A Poll to decide if a warranty is worth it

If you want purely objective data- ie cost of the warranty exceeded repairs needed- remove the last two questions. Only have the first two.

 

Yeah- I was thinking you were trying to do - I spent X on warranty, repairs cost me Y.

Would be just a straight numbers analysis.

Delete the thread and restart or just leave it. All good.

 

Look at it this way...

Ferrari offers the warranty because

1) they like losing money

or

2) they are doing us all a favor

or

3) warranties make them money

 

Another flaw might be , I had the warranty ,didn’t really use it , but I slept well. Or maybe when I went to sell my car it sold faster and for more with the warranty. Shrugging .... Who knows ?

 

Right now there is a 15% chance the warranty makes sense.

 

Smart response as always except some of your P&R posts.

 

I got the extended warranty because I don't want my wife to use the repair bill as any excuse about my car expenses. Me smart boy.

 

But this is how all warranties (i.e. insurance policies) work.

Berkshire Hathaway didn't get to over 300B market cap by offering free goods.

 

I do not drive enough to make the warranty worth it for me.

 

Warranties are like any other insurance or any form of gambling: The house always wins and you ain't the house!

 

Chris , in that case my 9900 2 year warranty was only used ~ 1000 in return. Best , Kirk.

 

As someone who spent nearly 20 years as the director of sales and finance operations for a large dealer group, I can wholeheartedly recommend that you do not purchase an extended warranty.

You have to look at cost of goods sold. There are costs for overhead; secretaries, people to process the claims, rent a building, etc. The company needs to make a profit, so I need to add that on there, also need someone to sell the warranty. As much as 50-80% of the price of the warranty—depending on the warranty company—goes to commissions back to the dealer. So the warranty company or franchise has to pay a commission, and that’s in the cost. If you add all of that up, now you have the price of the warranty. It’s what charged you for it.

Really, all you’re getting coverage for is the actual statistical probability of the breakdown, but you’re paying for overhead profit and marketing in addition to that. Were you to save the money and you have an average Ferrari that breaks down an average number of times, you’re going to come out way ahead financially. If it breaks down more than average, then you won’t. But if it breaks down more than on average, then the warranty company goes broke. In other words, they know they’re not going to have to pay out all the money they take in on warranties.

Never buy extended warranties. There will be several posts after mine with folks telling you how they saved thousands in repair costs by getting the extended warranty. Some will be telling the truth, some will be full of crap. But the bottom line is that if the warranty company didn't come out ahead way more than you do, then they would be broke. It's a bad investment.

Also, If you buy a warranty from a company, and they go bankrupt, you don’t have a warranty anymore. Ferrari isn't likely underwriting the factory extended warranties, most likely they are underwritten by Fidelity or someone similar.

 

Good post.

I was going to add that it would be beneficial to know the avg repair costs for a given model over time, but really we dont need it. Just look at what Ferrari charges for a year of coverage, factor in a profit margin and you would then have your very rough guideline for avg repair costs. Then you can decide.

 

This is one of the biggest benefits.

It's way easiest to sell a used exotic with a warranty and you can use it as a bargaining chip for a higher price. I guarantee that warranty has better residual value that carbon fiber when you go to sell it.

So lets say you pay $4K/year for a warranty. $4K arguably covers a lot of repairs (assuming they aren't catastrophic.) Will you get your money's worth in repairs? Likely not, but you'll get some of it back come resale, ease of resale, and you'll sleep easy.

I don't have health insurance because I want to use it.
I don't have home owners insurance because I want to use it.
I don't buy a car warranty because I want to use it.

 

This is potentially shortsighted. Warranties are similar to insurance. The cost is based on statistical models, like you say. There is no telling just how profitable the warranty underwriting business is though. Saying to never buy extended warranties because the companies who sell them are solvent/profitable tells nothing about the profitability of the policy.

Believe it or not, most insurance premiums get paid out in claims. Insurance companies make money by investing premiums and hoping they have good underwriting policies and statistical models.

If you'd like to see companies who lose money writing insurance policies, look no further than AIG, quite possibly the worst underwriters in recent history.

Here's a simple example: Lend me $1B and I'll buy you $1B worth of stuff over the next 12 months. You get your money's worth... yet somehow I profit. How? Well, I invested your $1B in short-term, low risk assets and slowly paid you out over the course of a year. I keep the interest, you get your principal.

So should you buy an extended warranty? Depends on how risk averse you are, just like any investment or insurance policy you may take on.

 

4) it helps sell cars that people might not buy otherwise.