Hybrid Cars Extended Warranty

If you’re buying a new hybrid, should you consider purchasing an extended service agreement (usually marketed as an “extended warranty”) as well? More than anything, the answer to that question depends upon your personal beliefs and level of comfort with risk. The price ranges from a few hundred to thousands of dollars, depending on the type of hybrid vehicle, the type of agreement, who’s selling it—sometimes, even who’s buying it—so the question is worth pondering.

Already determined that you want an extended service agreement? Some are better than others. These are established options you might consider:

Before buying, request quotes from several sellers (brick-and-mortar as well as online) for all programs and compare carefully; manufacturers sell agreements even for vehicles they don’t make. Beware dealer-specific programs, though. What if you move, or if the dealership closes? The agreement you choose should be transferable and/or refundable (minus a processing fee and prorated charges for the time it’s been in place). It should also cover repairs made at any licensed facility (e.g., Ford-licensed for Ford ESP). For maximum convenience, insist on a program that does not require you to pay up front, then submit a claim form and wait for reimbursement. The company should be able to pay for approved repairs via credit card over the phone directly to the mechanic.

But if you’re not certain you need the extra security an extended service agreement can provide, read on.

If it Weren’t for Bad Luck…

Buying an extended service agreement is placing a bet. You are wagering the cost of the premium (say, $1000) that something WILL go wrong with your car that will cost MORE than the premium and all the interest you pay on it, and that this will happen AFTER your standard manufacturer’s warranty expires.

You are also betting that your car’s catastrophic failure will occur in only a few vehicles—too few to cause a recall that manufacturers will likely pay for. And of course, you are betting that this problem was caused by a manufacturing defect, not your own poor driving or maintenance habits, or an accident you were unable to prevent. Basically, you are betting a large chunk of change that you will have an even bigger chunk of extraordinary bad luck.

The company backing the agreement is betting that nothing major will happen, and that it will thereby pocket the difference. The person selling you the agreement risks nothing; he or she is guaranteed a plump commission. Note that these “extended warranties” are not real, legal warranties. As service agreements, they are generally unregulated by state insurance rules, for example. Also note that this “bet” theory does not apply to pre-paid maintenance agreements, which at least encourage regular maintenance habits.

It’s Already Warranted

All new vehicles these days come standard with some sort of warranty. The hybrid parts are likely to be warranted for longer than you plan to own the car. To take a 2006 Prius as an example, the standard manufacturer’s warranty includes all components (minus wear and tear, like filters and tires) up to 36,000 miles or three years from the date of purchase, whichever comes first. Then the powertrain (including the engine, transaxle, front-wheel drive, rear-wheel drive, seat belts, and airbags) is covered for another 60,000 miles or five years-again, whichever comes first. Any components related to the Prius’s hybrid system, though, are covered for a whopping eight years or 100,000 miles. Certainly, some people do keep their cars that long, but you’d do well to ask yourself if you are one of them.

Dealers Love Them! Why Shouldn’t You?

Then there’s the question of who is selling the warranty. If you have just rushed to the dealership upon notice that your specially ordered and long-awaited hybrid has come in, a salesperson will probably suggest the dealer’s financing; if you concur, the pleasant person drawing up the paperwork will suggest the purchase of some sort of extended service agreement. Even if you are paying cash or have other financing, the scenario applies—you’ll have to sign something, and the person who hands you the pen will also push the “extended warranty.”

Don’t buy it here. Don’t buy it now. The finance manager, who will be called in to sign off as witness to your unspeakably foolish decision to decline this extra expense, will make the agreement sound like it could have protected your family from any tragedy. In reality, it does a fantastic job of padding the bottom lines of the dealership and the lender—once on the commission and again on the interest you pay when you roll the premium into your loan.

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If you have difficulty saying no to people, bring someone else along on the buying trip to remind you. Have them wear black leather and mirrored shades, if possible, and suggest that they use the word “weapon” in a sentence. You can always come back and buy later—if you decide you really want it, after you’ve checked around to be sure you’re getting the best product at the best price.

Research the Options

If you’ve done your homework already, and decided you absolutely need this kind of security blanket, feel free to haggle on the price with the dealer. There are all kinds of things that can change it, from deductibles to reduced commissions to a sort of refund insurance that may give you your money back if you don’t use a single bit of the service agreement over its lifetime. Bring a printout of the price quoted by another dealer or online. Don’t be afraid to ask for a price break—most dealerships get so many uninformed buyers that they usually don’t mind giving a few well-informed customers a leg up. Remember, they would probably rather get half their regular commission than none at all. And on the Internet, do beware. Non-manufacturer’s service agreements are known to be difficult to collect on. Often, you must pay for the repair first, then fill out a claim form that may take months to process before you are paid. Some unscrupulous or financially weak companies even sell “warranties” and then disappear or go out of business, leaving you with a worthless piece of paper.

But if it Makes You Happy…

So why buy an extended “warranty” at all? It runs concurrently with the manufacturer’s warranty. That means that if anything goes wrong with the car while under the “free” warranty, it would have been covered anyway, and you’ve wasted your money. But what if the problem occurs after the manufacturer’s warranty expires? If you worry about things that far into the future, consider the service agreement’s premium money well spent—just think of it as protection money for your peace of mind.

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