Sunday, April 20, 2003

Beware extended warranty hard sell

The expense may not be warranted

By Jenny Callison
Enquirer contributor

If you've bought anything from a PDA to a power mower recently, chances are the retailer also tried to sell you an extended warranty. Are such investments, which typically run 10 percent to 15 percent of the product's cost, worth it?

Experts say the answer depends on several factors: the cost of the item, its manufacturer, its probable rate of obsolescence, your care as its owner and even your access to repair sites.

"All products have a failure rate; that's a given," said Dan Tafel, general manager of business development at Service Net, a Jeffersonville, Ind., company that provides extended warranties to such retailers as Office Depot and PC Mall and for brands such as Maytag and Hoover. "People who buy an extended warranty are investing in a plan that protects their investment."

What a consumer gets from Service Net, Tafel said, is the security of knowing that if his new appliance, home computer or other electronic device develops problems, a qualified person will repair it. Most Service Net-initiated repairs are done in the consumer's home for their convenience.

Tafel said profit isn't a retailer's only motive for selling extended warranties.

"Basically, they are selling a product just like the appliance. It helps them because they feel like they're delivering better customer service."

But Jennifer Shecter , spokeswoman for Consumer Reports magazine, said extended warranties often are a poor investment.

"You're betting on something that isn't going to happen," she said, noting that products often break down during the manufacturer's warranty period, which can last from three months to one year.

"For example, we find that people have problems with their computers within the first three months," she said.

Also, a lot of extended warranties don't cover what they call "use and abuse," which can be normal wear and tear. You have to read the warranty fine print very carefully and ask questions so you know what is covered.

In an October 2001 article - "Repair it or replace it?" - Consumer Reports made several recommendations that those considering extended warranties might want to consider.

Three rules of thumb:

• If a broken VCR, CD player or computer printer is more than two years old, it's more cost-efficient to replace than to repair. But high-end items, such as a lawn tractor or projection TV, may still be worth repairing when they are six years old or more.

• Replacing a broken product may be advisable if a new model incorporates major new technology or is much more energy-efficient.

• Replacement may be prudent if the cost of repair is more than half the cost of replacement.

The article, based on information from a reader survey, said survey participants typically paid $300 for a three-year extended warranty for lawn tractors and riding mowers, $120 more than the typical out-of-warranty repair cost.

Personal computers are among the products for which an extended warranty may be justified, Shecter said, because of the cost of repairs.

Most purchasers of Macintosh computers opt for the contracts, said Apple retail public relations manager Jane Rauckhorst .

"Our customers purchase an extended service and support program for peace of mind," she said.

"Because Apple creates the computer, operating system, and many built-in applications, the Mac is a truly integrated system - with superior support.

"Just one phone call can help resolve most issues with your Mac. Customers who live near an Apple retail store, such as the Apple Store Kenwood, can walk in and get service.

"Our resellers have come back to us and shared that due to the positive customer experience for those customers who have purchased an extended service and support plan from Apple, they will continue to sell our products."

Chuck Janning, co-owner of Maytag of Symmes Township, said he sells the manufacturer's extended warranty when customers want it, but doesn't push it.

"The company encourages us to sell them because they want to see us make more money," he said. "Sales people in big-box stores do push them, because they're on commission."

Janning said his store's markup on warranties is less than that of many retailers. Warranty providers such as Service Net sell the warranties to their retailer customers, who then have some flexibility in their pricing to consumers.

"The important thing is to make sure you're buying an extended warranty through the manufacturer, not through the store," Janning warned. "If the warranty is offered by the store, and the store goes out of business, you're stuck."

Weighing a warranty's worth

Here are questions a potential purchaser should consider when buying an extended warranty.

• Who pays for shipping? The warranty should cover shipping to and from the repair center.

• As a first step in trouble-shooting, is there round-the-clock customer support at a toll-free number?

• Which company is insuring the warranty? Make sure the insurer is an A-rated company, not a fly-by-night outfit.

• Who will do the repairs? Confirm that any repairs will be done by factory authorized personnel.

• Does the warranty include in-home repair? This is especially important if you're buying a large, built-in or complicated product.

• Does the warranty have a "no lemon" clause that will provide a replacement if your product requires more than an acceptable number of repairs?

• Does the policy cover normal wear and tear? Damage caused by electrical problems? All parts and repair?


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