are dealership warranties worth it

Are Dealership Warranties Worth It

When purchasing a new or used vehicle from a dealership, one choice you’ll undoubtedly face is whether or not to purchase an extended warranty (also known as a vehicle protection plan or dealership warranty). Dealership warranties can

provide extra coverage beyond the factory warranty, but they also come with an additional cost. So the question remains – are dealership warranties truly worth it or not? In this in-depth article, we’ll take a comprehensive look at dealership warranties

to help you decide if purchasing one makes sense for your situation. We’ll explore the pros and cons, what’s typically covered, factors that influence cost and more. By the end, you’ll have a much clearer picture of whether a dealership warranty is a worthwhile investment for your vehicle.

What is a Dealership Warranty?

Before diving into the pros and cons, it’s important to understand exactly what a dealership warranty is. In simple terms, a dealership warranty (also called an extended warranty or vehicle protection plan) is an optional service contract that provides additional protection.

Dealership warranties are offered by car dealerships through third-party warranty providers. They promise to cover specified repairs or replacements for mechanical or electrical failures during the coverage period – usually ranging from 1-8 years after the factory warranty ends.

Coverage varies between plans but may include components like the engine, transmission, cooling system, fuel system, brakes, air conditioning and more. Some even cover wear items like brake pads. Premium plans provide bumper-to-bumper coverage similar to a new car warranty.

Unlike manufacturer warranties that come standard with new vehicles, dealership warranties are optional add-ons you have to separately purchase. They are designed to provide long-term peace of mind for unexpected repair bills as used cars age.

What Is A Dealership Warranty?
What is a Dealership Warranty?

Pros of Purchasing a Dealership Warranty

There are some clear advantages to buying an extended warranty from a dealership. Here are some of the top pros:

Potentially Lower Repair Costs – The biggest benefit is capping your out-of-pocket liability for expensive mechanical failures. Without a warranty, repair bills for issues like engine replacements can easily top $5,000. Warranties spread those costs over monthly payments.

Peace of Mind for Used Cars – As used vehicles approach high mileage and older age, components start to wear out more. Warranties offer reassurance that you won’t get stuck with a surprise $2,000 transmission replacement bill down the road.

Access to Dealership Repairs – Warranties require repairs to be done at dealership service centers, which are factory trained and use OEM parts. This provides quality workmanship compared to independent shops.

Resale Value Protection – If you plan to sell your vehicle later, having a pre-existing warranty transfers to the new owner and could make the car more desirable as a purchase.

24/7 Roadside Assistance – Many plans include towing, jump starts, fuel delivery and other roadside services for convenience.

Pros Of Purchasing A Dealership Warranty
Pros of Purchasing a Dealership Warranty

Cons to Consider With Dealership Warranties

While dealership warranties offer advantages, there are also some disadvantages to be mindful of:

Upfront Cost – Warranties require paying several thousand dollars upfront over the coverage period. You may never actually use it if no major repairs are needed.

Pre-Existing Conditions Not Covered – Warranties often don’t cover any known issues present before signing up. Only future problems are eligible.

Limited or No Coverage – Most warranties have deductibles per repair visit and limits on reimbursements. Read the small print to know what’s excluded.

Cancellation Policies – Warranty contracts are usually non-refundable if you sell the vehicle or pay it off early. Some have cancellation fees.

Dealership Adds Markup – Shops often build a 20-50% markup into the base warranty pricing. You may pay more than direct from the provider.

Premiums Don’t Decrease Value – While a warranty transfers ownership, studies show it doesn’t significantly increase a used car’s actual resale or trade-in value.

Weighing both sides is important to decide if a dealership warranty makes financial sense for your vehicle situation. Let’s dive deeper into some additional factors.

What Types of Coverage Are Offered?

Dealership warranties come in different tiers or coverage levels based on components protected. Higher levels of coverage obviously cost more but provide broader protection. Here are some common types:

Powertrain Coverage – A basic level that focuses strictly on major powertrain components like the engine, transmission and drive axle for around $2,000 total on average.

Selected Component – Steps up coverage to also include items like air conditioning, electrical systems and the fuel delivery system for roughly $3,000 total cost.

Premium/Bumper-to-Bumper – The most robust coverage resembling a factory warranty, protecting nearly all vehicle systems for around $4,000 or more depending on term length and deductible options.

It’s wise to compare coverage details between multiple dealers to understand what’s included at various price levels. Avoid the absolute cheapest plans that don’t cover much beyond basic powertrain.

