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      08-28-2011, 01:33 PM   #106
Private First Class

Drives: 2011 1M & 1997 M3
Join Date: Aug 2011
Location: Kansas City, MO

iTrader: (0)

Originally Posted by Papethova View Post
Perhaps I misunderstood the dealership or I wrote the description incorrectly. I am working on getting clarification and will post here as soon as I receive confirmation. I could reword the initial post for the warranties to look like 1-3 year plans and that would be the amount of time extended upon the factory plan, but BMW products lists them the way I did.
Here, in simple terms, is what purchasing a 7 year extended warranty on a new car looks like:

Mfr. warranty ------------ 4 yrs.

Ext. warranty ------------ first 4 yrs. of 7 yrs.
----------- last 3 yrs. of 7 yrs

You are paying for 4 years (or 50,000 miles) of the extended warranty coverage that is totally unnecessary, because the first 4 years (or 50,000 miles) are covered by the manufacturer’s warranty.

According to the BMW web site, you can purchase an extended warranty at any time before the original manufacturer’s warranty expires. That is when to put your money down, not before.

But even then, there are studies out there demonstrating that extended warranties, which are simply a form of insurance, have very lopsided premiums-paid-to-claims-paid ratios. You can guess in whose favor the lopsided ratio falls.

Additionally, there is a subtle difference between the original manufacturer’s warranty and an extended warranty. If a part is covered under the original warranty and it fails, it is replaced, generally subject only to a finding of abuse. However, under the extended warranty, the part must have failed due to an inherent defect, not just normal wear and tear. Given that parts with inherent defects are going to show up early on, whereas failure from wear and tear is going to show up later, one might wonder how much faith and money extended warranties can justify.

I suppose one exception would be expensive electronic components, which are not so much subject to wear and tear as, say water pumps, and which seem to fail for any number of reasons, not the least of which seems to be the pure spite of gremlins or, perhaps, Darth Vader.

The reason dealers give confusing explanations - and often engage in outright falsehood about – the redundant coverage of extended warranties is because extended warranties are immensely profitable. Dealer markup on them typically runs 50 to 100%. I have seen some with a 400% markup.

In fact, dealers often make more profit on back-end products like extended warranties, maintenance packages, credit insurance, etc., than they make on the vehicle itself. Sewing confusion over these products is therefore in their financial interest.

That said, I am not against a company making a profit. I also realize the value of peace of mind. I just think dealers should be honest about what they are selling and we should be knowledgeable about what we are buying.