As Auto Fleet Ages, Aftermarket Warranties Make More Sense

The reason is as obvious as it is real, the downturn in new-car sales. Until about two years ago, when things were a lot brighter in the new-car industry, if a person had a major problem with a car, rather than keep it and deal with it, the easy out was to head to the new-car dealers and negotiate a deal. After all, credit was plentiful and prices were reasonable.

That there was a credit problem brewing at this time in the car business was not yet apparent, as credit was readily available on the secondary market to anyone who could prove he or she had an income or a reasonable co-signer. When the credit crunch hit and the subprime market tanked a couple of years ago, this precipitated the downturn that has rattled the auto industry.

Think about this, three years ago, the U.S. car industry sold about 15 million vehicles. That figure dropped by about 20 percent in the 2007-2008 year to roughly 12 million and this year sales will likely finish up about 30 percent below figure or about 8.5 million. The sales information is based on statistics compiled by Automotive News. So, in the space of three years, the new-car industry has been hosed. It's a hosing that a lot of folks in the industry are not coping with very well.

Look at it this way, at its peak; the U.S. auto economy absorbed about 17.5 million new cars per year. This meant there were a number of relatively new preowned vehicles available for buyers who couldn't or, for whatever reason, wouldn't buy new. That there wasn't too much wrong with the later model preowned vehicles was pretty much a given as they proved quite popular with buyers who snapped them up in brisk numbers.

Seeing an opportunity - while the business was streaking - the auto industry came up with the certification program. It was an effort to ensure buyers or preowned vehicles that they would live up to the standard established by the factory. In Honda's case, the Certified Preowned program conducted a 150-point inspection and tried to make the preowned vehicles as close to new as possible. In many cases, dealerships invested as much as $1,500 per vehicle to make sure that happened. In these cases, it also meant that the buyers were getting great cars at really reasonable prices.

The Certified Program became even more important as new-car sales started to slip and preowned car sales began to move ahead. They were also down, too, as was the rest of the industry, but, they weren't down quite as much. And, in the case of Honda, until quite recently, they weren't down at all because of the confidence people had in this particular line of cars. Add the Certified Preowned (CPO) program, and you had a combination that couldn't be beaten.

Other automakers, seeing an opportunity to market their wares better, also latched onto the CPO program and the result was that the vehicles chosen for certification were really like new (one Ford Explorer that was a CPO SUV) stood out from the rest of the vehicles on the preowned line because of the great condition it was in and when you had a chance to look a the other vehicles that were also certified, they were in equally as good condition.

And, now that car sales are slowing further, it is apparent that the investment in CPO cars is slowing too and this is creating a huge market niche for enterprising aftermarket warranty companies. Just this week, a father and son racing team was also shown introducing an aftermarket warranty product that was quite good and while it did cost extra, it did offer peace of mind.

Perhaps the most important aspect of these programs is that they stretch for far longer periods than standard factory CPO programs. Most factory CPO programs will only go back about five model years on warranty coverage and up to seven on powertrain. The aftermarket offerings will go much further than that.

Take AAA, for instance, they offer their own aftermarket warranty program (aaawarranty.com) that offers, "full factory bumper-to-bumper plans to powertrain coverage for the more expensive repairs, we can customize a plan to meet your needs and budget. Compare the best service contracts for your vehicle today."

A few years ago, you might have found this program available, but it wouldn't have been widely promoted by one of America's premier motoring groups.

Today, you find AAA and others, such as Edmunds, offering aftermarket warranties on cars that may be as many as seven years old and the coverage is quite comprehensive. That these groups are willing to take on this type of program illustrates the realization that given the state of today's dealer/factory-backed new/used-car sales programs, that people are keeping their cars much longer than normal. Where folks usually traded, in the past on four or five years, it isn't unusual for people to keep their cars on the road for up to seven or more years. Six years is another norm. The problem with factory-backed warranties is that even extended warranties seldom went longer than seven years or 100,000 miles and they were quite expensive. The aftermarket, on the other hand, takes this new reality and gives consumers something they need.

AAA, is a good example of what you will find when you look at aftermarket warranties. They have a bumper-to-bumper warranty that recognizes "the manufacturer's warranty that originally came with your vehicle" and have "designed (a program) to extend the original full factory warranty and in some cases even enhance it."

Like other warranty programs, they cover major components and their policy covers not only major powertrain components, but also electrical systems and other major mechanical systems and they provide you coverage if they should break down. You also will have AAA's roadside assistance and they offer trip interruption protection. It's quite a comprehensive plan. And, their powertrain coverage not only covers major powertrain components, but also gives you a rental if your vehicle will be tied up for any length of time.

They key here, though, is that this coverage is for vehicles that have slid out from under the coverage blankets of the original factory or extended factory warranties. They provide you peace of mind for a price.

Yes, that price could be upwards of $1,500 or $2,000, but think of this when you are mulling whether or not to pull the trigger on this: if the transmission or another major piece of the drivetrain (say an engine) goes at seven or eight years, you are facing an investment of $3,000 or $4,000 (more or less), so the warranty coverage has already paid for itself.

This type of savings can go on throughout one of these aftermarket programs. No, it isn't as easy as snapping your fingers to get this done, but it's not all that hard, either. It will take patience, but, in the end you'll find that the investment you make today whether it's with AAA or Edmunds or any of the other major aftermarket warranty companies will pay for itself when that big repair bill comes, which it will inevitably.

Here's more than an anecdotal illustration of the value of an aftermarket warranty. A couple of years ago, a couple, who owned a 1999 Ford Van to the ground, found that they were facing major engine and drivetrain and suspension repairs, to the tune of about $6,000. Had they invested the $2,000 or so on the aftermarket warranty, they probably still would be driving the van, as they would have had all the work covered by the warranty. Instead, they had to go out and purchase another preowned vehicle whose note was 72 months, but the payments were reasonable.

So you can see, you can have your old car and aftermarket warranty. The only advice to offer here is not to jump into anything, do your research, and choose the plan you think will give you the best return for your dollar. You might also check with the Better Business Bureau on the reputation of the company offering it and see if you can find any customers in your area who have used the service and can give you information on how it worked for them.

Taking the right steps can keep your car rolling for a long time - and let's face it, at today's prices, even compacts are expensive - so an aftermarket warranty plan is the way to go.

It did take the involvement of he new-car industry to help bring about healthy change in what had been a real fly-by-night type of operation. But now that it has straightened out its act, you can trust that any major organization, company or group offering one will be putting their name a goodwill behind it, something that no one wants to mess about it.