What Types Of Coverage Are Offered?
What Types of Coverage Are Offered?

What Factors Influence Warranty Cost?

When car shopping, you’ll find dealership warranty pricing can vary significantly between makes, models and individual vehicles. Several elements affect the potential cost:

  • Mileage – Higher mileage cars require more expensive plans due to greater wear. Expect to pay $500-$1,000 extra for every 10,000 miles over 75,000.
  • Vehicle Age – Newer cars get less expensive coverage while protection deteriorates more on very old, high-mileage rides.
  • Vin Number Check – Warranty companies analyze each VIN for current and potential issues that raise premiums. Clean histories cost less.
  • Coverage Level – As mentioned, more comprehensive bumper-to-bumper plans demanding higher monthly rates than basic powertrain-only deals.
  • Term Length – Longer-term contracts like 6-8 years obviously carry heavier cost burdens than shorter 3-year plans.
  • Deductible – Choosing lower deductibles of $0-$100 instead of $500+ deductibles increases rates by a few hundred dollars.

Doing due diligence by getting quotes from multiple providers online can uncover better pricing opportunities than dealerships alone. Joining buying groups or using WhoCanIGiveMyCarTo.com also finds significant discounts on warranties.

What Factors Influence Warranty Cost?
What Factors Influence Warranty Cost?

Important Considerations When Weighing Repair Cost Risk

Analyzing repair cost probabilities is another essential factor in figuring out the true worth of a dealership warranty for your vehicle. Here are some points to consider:

Average Repair Frequency – According to RepairPal data, the typical car owner will face two moderate repairs annually around $500 per job after 8 years of ownership. Warranties may offset that.

Component Lifespans – Common issues arise around certain age/mileage thresholds. For example, most transmissions need rebuilding after 150,000 miles on average if not replaced sooner.

Servicing History – Cars with complete maintenance records are far less likely to have premature breakdowns than infrequently serviced vehicles. A clean bill of health lowers repair odds.

Manufacturer Reliability Ratings – Certain makes like Toyota and Honda retain high resale worth specifically due to lower long-term repair costs. You can have faith in them well past 100,000 miles without major work.

Hybrid/Electric Vehicle Considerations – Due to complexity, hybrids and EVs often have higher labor costs related to batteries and electric drive components. Warranties provide peace of mind on these advanced systems.

Thoughtful analysis surrounding the probability and projected cost of fixes in your vehicle’s future will give you a clear idea if the warranty’s price provides suitable protection and savings.

Important Considerations When Weighing Repair Cost Risk
Important Considerations When Weighing Repair Cost Risk

Considering the Type of Driving Situation

Another factor worth thinking about is your typical driving situation and needs, as this impacts warranty value too. Some examples:

  • High Mileage Driver – Road warriors driving over 20,000 miles annually see more rapid component wear. Extra coverage delivers greater value from maintaining comfort/utility over the life of longer loan terms.
  • Rideshare/Commercial Use – Ubers, taxis and delivery fleets subject cars to far harsher duty cycles warranting the enhanced protection of warranties.
  • Occasional Driver – Cars driven 8,000 miles or less per year statistically need fewer repairs on average, lowering the odds a warranty would pay off through claims.
  • Long-Distance Traveler – Road trippers face higher chances of towing issues or part replacement away from home without 24/7 roadside plans included in some vehicle protection packages.
  • Inexperienced Driver – Novices more prone to minor accidents and mistakes perhaps benefiting from wider bumper-to-bumper coverage reassurance.

Considering your real-world driving profile against typical frequencies and known risks specific to your vehicle model is a worthwhile assessment during the warranty decision process.

Considering The Type Of Driving Situation
Considering the Type of Driving Situation

How Much Do Dealership Warranties Cost?

The cost of a dealership warranty can range dramatically depending on factors like the vehicle’s year, make/model, mileage, warranty length and level of coverage selected. Here are some general price points to consider:

Budget warranties for high-mileage older cars may cost $1,000-$2,000. Mid-range coverage on vehicles under 100,000 miles often runs $2,000-$3,000. Premium “bumper-to-bumper” style warranties topping out at 100,000 miles may range from $3,000-$5,000.

Extended warranties for newer low-mileage vehicles under 60,000 miles could be $2,500-$4,500. Certified pre-owned vehicle warranties tend to be the most comprehensive, priced $3,000-$6,000 usually.

