Glad I bought the extended warranty for my car

[Keegan Shields]

I know how insurance works...I was in the industry for a few years and my father was in the industry for over 30 years. My statement wasn't meant to be taken literally as Doug pointed out, but I can see how my wording might have made it seem to ignore how underwriting spreads risk. I'm sure that they have worked things out so that they come out ahead by offering the ESCs. But from an individual owner perspective...I'm happy, covered and have no worries for major costs over the next ten years if I hold the vehicle that long. If something goes bang, it will not be a big, surprise expense.

I think warranties make sense for people who don't have much saved (are just starting out, or had some extreme life event that wiped out their savings) or for people who are unable to save money (lack of impulse control).

When you buy a warranty, you are prepaying for a future repair at a much higher rate. (because the company is marking up the actual risk adjusted cost)

The alternative is to take the cost of the warranty and leave it in your savings account. If you do this across the board, you will come out money ahead in the long run.


Jim, in your case, it seems you place a high value on hedging against unexpected costs. By all means, do what you want - its a free country.

I just wanted to point out that you are paying a significant premium to the manufacturer in order to do that.

Instead, if you held a portion of your savings to cover these unexpected cost (perhaps in a CD) - it would be a far more efficient use of your money. Now you aren't paying for the manufacturers profit margin and you are also accruing interest!

[Bill Howatt]

Fascinating - we all want to save money.
I looked at the US Consumer Affairs page on this and it showed the Platinum (bumper to bumper) plan from Endurance to be $122 and from Olive about $70 more. This is for a 2019 Chev Equinox with 51K miles.
Now if I applied this to my 2017 Grand Caravan, I would have spent $122 x 84 months = $10,248 - is this correct? I've never bought one of these. Perhaps, buying with a new car is a lot cheaper?

Going back to the Grand Caravan, the amount I would have claimed outside the wear and tear (brakes) is $0.

For my much older 2005 Grand Caravan: A rough estimate says that I have spent under $4000 Cdn (about $2600 US) in repairs on my old, still being used, 2005 Grand Caravan apart from the brakes and tires stuff but I admit it could use some shocks now but it isn't worth putting the money into.

Of course, nobody has a good crystal ball, so knowing what future expense will be as strictly a guess - the transmission could have fallen out but it didn't.

[Keegan Shields]

Fascinating - we all want to save money.
I looked at the US Consumer Affairs page on this and it showed the Platinum (bumper to bumper) plan from Endurance to be $122 and from Olive about $70 more. This is for a 2019 Chev Equinox with 51K miles.
Now if I applied this to my 2017 Grand Caravan, I would have spent $122 x 84 months = $10,248 - is this correct? I've never bought one of these. Perhaps, buying with a new car is a lot cheaper?

Going back to the Grand Caravan, the amount I would have claimed outside the wear and tear (brakes) is $0.

For my much older 2005 Grand Caravan: A rough estimate says that I have spent under $4000 Cdn (about $2600 US) in repairs on my old, still being used, 2005 Grand Caravan apart from the brakes and tires stuff but I admit it could use some shocks now but it isn't worth putting the money into.

Of course, nobody has a good crystal ball, so knowing what future expense will be as strictly a guess - the transmission could have fallen out but it didn't.

Agreed, nobody has a crystal ball - but you can bet on the high margins charged for product warranties. That means you'll be significantly overpaying compared to your risk.

[Jim Becker]

I think warranties make sense for people who don't have much saved (are just starting out, or had some extreme life event that wiped out their savings) or for people who are unable to save money (lack of impulse control).

When you buy a warranty, you are prepaying for a future repair at a much higher rate. (because the company is marking up the actual risk adjusted cost)

The alternative is to take the cost of the warranty and leave it in your savings account. If you do this across the board, you will come out money ahead in the long run.


Jim, in your case, it seems you place a high value on hedging against unexpected costs. By all means, do what you want - its a free country.

I just wanted to point out that you are paying a significant premium to the manufacturer in order to do that.

Instead, if you held a portion of your savings to cover these unexpected cost (perhaps in a CD) - it would be a far more efficient use of your money. Now you aren't paying for the manufacturers profit margin and you are also accruing interest!

