Secret Warranties and The Lemon Law

One of the defining attitudes of the American character is full exposure. Love it or hate it, very little remains hidden in the US. We don't like secrets at all. Much to the contempt of Europeans, Americans wear their hearts on their sleeves. Because of this we have often been misjudged and thought weak.

Automobile manufacturers cheat. You laugh and say things like, "no kidding!" or "what was your first clue?" Here's the important thing. Nowhere in the world, in no other country does the consumer have so many tools to right wrongs. Does this, however, create a contentious environment? To some extent, it does. It would be so much better if we lived in that best of all possible worlds where vehicle manufacturers and dealerships accept responsibility for their products and their service.

We demand of our manufacturers that they warrant that their goods are made to a high standard and that they are what the manufacturer advertised. It's hard to find a product that doesn't have some sort of warranty. The administrative parts of federal and state governments are littered with agencies whose charter is to enforce functional and quality standards.

What is a warranty?

1. Law.

a. An assurance by the seller of property that the goods or property are as represented or will be as promised.

b. The insured's guarantee that the facts are as stated in reference to an insurance risk or that specified conditions will be fulfilled to keep the contract effective.

2. A guarantee given to the purchaser by a company stating that a product is reliable and free from known defects and that the seller will, without charge, repair or replace defective parts within a given time limit and under certain conditions.

This is pretty straightforward. When you buy a new car it comes with a warranty. The warranty says that if it doesn't meet the standards set forth stating that the vehicle is what was promised, the manufacturer or its agents (dealerships) must repair it, and more than that bring it to the condition that existed before the defect(s) occurred.

An automobile may indeed last twenty years with perfect maintenance, low mileage and careful driving.

Prior to the existence of Lemon Law it was not unusual for manufacturers to compel the consumer to return the car for repair over and over; sometimes the consumer would take the vehicle back more than twenty times for the same repair. The consumer had no recourse. The playing field was terribly imbalanced.

To this point we have been talking about the warranties that come with each vehicle sold in the US. Warranties vary considerably from maker to maker.

There is another category of warranty you will never read about in your vehicle maintenance manual or warranty documents. These are called Secret Warranties.

Here's how it works:

1. The manufacturer does a little product homework, some surveys, focus groups, samples previous product data, and then has a look at what's working for the competition. (Yes, manufacturers steal from each other shamelessly)

2. A decision is made to build a new SUV. It doesn't matter a tinker's damn if this monster sucks gas faster than the North Slope pumps oil. If they think it will sell-read make a profit-they'll build it.

3. Production schedules are created and parts began arriving at the assembly plant. These schedules are more important to assembly management than the coming of the tides or assurances that the sun will rise.

4. The designers and engineers get to work. A lot of the tasks are farmed out to assorted parts manufacturers all over the world. Prototypes are made and as much testing as can be squeezed in, takes place. During these tests it is discovered that the turbo charger had a tendency to produce oil sludge. Sometimes as a result the turbo would fail. Occasionally the turbo would freeze, explode and spatter shattered components all over the countryside. (This is a real example.)

5. Enter the risk analysts, the statisticians and the actuaries. These are the fellas who roll the mathematical dice and determine what it will cost to repair these defective turbos or pay off the lawsuits if one of those exploded hunks of metal ends up buried in the driver's forehead.

So, the stats and risks guys say, not to worry, this problem will only happen to 5.628 vehicles in every 1,000. Most people will roll over when we tell them it's their fault and get it replaced at their cost. There are ways to deal with owners who make too much noise.

6. It's a nice looking car. The manufacturer spends enough money on advertising to support a medium sized country for a year. They sell lots of them. All is well in the boardroom.

7. After a few thousand miles, as predicted, the oil in the turbo begins to sludge and wouldn't you know 5.628 vehicles in every 1,000 begin to fail. No one said these stats guys couldn't do math.

8. As was predicted, some people got their vehicles repaired, some complained only to be told that it was their fault because they used substandard oil. Others, not that many, raised hell, called the BBB, wrote letters to the National Highway Traffic Safety Administration (NHTSA).

9. Thus we arrive at the moment of...wait for the mysterious music... "Secret Warranty". All of a sudden the service writer goes all decent and helpful. It's an amazing thing to see. It might go something like this. The service writer says, "You've been a really good customer, Mr. Jones. Let me talk to the manager and see what he can do." Still fuming, Mr. Jones snarls assent. The service writer comes back ten minutes later, just before Mr. Jones decides to get really loud. The service writer says confidentially, "I got the manager to call the District Manager and he has agreed this one time the manufacturer will cover all the costs of your repairs. Isn't that wonderful, Mr. Jones?" Mr. Jones is still highly annoyed but he wants his car fixed, so he lets them do it.

What's wrong with all of this? Of the hundred people who have the turbo problem, maybe two won't let the dealer/manufacturer screw them into the ground and make them pay for the repairs.

Yes, you are right! It is cynical and immoral, and it happens all of the time. There isn't one automobile manufacturer that doesn't have at least one Secret Warranty in place. Some of them have three or four for different defects.

Why do they do it? It's the oldest reason in the world. It's money, of course. Remember, Mr. Jones wrote to NHTSA? If NHTSA gets enough reports of turbos blowing up they can compel the manufacturer to issue a recall. When this happens, accountants and senior management guys squeal like they got their lips caught in a vice.

I have done a fair amount of research on recalls and I couldn't find one that didn't cost the manufacturer at least $5,000,000 dollars, and that is definitely on the low side. This is serious corporate pain and this is why there are Secret Warranties. They exist so that manufacturers can avoid recalls.

As a car owner, be very alert when someone at the dealership starts telling you it's your fault. Don't go into apathy and give in. Fight it. Do research. Find out if a Secret Warranty exists and make them use it.

Staff Writer: Norman Taylor & Associates

Categories: