CONSUMER ALERT

 MIKE COX

ATTORNEY GENERAL

The Attorney General provides Consumer Alerts to inform the public of unfair, misleading, or deceptive business practices, and to provide information and guidance on other issues of concern.

 VEHICLE WARRANTIES, EXTENDED SERVICE PLANS, RECALLS, AND SILENT WARRANTIES

Many Michigan consumers will pay more for their next new car than they paid for their first home.  Others will come close.  It is important for consumers to know the extent to which the manufacturer's warranty will support their investment.  Because many consumers will pay for the car over time that extends beyond the life of most standard warranty periods, they will be tempted to additionally protect their investment by purchasing "extended warranty" contracts or "service contracts."  Consumers should carefully study whether the offered contracts are cost effective.  This consumer alert will aid that study.

MANUFACTURERS’ WARRANTY

Most new vehicles come with manufacturers’ warranties.  While such warranties usually cover everything except normal wear-and-tear items like tires, brake pads, and filters, you should always examine and compare the specific written terms.  Manufacturers' warranties typically run three years or 36,000 miles, whichever first occurs.  Most require that an authorized dealer perform warranty work.  Some stipulate that routine maintenance must be performed at regular intervals.  Others include extras such as corrosion protection and roadside assistance. 

Most warranties do not cover vehicles if they are to be used as delivery vehicles, taxicabs, or other commercial purposes.  The cost of these protections is generally factored into the purchase price.  As a rule, more expensive cars will feature better warranties.  You may also have options for different levels of protection.

EXTENDED SERVICE CONTRACTS

Some companies offer "service contracts" to supplement new vehicle warranties or as added protection for used vehicles where the manufacturer’s warranty is expired.  These contracts should be reviewed with great caution.  The service contracts usually do not become effective until the manufacturer's warranty expires.  Unlike manufacturers’ warranties, service contracts are usually not comprehensive.  Consumers should be alert that some companies represent and advertise their service contract products as warranty products by using misleading names or terms.  For example, some companies advertise their products as a “limited warranty service contract” or as an “extended warranty” when the contracts neither extend the manufacturer’s warranty nor provide any warranty.  Rather, the products are pure service contracts.

Rather than listing components and claims that are excluded from coverage, service contracts may identify a short list of components and claims that are covered.  Service contracts may also place an upper limit on the amount that will be paid on a claim.  They may also impose complicated procedures for obtaining approval for covered repairs, including a requirement that the company selling the contract inspect the vehicle. 

Consumers should be wary of service contract definitions, restrictions, limitations, and other exclusions.  Many service contracts do not cover "preexisting conditions" or "normal wear and tear" and require the consumer to pay the cost of diagnosing the cause of a component failure.  Additionally, a number of service contracts will not provide coverage for a repair if one of the numerous noncovered parts contributes to the damage to a covered part.  For example, if the contract does not cover gaskets, a defective gasket that caused the engine (a covered part) to fail will lead the service contractor to a determination that the engine repair or replacement is also not covered.  

Consumers should pay careful attention to service contract terms that deal with reimbursement.  Will the consumer receive replacement value or merely actual cash value?  Is there an aggregate value or total dollar limit on the amount the service contractor will pay under the service contract?  Consumers should carefully consider whether the total costs of such a plan outweigh the likely benefits.

A note of caution:  Consumers considering purchasing an extended warranty or service plan that is not the manufacturer’s warranty should exercise extreme caution by checking the performance history and financial soundness of the plan being considered.  Michigan law does not regulate these third-party plans.  Purchasers of new automobiles, in particular, are often faced with the choice of purchasing an extended warranty offered by the manufacturer or from a third party. 

The manufacture’s extended warranty may be more expensive and of a shorter duration.  However, experience reveals that a number of third-party plans fail to perform their contract promises.  Some, while selling contracts to and taking consumers’ money, refuse to cover and pay legitimate claims.  Others take consumers’ contract money while the plan has inadequate financial backing or funds to pay claims and may eventually file liquidation or bankruptcy proceedings. 

Consumers should make inquiries about where the company has its headquarters.  Is it in the United States or in a foreign country where it’s remoteness insulates it from legal actions?  Find out about the company’s financial health.  What is the name and address of the risk retention group or other underlying insurer and where is that insurer located?  Check your local BBB and the BBB where the headquarters of the third-party plan are located to find out if the company is the subject of complaints; and, if so, did the company work to resolve it, or did it ignore the complaints? 

YOU HAVE THE RIGHT TO SEE THE TERMS OF THE WARRANTY OR SERVICE CONTRACT BEFORE PURCHASING

Federal law requires that the terms of any written warranty on a consumer product be made available to the consumer (or prospective consumer) prior to the sale of the product.  Additionally, Federal Trade Commission rules require that sellers of consumer products make the text of the warranty document readily available to prospective buyers. Before you make a new or used vehicle purchase that has a warranty, you should request to the see the text of the warranty and take the time to read its terms.

RECALLS

When a class of vehicles has a mechanical defect that violates federal motor vehicle safety standards or poses an unreasonable risk to safety, a manufacturer may be required to institute a recall.  Recalls are more common than you might think.  Since 1966, more than 215 million cars, trucks, buses, recreational vehicles, motorcycles and mopeds have been recalled for safety-related problems.  If a vehicle has been recalled, federal law requires the manufacturer to notify all registered owners and purchasers by first class mail, using state vehicle registration information.

The notice must explain the potential safety hazard and instruct consumers on how to have the problem corrected.  The manufacturer may offer to repair the vehicle, replace it with an identical or similar vehicle, or refund the purchase price, less a reasonable allowance for depreciation.  A manufacturer is not required to reimburse consumers for corrections that were made before a recall was initiated.

There are time limitations on the remedies available under a recall.  If a vehicle subject to a recall was first sold more than eight years after the recall was instituted, the consumer may have to absorb the costs of necessary repairs.  If you believe that your vehicle has a safety-related defect, you can inquire about possible recalls, or report what you believe to be a safety defect, by contacting the U.S. Department of Transportation's National Highway Traffic Safety Administration at 1-888-327-4236 (8:00 AM to 10:00 PM Monday through Friday), or on the Internet at www.nhtsa.dot.gov.

SILENT WARRANTIES

Sometimes classes of vehicles have defects that are serious but have not been the subject of a formal recall.  If such a defect is not covered by a manufacturer's warranty, manufacturers will sometimes advise dealers and authorized service personnel to correct the problem for free, or at reduced cost, by instituting a "silent warranty" or "warranty adjustment."  Silent warranties allow manufacturers to avoid the adverse publicity associated with product recalls.  They also limit the manufacturer's costs because they are communicated to dealers and service personnel rather than consumers.

To find out if your vehicle is the subject of a silent warranty, ask your dealer for copies of "technical service bulletins" that apply to your vehicle.  You can also call the manufacturer's regional office and ask if the problem your vehicle is having is covered by a warranty adjustment policy.  While only a handful of states have made silent warranties illegal, they are generally regarded as unfair and deceptive because they offer benefits only to those fortunate enough to find out about them.

Before you invest in a vehicle, consider the potential long-term costs of maintenance and repairs.  Make a point of knowing what a warranty covers and what is excluded from an extended service contract.  If your vehicle needs repair, always check to see whether the necessary repair is covered by a warranty, a recall, or a silent warranty.

FILE A COMPLAINT

Consumers with warranty or service contract complaints may contact the Attorney General's Consumer Protection Division at:

Consumer Protection Division
P.O. Box 30213
Lansing, MI 48909

517-373-1140
Fax: 517-241-3771

Toll Free: 877-765-8388