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The Risks Of Buying Extended Car Warranties From Dealerships

By September 5, 2019 November 12th, 2019 No Comments

car dealership risks

Have you ever walked out of a car dealership’s finance office carrying keys to a new vehicle and a bundle of complicated paperwork — without feeling entirely comfortable or informed about what you just purchased?  If so, you’re not alone.

Most of us think we can rest easy once we get to the finance office, but the unfortunate reality is that this is where the some of the biggest dealer fees exist, hiding in insurance premiums and monthly payments.

Finding a new vehicle to purchase can be a stressful and confusing process, and those problems are often made worse when you add in an overload of information about extended warranties and financing payments. It’s not uncommon for car buyers to leave the finance office confused with all the different options.

While many car dealerships are honest and trustworthy, some of them aren’t. These other dealerships often deploy deceitful sales tactics to help close a deal, focusing more on getting into your wallet than offering you services that you need or want.

Here are the biggest things to watch out for in the finance office.

Huge markup on insurance

That’s right, motor vehicle dealers have been provided a restricted insurance license to sell GAP Insurance, New Vehicle Replacement Insurance, and Extended Warranty on your vehicle.  What most people don’t know is that the markup is huge — 40, 50 and even 60% or higher commission charged by the dealers and built into these products.  Let’s break down these products:

  • GAP Insurance is for financed/leased vehicles: One of the unique aspects of the Canadian automotive world is long-term loans and negative equity. What GAP Insurance does is pay off any remaining loan balance if your vehicle is a write off, giving you the peace of mind to finance for up to 96 months with nothing down.  Remember: your primary insurer settles the loss on the vehicle and doesn’t consider that you will be left with a loan balance to pay off.
  • New Vehicle Replacement Insurance: As mentioned above, your existing insurer will settle any total loss claim based on the current depreciated value of your vehicle. With NVR you will benefit from the insurance proceeds to buy a brand new vehicle without any additional costs to you.
  • Extended Warranty: That’s right, Extended Warranty is now considered insurance in Western Canada. Why? So many problems within the industry drove the need for regulation to protect the consumer.  What many people don’t know is that dealers have competition, and the coverage from independents is just as good if not better. Plus, you will benefit from transfer options, half the cost, choice of repair facility and the list goes on.  Buying a new vehicle? The manufacturer’s extension might not be insurance, but the same heavy commissions are loaded within. Luckily, insurance alternatives exist and offer huge savings!

Upselling the payment plan

An extra $9 a week for 8 years… that sounds a lot better than $3,744, right?  Nothing wrong with financing options, but make sure every single product they are selling is presented to you as a total cost. Whether it’s automotive sales or a household appliance, salespeople are trained to understand your monthly budget to hide the actual cost.

This CBC Marketplace episode shows just how aggressive the payment plan is pushed.

Fast-talking, aggressive salespeople

According to a 2017 investigation by the Automobile Protection Association, the addition of extra charges by car dealerships was “rampant” in Calgary.

Don’t be afraid to ask a salesperson to slow things down, repeat themselves or write out specific numbers for you. Taking the extra time to fully comprehend what you’re buying could save you thousands of dollars.

A lack of willingness to help down the road

You wouldn’t buy house insurance from a realtor, or life insurance from a doctor — so why are we accustomed to buying car insurance from car dealers? The reality is that the insurance market has taken time to get online and that was the only choice consumers had. However, now we can buy directly from the company who will be paying the claim.

Think about this scenario: a total loss claim has occurred and you’ve emailed the finance office about your problem, but they haven’t emailed you back after a long period of time. You decide to call the dealership, but your call gets bounced between a couple of different employees and then you’re told to contact the warranty/insurance provider of the plan they sold you. The sad truth is that the finance office has ZERO involvement in the claim and is limited to obtaining commission dollars from you.

Let’s also not forget the biggest myth in the industry: “if you buy the manufacturer’s product from me you can rest assured all claims are covered, no matter what.”  Not exactly the case — the extended warranty from the manufacturer is subject to terms and conditions just the same as insurance policy. Read our blog here to learn more.

The Obvi advantage

For the team at Obvi, customer satisfaction is the highest priority.

We know how important vehicles can be in people’s lives. Our goal is provide as much peace of mind as possible that you’ll be in good hands and back on the road again soon. As both a seller of extended automobile warranties and a handler of claims, we’re with you every step of the way. And while dealership salespeople can be pushy when commissions are on the line, that’s not the case with Obvi. More than anything else, we want you be satisfied with your experience.

Visit our Extended Car Warranty page to find out more of feel free to contact us any time if you have any questions.