The bottom line is that an Extended Service Contract (they are not "warranties" no matter how many folks call them that including the folks selling them) is a form of insurance. As I noted previously, some states even regulate it that way, such as Florida. I choose to buy the insurance as it's not expensive (to me) but I'll only buy it from the manufacturer, never a third party. $2350 isn't in any way, shape or form a "significant premium" for 10 years, 100K miles and $0 deductible for everything except wear items (fluids, brake pads, tires, wiper blades, etc.) and cosmetics, given the cost of replacements. Almost nothing is field serviceable anymore. At least to me. And it also has nothing to do with how much money I have saved, either. Again, this is just insurance to me like any other form of insurance I carry.

[Bill George]

I think some of you did not read correctly, Jims total cost for 10 Years was $2350 or close. Not $150 or $170 a month! Correct me if I am wrong, it was more like $235 PER Year. Where are you guys getting $170 per month?

A transmission replacement these days is up to about $4000 to $6000.

My wife owned a Honda CRV when the air bag warning light came on. The dealer was going to start with the module as they could not narrow it down. It was $800 plus labor and NO guarantee it would be fixed. The next step was a higher priced something else.... no guarantee again.

We traded for a new Toyota and they took the CRV as is. needless to say for $1700 (total not per year) we purchased the extended warranty!!

[Keegan Shields]

The bottom line is that an Extended Service Contract (they are not "warranties" no matter how many folks call them that including the folks selling them) is a form of insurance.

Agreed.

$2350 isn't in any way, shape or form a "significant premium" for 10 years, 100K miles and $0 deductible for everything except wear items (fluids, brake pads, tires, wiper blades, etc.) and cosmetics, given the cost of replacements.

How do you know that the risk adjusted cost of your Extended Service Contract is not a significant premium? $2,350 is a significant premium if nothing is anticipated to break in the first 100K miles. Anecdotally, I've never had a major vehicle component fail in the first 100,000 miles. Maybe that's why they offer the warranty for only the first 100K and not the first 200K miles?



Your error-in-logic is conflating what you pay for the ESC ($2,350) and the cost to repair a component on your vehicle (lets go with a $6000 transmission Bill mentioned).

What's missing in this comparison is the likelihood that you will need a new transmission. Lets say its .01% (or 1 out of 10,000 cars). Then your risk adjusted cost is $0.06 for the transmission. Do that for all of the covered components on your vehicle and you'll have a clear answer.

Now, obviously that would be near impossible for a lay person like us to calculate. But, we can count on the fact that these types of warranty's are high margin for manufacturers.

If you believe that*, then you are in fact overpaying by a significant amount. QED (this is all in good fun Jim)


*I can tell you from personal experience that warranty's are very high margin at the company I work at (IT manufacturer). I have a friends in different professional fields that have confirmed the same thing (rental cars, car sales, banking, consumer goods, heavy mining equipment). That doesn't mean they all are, but c'mon... these are for-profit business with intimate knowledge of their own products (asymmetric knowledge) in a market where there's not much competition.

In fact, that's one of the reasons 3rd party insurance (warranties) like Endurance are so expensive as noted above. They have to cover the risk of not knowing the failure rates of components on a whole array of different vehicles. Plus they need to cover all of the insurance fraud (like buying coverage after your car starts making a clunk-clunk sound).

[Bill George]

Transmission failures have always been an issue with Dodge built cars and trucks... this is just one example but other problems with other makers are also a issue. https://luxurydimension.com/dodge-ra...sion-problems/

So go ahead, if $250 a year is something you can't justify. Or Ford > https://www.freep.com/story/money/ca...r/71030958007/

More common than you non mechanical folks would understand? https://www.carcomplaints.com/Chevro...ado_1500/2021/

BTW anytime I can buy a 10 year warranty extension for $2350 I'm going to do it! You would be a fool not to.

[Brian Elfert]

For a lot of folks a $12,000 transmission repair would be a financial disaster it could take years to recover from. They don't have the savings to pay cash for the repair and would likely have to put the repair on one or more credit cards. The payoff of $12,000 in debt at 25% interest could take many years, depending on how much was paid per month. A lot of people would prefer to pay for an extended service contract, even if the seller makes more money from it. That couple of thousand over the life of the loan is something they can afford more than a $12,000 hit.

My 2016 Dodge Grand Caravan has only needed a valve cover gasket a month or two ago at about 95,000 miles. It will probably hit 100,000 miles without any super expensive repairs. If it needed a $12,000 repair my first stop would be a car dealer for a new, or newer, vehicle.

