How important it is to buy Extended warranty when buying a new car ?

What risks do I face if I don’t have extended warranty for my car ?

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A – Buying extended warranty for a car is like buying a medical insurance. We pay a premium amount to the car manufacturer well before the warranty period starts. Manufacturer uses this money for his own fund requirement & in return gives benefit to the customer in terms of any faulty spare part replacement or repair job occurring during the warranty period.

But just as in the case of medical insurance when one doesn’t fall sick, your car also might not face any problem during warranty period which is good thing. However the money paid for warranty goes waste just like insurance. It’s like a cover against unforeseen problems which can occur in a car due to faulty spare parts or early wearing of parts than its actual life.

The catch here is to decide whether to buy the Extended Warranty programs offered by car manufacturers when buying a new car.

The answer to this question lies in the prices of the spare parts of that particular car. Repairing labor charges stay more or less similar across the same segment cars.

Suppose the spare part prices are too expensive. This happens if most of the critical spare parts fitted in the car are imported, then it is advisable to go for the extended warranty plan. Imported spare parts carry the burden of cross border transportation, high import taxation, duties, currency variations, availability, etc. On the other hand, similar class local spare parts face comparatively less burden of manufacturing cost, transportation, local taxes, cheap labor, etc.

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We don’t need to name any manufacturer here, since we all understand that which manufacturer’s cars have more number of imported and costly spare parts compared to other manufacturers which have slowly and steadily localized most of their spare parts to stand in this highly competitive and capital intensive industry. Some manufacturers understand that locally manufactured spare parts or sourcing smartly will help them strategically to compete in the market. On the other side, high end car manufacturers have most of their spare parts imported and still sell successfully at a premium in Indian market. There are many reasons for that some are not in the control of the manufacturer and others are intentionally done by the manufacturer. This part will be discussed in another section of the blog.

A customer needs to understand the manufacturer’s philosophy before buying a car or its extended warranty because after buying the car once it starts giving maintenance problem that time it becomes too late to repent on our decision. Even if we can afford the maintenance cost, the hassle and the time consumed in getting the things fixed eats up your energy and time.

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Research about service cost and basic spare part cost from their service centre –

A good practice would be to do some research on the different car manufacturers in the market and take stock of whose spare parts come expensive.

If prices of the spare parts is on the higher side and you still like that car and want to buy it then please purchase extended warranty which will be offered by the manufacturer and sold by the dealer. It makes sense because if prices of the spare parts are higher then why not buy a cover for ourselves so that our expenses are capped to a certain limit. This way you insure yourself against paying for any faulty spare parts or early wearing of some parts and similar issues.

In case the spare parts are not that expensive then one can afford to take the risk of not buying an extended warranty & assume that nothing will happen to the car. Even if God forbid, an issue crops up, the customer will be able to afford it because of not so high prices of spare parts.

For e.g,  A German hatchback which launched in India in 4-5 years back sold a good number of cars. Initial buyers faced a problem with the AC grille (all the three – left, centre and right). It was so delicate or faulty that it used to break when anyone tried to swivel it to change the direction of air which is the sole purpose of AC grille with a knob on it. When customer went to the workshop to complain about this they were told that it broke because it was used roughly and that customer will have to bear the cost of getting it replaced with a new one.

Story does not end here. Can anyone take a guess how much does an AC grille cost ?

Left – Rs.3,000/- +

Right – Rs.3,000/- +

And the centre Grille – Rs. 7,000/- +

Labour charges extra.

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This went on for couple of years and many customers did buy them after which company realized that this is a common complaint of most of the buyers during those initial years & that this part needs to be locally sourced and not imported form their country and then they offered the customers with such complaints to get the faulty grilles replaced under warranty. And the new prices of these locally sourced AC grilles are around Rs. 800/- (left or right) and Rs.1800/- (centre).

 

Key Take away –

  • If most of the spare parts in the car are imported and expensive then buying an EXTENDED WARRANTY is a wise decision.
  • If spare parts are relatively cheaper & of local make then one can easily take the risk of not buying the extended warranty and thus saving that extra money paid during the process of buying a new car.
  • One should consider researching at a service centre about the car performance and any regular maintenance issue and cost related queries before buying a new car.
  • It’s a personal choice.

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P.S – One should refer the terms and condition while purchasing extended warranty from the manufacturer via the dealer. What things are covered and what things are not covered. This helps us as a customer in understanding what all things are covered under the warranty before making the choice of purchasing it so that tomorrow we don’t feel cheated that we made a wrong decision as some of the things are not covered under such a warranty contract.