Are Warranties Unwarranted?

[Nick]

In Most Cases, Extended Service
Plans Don't Benefit Consumers

Washington Post -- Sunday, October 1, 2006

You buy a $119 cordless phone system at Wal-Mart. As you are checking out,
the cashier asks if you'd like to put another two years on the manufacturer's
warranty. Cost: $29.

What do you do?

While consumer groups and common sense would urge you to resoundingly
reject the offer, an entire industry has been built on the likelihood that you
will act on impulse and say, "Yes."

Each year, millions of people gladly pay an additional 10 to 50 percent of a
product's original price to extend a warranty. These snap purchases help fuel
a booming, $15 billion-a-year business and feed a lucrative profit stream for
retailers that sell the warranties and companies that underwrite them. Many
consumers do so because they say the plans provide them with peace of mind.

The decision to buy an extended warranty, however, defies the recommendations
of economists, consumer advocates and product quality experts, who all warn
that the plans rarely benefit consumers and are nearly always a waste of money.
...

More @ WashingtonPost.com (http://www.washingtonpost.com/wp-dyn/content/article/2006/09/30/AR2006093000148.html) (registration may be required)

[Richard King]

When I worked in retail the extended "warranties" were the largest single profit item that could be sold. Needless to say, the spiffs to the salespeople were quite large. I never could push them with a clear conscience and never did. I even told management that I wouldn't do that.

[Stewart Vernon]

There are exceptions to everything of course... but generally speaking, the cost of these extended warranties or service contracts are studied and calculated by companies to be profitable... otherwise they would not offer them.

If an item costs $200, and they are willing to sell a free-replacement warranty for 2 more years of use that only costs the customer another $30 or so... then two things are built into the scenario:

1. Company is confident that most of their products will last well beyond the extended warranty, so they will incur little or no loss.
2. Since the product is so reliable, the customer would not be spending any more money on a new product during those couple of years because there would be no need.

So its a way to make some instant profit and relatively little risk PLUS get money from consumers that otherwise would not be spending money on a similar product during that time.

But from the consumer side... there rarely is an extended warranty offered that actually covers the kinds of situations that might occur during the life of the warranty... so it ends up mostly being an unnecessary cost.

[Steve Mehs]

I only consider extended warranty service on larger purchases, figuring out the length of time I plan to use the product, the cost of it, the cost of the warranty service, and what could go wrong.

In the past year (except for the computer that was 12/03)

Motorola 5.8Ghz Cordless Phone, Best Buy $80
No, hardly ever use the phone, if it dies no big deal

Apple 30GB iPod, Best Buy $300
Yes, I’ve read about the battery issues and for a three year extended warranty for $50 I felt it was well worth it, between that and the fact hard drives do die.

Compaq Presario Desktop PC, Best Buy $2500
No, against my better judgment, I did not get the three year extended warranty for $200, mainly due to the fact it would have put me over limit on my mothers Best Buy credit card and would have goofed up my 24 month no interest financing, but as long as it makes it until next year without a problem it will be worth it

Sony Grand Wega HDTV, Circuit City $2000
Yes, I went for the 2 year coverage plan for the bulb, and due to the fact LCD rear projection is still a new technology and you never know what can go wrong.

Cobra Radar Detector, Circuit City $200
No, Radar detectors are throw away items

Satellite Radio Receivers, Various
I buy new satellite radio receivers a few times a year, if one dies so be it, again throw away item.

[Stewart Vernon]

Usually when I am buying a product in a store, the salesperson has just finished telling me what a great product it is... and if I agree, then I buy it... so then when he asks if I want the extended warranty because "you never know what will happen"... I always ask don't they have confidence in the product he was just telling me was great? If it really is that fragile and can break so easily that he guarantees I will need that extended warranty... then I say no thanks to the purchase of that product :)

Interesting to watch them when their sales pitch backfires.

[lee635]

I look at the warranty offered on the item. Especially if it's only 90 days, I may not buy the item. It seems that electronics with a 1+ year parts and labor warranty invariably last longer and give no trouble.

Since we live in a small town, we often buy stuff out-pf-town at Fry's or where ever. If it's a big ticket item, I take the time to get a salesperson, carefully open the box, assemble, plug it in and turn it on, then go get a snack, come back 20 minutes later and see if everything works ok. Then, I box it up and buy it. Even did that with a hard drive (we stuck it in a spare pc). I paid the extra to have Circuit City install a stereo, just to make sure it would work before we left the store. Even with a warranty, it sux to have to cart a broken dvd player back on your next trip. Probably 1 in 10 times something is missing from the box or DOA, or doesn't work as expected.

I usually don't buy extended warranties because a 1 year warranty is enough.