to have to cough up $1,000 plus for each of these.
I’m thankful that I had warranty coverage.
Here Comes the Car Salesman in Me
I did actually use this line…every new car sold in the US comes with a warranty. Why would we not buy one on a used vehicle?
And don’t be fooled. We’re paying for that new car warranty. It’s baked into the vehicle price. Even my Certified Pre-Owned costs me. CPO vehicles cost several thousand more that their non-CPO counterparts.
Is It Worth It?
I paid about a $2,000 premium and I got about $3,000 worth of repairs. So, yes, in my case it was. In addition, I get some peace of mind. I know that a major engine, transmission or infotainment repair won’t set me back thousands.
In my car salesman days, my daughter bought a vehicle from me. It was a black 2017 Jeep Grand Cherokee with heavily tinted windows, black badges and trim and black wheels. Shortly after she bought it, a stranger said to her “That is one badass SUV”. She was quite proud.
I encouraged her to get the 5 year extended warranty. She was taking a small loan on the vehicle and I didn’t want her to be stuck in a position where she was making car payments and paying for expensive repairs.
She paid something like $1,500 for the warranty and not a thing has gone wrong. It hit 5 years last summer.
So for my car, it was well worth it. For my daughter, maybe not financially, but it was an insurance policy against having to make expensive car repair payments that she likely couldn’t afford.
What If My Engine Dies?
That would be expensive…but realistically, how often does that happen. That’s the horror story.
It happened to me in 1999. I had a brand new Volkswagan Passat. It was gorgeous. Black on black, leather, manual transmission…
One day I’m driving home from work and the lights go out and the engine stops. I get it towed to the dealer and I’m expecting them to find some electrical glitch.
I was told the engine basically exploded. The timing belt snapped and it crushed the valves and everything nearby. The bad news was that the entire engine needed to be replaced. The good news was that since it had less than 1,000 miles, it was still under warranty.
So yes, the horror story can happen. Even with a brand spankin’ new vehicle.
What’s your plan? That one would have wiped me out.
Wrap Up
There’s no arguing that cars become much more complex every year. And these complex features are expensive. They add to the purchase price and they’re expensive to repair.
I’ve been lucky. I’ve had some repairs done under warranty recently and it’s saved me thousands of dollars.
On the other hand, my daughter bought a used tech-heavy vehicle with (sometimes) problematic air suspension and had zero problems in 5 years. She paid for an extended warranty that she didn’t use.
To me, it’s a huge bummer to shell out a large chunk of cash to fix a new-to-me vehicle that I just purchased. And every so often, something complex and expensive breaks and it could be a budget-crusher. So I tend to opt for CPO or look for an extended warranty.
Finding a reputable after-market warranty can be a challenge. Start here with our friends at car talk. Then ask Grok or ChatGPT to analyze reviews and recommend some reputable companies.
Here’s what grok had to say.
Grok and Car Talk have similar results.
It’s something to consider.
Good luck!