Chapter 9: Warranty and the Broken Promise

Once a manufacturer’s original warranty expires, the average consumer will usually go to an independent shop for repairs and service, because prices are so much higher at an authorized dealership. Captive service contracts keep consumers coming back to authorized dealerships, even after the original warranty expires. Dealers have considerable incentive to convince consumers to buy these service contracts with their vehicles.

Service Contract Coverage

A service contract generally covers only things not covered under the original written warranty. It may be available at the same time written warranty coverage is in effect, but more often it comes into effect only after the original warranty expires. Most service contracts have language that specifically excludes anything still covered under the original warranty.

Like the original warranty, a service contract will cover a vehicle for a certain period of time or mileage. Usually, this does not exceed 100,000 miles. For example, a service contract might go into effect upon expiration of the manufacturer’s bumper-to-bumper warranty of three years or 36,000 miles, and continue until five years or 75,000 miles, whichever comes first.

Many service contracts provide less coverage than an original warranty. For example, they may not cover the full cost of repair, requiring the consumer to pay a deductible. They may also cover only major vehicle components, like the engine and the transmission, rather than the entire vehicle.

Few service contracts cover all repairs; quite often, common repairs for parts like brakes and clutches are not included. Under a typical bumper-to-bumper warranty, every component is usually covered unless it is specifically excluded. Under a typical service contract, however, a component is covered only if it is specifically listed in the contract.

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