Edit: I forgot I spent less than $50 to have my A/C recharged at one point. Yes, it was a legitimate shop that pretty much only does auto A/C repairs. They couldn't find any leaks so they added a bit of refrigerant and some dye. I need to go back again as the A/C was a bit warm last summer.

[Bill George]

With the UV Dye they can find with a black light. Sometimes leaks can be difficult to find even with a good electronic leak detector. R134a has a better chance to leak than R12.

I said $4000 - $6000 for transmission replacement OEM dealer with a warranty not $12000. No one has that kind of money ($12,000) floating around most are in CDs or investments with a penalty for withdrawing or even a loss.

[Jim Becker]

I said $4000 - $6000 for transmission replacement OEM dealer with a warranty not $12000.

$12K is a real number for the TR-690 CVT transmission in my Subaru Ascent out of warranty. It's also not field serviceable so if it were to go south, replacement is the only option. Times are a changin....

[Phillip Mitchell]

Call me a dinosaur, but this thread illustrates why I choose to still drive vehicles manufactured in 2000 and 1997, respectively and will be looking for another (additional) vehicle soon from the same time period.

Everything is a gamble, has a "cost" and needs maintenance and typically repair of some type eventually, but at least I have a chance at troubleshooting and often times working on my own older vehicles as opposed to having no clue where to start with a vehicle riddled with sensors and computers in every major component.

I am also the person who has never, ever considered buying a brand new car, so take this with a grain of salt as I am likely more "frugal" than some here.

[Jim Becker]

I am also the person who has never, ever considered buying a brand new car, so take this with a grain of salt as I am likely more "frugal" than some here.

Ironically, I've never bought a pre-owned vehicle. The only one I've owned was the 1969 Dodge Dart that my parents gave me as a 21ts birthday present in the late 1970s.

[Alex Zeller]

Never bought an extended warranty and even if I had to spend $12k on a transmission I would have still come out ahead by not purchasing one once you figure in the number of cars I've owned and the amount of time. You have to figure in (even more now with high interest rates) interest on that money you paid. If you rolled it into an auto loan there's the interest on that.

When I buy a vehicle I normally buy Toyotas. I've owned many that have gone over 200k without anything more than usual maintenance items. The ones that didn't I sold while still running just fine. People say todays cars are complicated, in fact the are less complicated than ones 10 and 20 years ago. The sensors are more refined and usually cheaper. Companies have learned how to minimize assembling an engine. Companies are much better at making sensors.

You can see it with electronics. Look at a 30 year old board and all the massive chips and related components. Look at one made today. The motherboard in my laptop is a fraction of the size and has maybe a dozen chips at most. The computer in a car (all of them) are much more reliable and smaller than even ones made 10 years go. I work for a company that makes chips for cars and I can tell you that due to competition every company now places reliability just as high as yield and over all cost. Companies know if they loose a customer they may never get them back. For a short period a few years ago demand was so high you didn't have to worry about it. But over all, including today, companies are competing to get any customer they can. That means chips and sensors that don't break so the supplier who sells them to the car companies don't have risk loosing their customers.

Then you have both he internet and much more advanced computers in cars. Even washing machines now can self diagnose problems. Often you can pinpoint what the problem is before opening the hood. Sure the transmission could go out but if that was a major problem most good car companies would redesign it as reliability is a key selling point for vehicles. I know a lot of people who bought a Dodge once. When it had issues they swore never again. Companies can't afford to loose customers plus the bad word of mouth to other potential customers.

I'm lucky. I have the ability to work on my own vehicles. I have a car lift and most of the tools needed. That also plays a big role in whether or not I would buy an extended warranty. I can see plenty of cases where other people would want one.

[Bill George]

Its not so much the mechanicals today, its the electronics and when our Honda CRV had issues and they were resorting to changing expensive parts with no end in sight and no guarantee it would be fixed and the OB2 dealer readout did not pinpoint the issue, that is when we said enough. Our next new vehicle had the extended warranty. I have no issues paying for a new transmission on my Tacoma pickup at $4000 plus and I replaced the spark plugs and serpentine belt last summer. I have always worked on all my stuff, never took ever to a dealer. We did switch over to all Toyota and my Tacoma will be replaced with another.