Aftermarket Auto Warranties – Why They Are A Scam
From time to time customers ask us if we accept Aftermarket Auto Warranties for their vehicle. Unfortunately, we do not work with these companies. We use to work with them quite a bit. However, over the years, these companies have been difficult to work with. Here is a comprehensive guide on all the ins and outs on how these companies work, what to expect and what you need to know when planning on purchasing one.
What are Aftermarket Auto Warranties?
The first question you might be asking is, what are Aftermarket Auto Warranties? When purchasing a used car from either the dealership or used car lot, they may offer you a warranty for an additional fee. Most used cars are ‘As Is’ with no warranty. This is where these warranties comes in. Sometimes dealerships such as Mercedes-Benz, BMW, or Audi will sell certified pre-owned vehicles. If they are still within the factory warranty timeline, they will still retain a factory warranty. If they are out of that factory warranty they defer to an aftermarket. So, please make perfectly clear with your sales rap, before purchasing a used vehicle.
Companies, such as CarMax, use a third party company called Assurance. Other dealers use different companies as well. The reason being, they would have to classify their businesses as an insurance company which separates the two entities. For example, other third party Aftermarket Auto Warranty companies are Complete Car Warranty, and Concord Auto Protect, just to name a few. Even the commercials you see on T.V., with Ice-Cube promoting CarSheild uses a third party entity. This is a completely different entity called American Auto Shield.
The aftermarket warranties are not the same as manufacturer’s warranty. They are third party, private companies that are in business to be profitable. America’s free market dictates that they can conduct business to be profitable, which we fully support. However, the way in which they conduct business is questionable at best. They are in business to pay the least amount possible, so they can be as profitable. This rolls in into our next topic.
How Aftermarket Auto Warranties are Presented & Sold
Some dealership that sell these, use tactics that are borderline fraudulent. A sales rep may tell customer that you are buying the “The Best” or “The Platinum” policy. They may say that it covers everything. This is often not the case. These plans have many options. Some include, ‘Internal Engine Only’, ‘Engine & Drivetrain’, and/or Fully Vehicle Coverage’ plans. Each company has their own legal terms and agreements, so these will all vary. The better the plan, the more they cost. Rarely, some plans also include maintenance plans. These cover oil changes, flushes and wear items such as belts, Bushings, and timing chains . Make sure you know exactly what you are purchasing before you agree to pay. Most premium warranties are around $3000-$4000 depending on coverage.
For Example
One of our Meister Werks employees recently purchased a used Mercedes. The sales rep tried to sell them one of these plans. It was almost $8,000 on top of the vehicle cost. They declined it, but it was insanely expensive. Most of the time the sales rep will markup the price on the warranty and will take the rest of the money for themselves. So, if you decide to purchase one, don’t pay too much.
It is our opinion (and much less money) to open a savings account and have $50-100 transferred to that account every two weeks. IF you can find a savings account that compounds interest, you will actually make money on your deposits. If you deposit $100 every two months, in a year, you will have around $2600. This is the average yearly cost to maintain and repair a standard European vehicle. If you don’t need to use the money, just let it keep growing. A used car will eventually need a large repair.
Keep reading and we’ll explain why this is a better option.
Your car breaks down & it’s time to use the warranty…
If you have purchased a warranty and your car just broken down. Here is how it all works.
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Firstly – The Breakdown
You bring your car in and the repair facility diagnoses the problem.
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Secondly – Diagnostics
The shop will write a quote based off the findings.
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Thirdly – How it really works
The repair shop contacts the warranty company, typically on a 1-800 number. Some companies use a website, which is much easier and faster. Here is what happens:
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How Our Last Warranty Went
I personally did for a customer, I was on the phone for 2-1/2 hours, most of this was waiting on hold. I had to give them every minor detail about the diagnostics, methods, and techniques on how we found the problems. Which is fine, and I understand why. However, this also included submitting very detailed photos of the leaks, VIN number and odometer reading. THEN, we had to call them back after these were submitted. When I got another rep on the phone, they told us why they were not going to pay the claim. The main reason was because we could not show them a leak that was deep inside the engine. As you know, most modern engines can be impossible to see where leaks are coming from. Furthermore, if we take the engine apart – we are not guaranteed and kind of approval from the warranty company or the customer. For which, we may not get paid for the service we just provided.
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Approval & Labor Rates
The items they did approve, were based off a Meister Werks old hourly rate that was posted on some obscure website. This was posted over 6 years ago. On top of that, they said, if they were going to pay our currently hourly rate which was 25% less. Also, they said if they were to pay that out, ‘WE’ would have to call the questionable website and have them to change our hourly rate. This was absolutely absurde.
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Labor Times Pricing Payouts
The labor times most repair facilities use are list by the manufacturer via special software. Many labor times do not include other procedures to access the part or remove components. These warranty companies do not read though the instructions and will just pull the labor time for that listing. Most of the time, these instructions list prerequisites before starting the actual repair. For example, to replace the turbo oil lines on a 2013 Mercedes C240, the instructions say First – remove drive belt. Then – remove alternator. This was an additional 1.75 hours for both. This labor time is not included in the repair of the turbo oil lines, which was listed at 0.6 hours. This give us no choice but to either eat the labor time or charge the customer the additional labor time to perform this repair. Almost every warranty job we performed required us to charge additional fees to the customer to make up for labor time that the warranty company would not pay for.
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Part Numbers
To add to the insane policies of this company, they had to have every Mercedes part number, even though some of the parts were OES from the OE manufacturer. Such as Bosch, Hella, Continental, and Bilstein, just to name a few. These parts do not necessarily use the same part numbers as the manufacturer. Nevertheless, we still had to look up every single part number. -
How They Get Part Pricing
The warranty company will only pay the list price. The adjuster said he was basing this off internet pricing and was actively looking for prices online. Furthermore, the prices were the cheapest aftermarket parts he could find. This is another reason we stopped doing warranty work. The prices they are finding are sometime less than what we buy the parts from wholesale and the lowest grade possible.
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Fourth – The Catch
After the warranty company has complied all the parts needed, they will check all the labor times.Labor times are all based off what the industry calls ‘Book Time’. The problem with book time is it sometimes does not include all the information to complete certain repairs. For the example on the repair we were performing, we had to replace all of the turbo line seals. The book time to complete this was 2.1 hours. However to access this area, we had to remove the alternator. The book time on the alternator was 1.6 hours. These times are never calculated together and the warranty company do not read the instructions. If there are any additional times that need added, they will not do this and only cover the actual book time repair.
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Last – Customer Still Pays
This leaves customer to pay for the additional work to complete the repair that should be included, but is not. In order try and get them to pay, we would have to argue with the adjuster and tell them how the repair is completed. Most of the time they believe they know more than us and will still not pay. This is just another reason why we do not do warranty work. The customer always had to pay for something and the companies would only pay a fraction of what they should.
In Conclusion
We will do Aftermarket Auto Warranties repair work under these circumstances. The customer pays everything up front, then has to submit the invoice to the warranty company after the repair are complete. We will not call these companies or get approvals. This will be the obligation of the customer and to find out if they can do this with their policy. This is so we do not have to charge the customer for additional paperwork. Also, this is so we do not have to tell the customer that it is not approved on their plan. If there are any disputes, we do not want to be the ‘Bad Guy’ telling you that they will not cover the work. Most of the time they will not cover everything and/or will not pay the hourly rate it takes to complete the job correctly. Not every company does it the same way so you will have to contact them and ask if you may submit the invoice after the work is completed.