On average, dealership warranty costs usually equate to 5-10% of the total vehicle purchase price. So buyers should expect to pay anywhere from 1-3 monthly payments extra towards a service contract. Warranty prices are also often negotiable to an extent like the vehicle sale itself.

How Much Do Dealership Warranties Cost?
How Much Do Dealership Warranties Cost?

The Case For Warranties Being Worth It

Repair costs rise over time as labor rates and parts prices increase each year. A $2,000 repair before may now cost $2,500-3,000.

Used car values depreciate but repair costs don’t. Mechanical issues become more likely and costly the older a vehicle gets with over 100,000 miles. Experts estimate a 30-40% chance of a repair over $2,000 within 3 years without maintenance records.

A warranty provides peace of mind by not having to worry about costly failures or being able to affordably fix problems during the coverage period. If one or two major repairs occur and max out the deductible, the warranty will save thousands versus paying out of pocket.

Some dealers allow transferring remaining warranty coverage if the vehicle is sold, recouping value. A warranty also incentivizes preventative maintenance to maintain validity.

The gamble with a warranty is spending a few thousand upfront mitigates the risk of an expensive future repair eating into overall ownership costs versus going without coverage, making a warranty potentially worth it for higher mileage vehicles.

The Case For Warranties Being Worth It
The Case For Warranties Being Worth It

The Case Against Warranties Providing Value

On the other hand, there are valid counterarguments that dealership warranties may not deliver value for the money:

Likelihood of defects is uncertain. No way to predict if/when major repairs will occur years in the future. Could end up paying for coverage not needed. May expire unused. Good chance a vehicle won’t need anything beyond regular maintenance, so warranty goes to waste.

Deductibles reduce savings. Multiple small repairs may not save much versus paying out of pocket. Limited terms restrict use. Short warranties may run out as odds of repairs increase down the line. No resale value. Warranties can’t transfer if vehicle is sold, unlike factory powertrain warranties.

Coverage loopholes. Warranties are full of exceptions and exclude many issues. Unknown maintenance. Reliability depends on past owner’s maintenance, impacting repair risk. Can negotiate repairs. Independent mechanics often cheaper than dealers for cash repairs.

FAQs

Is it worth it to get a car warranty?

It can be worth it to get a car warranty if you plan to own the vehicle for an extended period of time or drive many miles. A warranty can provide peace of mind against expensive repair bills for mechanical breakdowns. However, warranties have large deductibles and may not cover regular maintenance. You need to review coverage details and consider your vehicle’s reliability to determine if a warranty makes financial sense.

Do dealers make money on warranties?

Yes, dealerships do make a profit on extended warranty sales. While some of the money paid for a warranty goes toward actual coverage of future repairs, dealerships receive commissions and kickbacks from third-party warranty providers. On average, it is estimated that dealerships pocket around 40-60% of the total cost of each warranty they sell as profit. So warranties are an important part of a dealership’s business model.

Why do dealerships push warranties?

Dealerships aggressively promote and nearly require buyers to purchase extended warranties because they are very profitable for the dealership. Extended warranties have high margins and dealer commissions provide another revenue stream on top of the vehicle sale. Since there is little true customer need, dealers use high-pressure sales tactics to push warranties and make an extra 2-4% of the vehicle price per sale. It is simply another way for dealerships to boost their bottom line.

What is a fair price for an extended warranty?

There is no single answer as fair pricing can vary based on the vehicle, coverage details, and warranty provider. However, on average, experts suggest no more than 10% of the vehicle’s total purchase price for an extended warranty seems reasonable. Any price above 15% of the vehicle value is likely overpriced. Buyers should also weigh the cost of potential repairs against the price of the warranty. Aim to break even over the coverage term. Getting quotes from multiple providers can help determine market rates and identify a fair deal.

Conclusion

In conclusion, whether a dealership warranty is worth purchasing largely depends on the individual vehicle and driver. For cars that are more prone to expensive repairs in the first few years, the protection of an extended warranty can give buyers peace of mind.

However, warranties add significant cost upfront and may not end up covering their full price if no major issues arise. Buyers need to weigh the potential repair costs against the warranty premium and consider their own driving habits and vehicle maintenance.

In general, warranties seem to provide the best value for used vehicles with high mileage or those known for pricey repairs. For lower-risk newer cars, self-insuring and putting the warranty money toward savings may be a better financial choice.

Ultimately, drivers need to assess their specific vehicle and situation to determine if extending the manufacturer’s warranty offers worthwhile risk protection or just charges a premium for coverage they may never need. A dealership warranty can give extra reassurance,

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