Extended Warranties: The Good, The Bad And The Ugly

When I was a few years out of University I was doing well enough to afford my first nice sports car - one that wasn't rusty and started without a push.  In I think 1995 I found a really nice 1990 Mazda Miata Special Edition - the British Racing Green one with tan leather - on a dealer lot.  I made an offer and it was accepted.  The 'Finance' lady pitched a GE Capital Corp. extended warranty to me. It was about $1,000 for two year's coverage, and it offered some peace of mind from a major failure.  I was told that if I didn't use the warranty my money would be refunded at the end of the term.  With a name like GE Capital behind it, the warranty seemed good value. It was an interesting concept to a new Finance graduate; GE would use my money for a couple of years in return for undertaking the risk that they would have to pay for repairs.  I bought it, and fell for what was a dealership scam.

I came back after two years, after paying for some small repairs out of my own pocket so as not to invalidate my warranty refund, presented my documentation and asked for my refund.  I was asked if I had my 'Certificate'.  I said I had the original file which they gave me, the Bill Of Sale, the copy of the GE warranty, and the brochure for the warranty that the 'Finance' lady had written '$1,000 cash back if warranty was unused', along with my own notes.  But no 'Certificate'.  They pulled out an example for me to see.  The top 1/3 of the formal looking document had the words, 'DO NOT LOSE' written across the top.  They said they were awfully sorry, but with out the 'Certificate' they couldn't issue the refund. I politely explained to them that everything they gave me was in the file, and if I didn't have a 'Certificate' then that was because they didn't give me one in the first place. They were still sorry, there was nothing they could do.  

Then I got impolite, and may have said some unkind things in a loud voice, but got nowhere; either with the Finance Lady, or with the Dealer Principal who I demanded to see.  The next day I filled out paperwork at the Alberta Small Claims Court. I sued them, and served the paperwork to the dealer principal.  Fast forward a few months, the day before the trial date, and the son of the Dealer Principal phoned to tell me how sorry he was about the miscommunication error, and that they really value their customers at S*** Mazda, and what could we do to straighten everything out.  I told him that they could refund my money, and the young guy in a nice suit came and dropped off a cheque.  I didn't go into another Mazda dealership for almost 30 years.

Now I've written about troubles in the F&I offices of car dealers; the widespread practice of adding 'mandatory' fees and 'protection packages' which flagrantly disregard the consumer protection legislation that the dealers profess to abide by with their AMVIC memberships.  Nonsense items like etching, and mostly worthless warranties for tires and spare keys etc.  are presented as 'coming with the car' but without mention that the fees are buried in the paperwork.  But I didn't think anybody was trying to dupe consumers with the 'Cash Back' warranty anymore...

To be clear, there are no extended warranties for vehicles that offer a refund of your premium at the end of the term.  The (theoretical) refund can only come from the dealer. If they gave you the refund they would lose money on the contract.  The Finance manager would be charged back, and the refund would be taken from their commission. Even in the case where it is actually possible for you to get a refund, you will have to  jump through a series of hoops that are designed to not give you a refund.  Practically, the only way to get your money back is to do as I did and sue the dealer.  Something few people would bother with, which is why the practice persists.

Last week, I was helping a friend's 83 year old mother buy a car another Mazda store.  The salesman was actually quite good and had lined up a Hyundai SUV that was a good choice for her.  My friend's mother was very happy with the service she had got so far, and had been a customer there for more than 10 years.  As it happens. the dealership is  still owned by the same family that owned S*** Mazda, who I sued almost 30 years ago.  

I reviewed the documents.  They included the mandatory, "Alberta Protection Package" for $1,500 - worthless in my opinion - and wouldn't take it off even though it was not included in the sale price if the car.  This is against the law: If there is a mandatory fee that you have to pay, this needs to be included in the advertised sale price. You can not advertise a price and then refuse to sell the car at that price when somebody comes in to buy it - this is one of the central tenets of our Consumer Protection Legislation.  There is no mention on this dealer's website of any mandatory packages.  Then she was shepherded to the F&I office they tried to sell her the 'Cash Back' warranty.  My friend's mother knows nothing of cars or warranties but smelled a rat and declined.

[I can't be 100% positive that 28 years later the same dealer group wasn't planning on losing money on the warranty by issuing a refund on it. There is the possibility that two years from now that the Finance Manager might have looked at his file, checked the warranty record of the car, and issued a refund cheque.  However, my estimate of the probability of that happening would be similar to me being offered an F1 drive.]

The thing that amazes me is that they didn't have to try to cheat her to sell the warranty.  They gave her a $1,500 discount on it (there is a lot of mark up on 3rd party extended warranties), and at the price she was offered it was decent value*.  They tried to mislead her just because it was in their nature and they couldn't help themselves.

In this case at the Mazda dealership they had a loyal customer of over 1o years who had bought multiple vehicles and they muscled her into buying a worthless $1,500 protection package and (I believe) oversold a warranty by dishonestly representing that she would receive a refund if she didn't use it.  They told her the 70% worn, 6 year old all-season tires on the car she was buying would ok driving through the winter for a couple of seasons. Worn all-season tires for an 80 year old to drive in Calgary winters?  Really guys?  

They could have taken the $1,500 they wanted to charge her for the worthless 'protection package' and actually protected her by buying winter tires.  They could have sold her the warranty if they didn't try to cheat her.

The son of the owner who cut me my refund cheque back in 1997 is now the Dealer Principal of the dealership I just visited.  The apple doesn't fall far from the tree.  If and when Mazda decides to let customers order on line and bypass the dealer, I will not feel sorry for these guys.

Lawrence Romanosky is a 'Car Guy' who is running a specialty car brokerage, service and restoration business in Calgary Canada.  He is very sorry people have to put up with such nonsense when trying to buy a car.

403-607-8625   Lromanosky@me.com

*Not that I am against extended warranties.  Issued by the manufacturer, as part of a 'Certified Pre-Owned' program, they are often a very good idea, especially on complex European cars that can easily have $10k repair bills. These 'CPO' warranties are forced on the dealers as Manufacture programs, and only pay a small commission of roughly 15% or 20%.  They require the servicing of the car being brought 100% up to date, specify wear limits for tires and brakes, and include a fairly rigorous inspection. The 'CPO' cars on dealer lots are often much different than the ones that faced no reconditioning mandates, and only superficial issues were addressed.

The third party warranties pay up to 50%, but that doesn't leave them that much money to fix your car.  They are a lot more restrictive and difficult to collect on.  They often don't cover 'collateral' damage; meaning if an oil hose splits, discharges all the oil and blows up your engine, they will cover the $20 hose but not the $30,000 engine.  There have been very few occasion where I have recommended third party warranties.