Saab NINES Articles
Service Contracts
A few years ago, I wouldn’t have considered writing about Service Contracts but they are becoming more and more popular today and seem to be a mystery to most car buyers. When a Saab is purchased new it has a warranty of four years from the date of purchase or 50,000 miles, whichever comes first. Saab does a fine job with its product warranty so we will move on to the next stage.
If your new Saab was approaching the end of its warranty period, an extended warranty could be purchased. In most cases these can be purchased from an authorized Saab Dealer if you want to continue service with that network or you can buy the warranty/service contract from an independent dealer who has contracts that are generally good at any licensed auto shop in North America. These extended warranties or service contracts can usually be had for up to four or five years or 100,000 total miles. I’ll explain about these in just a bit.
If you are purchasing a used Saab there could be a product warranty or service contract at about any age or miles. Various dealers have different products available to suit the needs of their customers. Many dealers include a service contract or product warranty in the price of the car. The point of purchase is the best and sometimes the only time to obtain a good contract at a fair price. Contracts on cars with factory warranty remaining when purchased could qualify for bumper-to-bumper warranties up to eight years or 100,000 total miles with $0 deductible. Coverage with less time and a deductible would be more common. Price is always a factor on the longer term contracts, which are also called bumper-to-bumper coverage.
Product warranties are the easiest to understand. On a used car product warranty the car owner is given or sent a product that must be put in the car--usually an additive for the engine oil and another for the transmission fluid. There are even some companies that are using a radiator additive for these warranties. These products must be put in the car within a few days of receipt and then the warranty company will cover all internally lubricated parts of the engine and transmission. No seals, gaskets, alternators, starter or any other peripheral equipment is covered. Many times wear & tear is excluded as well. For example: the bands wearing out in an automatic transmission. Many of the product warranties wouldn’t cover the band unless it broke—a rare occurrence. Product warranties basically state if your car’s covered parts fail it is because the warranty companies product failed to protect the stated parts. In a way, these are like a major medical hospitalization plan. They don’t pay for anything small but take care of the catastrophes. They usually have no deductible but have fairly low total liability. Limits might be in the $1500-$2500 per incident and total claims for the life of the contract of $3500-$5000. These products also have very strict guidelines about oil changes and/or sometimes other services to keep the warranty in force. If you were to have a claim they would typically require all the oil change receipts. A usual requirement for oil changes would be for three months or 3,000 miles whichever came first. Missing a receipt? The warranty contract would then be cancelled!! These warranties are usually very reasonably priced for higher-mile, older cars. ( $400-$700 would be common) Many times this is the only type of warranty available for these cars. Some companies will provide coverage for up to five years or 100,000 more miles regardless of the age or miles where you are starting.
The next step up would be Stated Component Service Contracts. With these contracts it is as simple as this—they only cover the components that are listed. Most of these contracts will have a deductible. These range from $200 down to a disappearing deductible. (Disappearing deductible is $0 at the dealership that sold the warranty and usually $100 if the car is serviced at any other shop). These deductibles apply per visit to a repair facility. A deductible means you will pay the first dollar on any repair. If the component is covered, then the contract will cover the remainder of the cost. Limits of liability are stated and are often tied to the value of the car. Is important to note these limits. The service contract cost will range from several hundred dollars to as much as $2500.
Virtually all service contracts and product warranties require authorization to repair before they will pay for anything. Most companies will not pay for work accomplished without this pre-approval. It is critical to examine the size of the deductible. For example, a thermostat may be listed as a covered item. If you have a $200 deductible you would still have to pay the whole ticket because the thermostat costs less than $200 to install. If you had a $100 - $50 - $0 deductible you would then be able to have some claim for the service contract company.
The most complete type of service contract is called Exclusionary. Because these contracts cover almost all parts of the car they only list what is NOT covered. The general language in these contracts seems easy to understand but sometimes the parts terminology in the excluded list is difficult to understand. (We just had a case where a SID panel was considered by a warranty company to be a navigation device.) Once again, the contract would have some kind of deductible. These contracts are usually referred to as bumper-to-bumper. You have to understand that there really is not such a thing as bumper-to-bumper. (There are always exclusions) This is the most complete coverage you can buy. Once again, this type of coverage is usually only available for newer, lower mile cars. The older and higher the miles—the higher the prices for the contract. On these contracts it is usual to have the liability limits tied to the book value of the car and the cost of the contracts range usually from several hundred dollars to as much as several thousand depending on the time, deductable and miles purchased.
As with any product, these contracts are only as good as the company behind them. Car warranties are backed by regular, fully- funded insurance companies (regulated by each state that they do business in) or by a risk retention group (RRG). RRGs operate under different insurance regulations. RRGs only register in one state and abide by their laws for financial stability and with some permission are able to operate in all states. It is good to know who you are giving your service contract money to. Usually the purchase price of the contract is sent to the warranty or contract company. They take a cut and send the rest to an insurance or RRG company that administers the claims. If the contract company or their backers don’t stick to business, they can and DO fail. An RRG in Lincoln, NE failed this summer. They were the fifth largest RRG in the country and are now being liquidated by a court in the Grand Cayman Islands. They are believed to be carrying contracts for one million cars in the U.S. Unless there are some assets left after the liquidation proceedings, all these car owners will have nothing left but the paper that the contract was written on. The shakeout in the auto warranty industry is far-reaching. It is good to know who you are doing business with. If the prices are too cheap to be true they probably are!
Most service contracts have other features to add to their security. Most contracts offer 1) rental cars while yours is being repaired, 2) emergency road service, 3) lockout service, 4) trip interruption, etc.
Are service contracts necessary? In our culture warranties seem to be extremely popular. A few years ago we had only a few customers who opted for extended service contracts. Today we are seeing more than 90% of our customers purchase service security. It is very possible that the added strain on the cars from extended periods in congested traffic creates higher service incidents. Think about idling in a traffic jam for an extended period of time; the electrical system is running at its peak in very hot temperatures, the A/C is on, the headlights are on because of the running lights. All these things add to more service costs and since the odometer is not rolling up miles it would seem that the cars are not as durable as they once were. The reality is - and I believe - that they are much better. The older cars were not subjected to some of the tough driving extremes that we experience today. We also find that the price of parts has escalated so that service contracts are much more attractive. The security of a service contract protects drivers from unforeseen, large repair bills. Needless to say, all the contract companies have the actuarial tables and know exactly how much it costs to fix the cars. They do make money!! Service contracts may not be for everyone but they certainly can provide a certain amount of security for many.