Ice-T, the longtime rapper and actor, looked relaxed and confident as he strode through an auto repair shop in a TV commercial for CarShield, which has sold more than 1 million extended warranties on automobiles.
“If you . . . don’t want to get stuck with expensive repair bills, then call CarShield,” he says as the telephone number appears on the screen. “I trust them with my car, and you should too.”
The ads are ubiquitous on cable television, often anchored by longtime sportscaster Chris Berman proclaiming that it makes economic sense to buy CarShield to cover expensive car repairs.
But does it really?
Q. What does CarShield sell?
A. It sells a kind of insurance: In exchange for your monthly premium, CarShield promises to cover the cost of repairs if your automobile breaks down (plus some extra benefits like towing and roadside assistance; a $100 deductible is required with some plans). Most automobile manufacturers provide a “factory” warranty on new cars that covers major repairs for up to five years. Factory warranties are tied to the vehicle and transfer with the car until the warranty expires. Extended warranties go beyond that period, whether you bought the car new or used. CarShield is one of the biggest companies selling extended warranties, with revenue of more than $140 million in 2016. (As a private company, it limits the amount of financial data it releases; it did not respond to my repeated requests for comment.)
Q. How much does it cost?
A. It’s comparable to what you probably pay for auto insurance (which covers damage to your car, as opposed to mechanical breakdown of your car). The average auto insurance premium in Massachusetts is about $100 a month.
Q. How can I find out what CarShield would charge me?
A. As part of my research, I called CarShield as an ordinary prospective customer. The sales representative asked me how many miles I had on my 2014 Ford Fusion (85,000), did I buy it new (yes), does it run OK (yes), and do I plan on keeping it (yes). To my surprise, the rep almost immediately gave me a quote: $129.99 a month. (That’s $1,560 a year; do you pay that much, on average, in repair bills? I don’t.) The next thing I heard from the rep: “How would you like to pay for that? Debit or credit card?”
Q. Are prices negotiable?
A. Apparently, yes, as I found out, even though I never asked for a lower price. When I declined to pay the rep’s initial price, he almost immediately offered the same coverage for $109.99, a 15 percent reduction. I said no thanks and hung up.
In the next few days, I received daily calls from CarShield, though I had not given the company permission to call me. (It obviously got my number when I called them.) First, a rep offered the same “platinum” plan for $99.99, and after I declined, another called later to offer $69.99, almost half the initial price. If CarShield can make a profit on $69.99, think about what it can make on $129.99.
I would have been impressed if a sales rep had cited a data-driven calculation for my premium, something based on the record of breakdowns and repair costs of my make and model. Instead, I got the feeling CarShield simply took a chance at roping me in at the highest price, and then tested me at every step down to almost half price.
The people I dealt with were courteous and pleasant, although it became a little annoying how quickly and how often they punctuated their pitches with requests for my debit or credit card information. One stood out by repeatedly and pointedly asking me if I “had thought about” how I was going to pay thousands of dollars in repair bills.
He even asked (rhetorically, I suppose) if I could pay for repairs with a credit card or from a savings account. I felt like I was being shamed by a voice on the phone.
Q. Does an extended warranty make sense for some people?
A. Maybe. Let’s say you have no savings and no credit, and you need your car to work. A sudden and substantial repair bill could mean losing your car and your job. You may be better off financially by skipping the extended warranty and putting aside money each month in a rainy day fund. But if you are living paycheck to paycheck, that may not be an option. It’s been said many times it’s expensive to be poor.
Other people may simply appreciate the peace of mind that comes with knowing repair bills will be covered.
Q. What exactly is covered?
A. Well, you’ll have to check the 17-page, 5,000-word sample contract available online. (The actual contract will come to you in the mail during a 30-day trial period during which you can cancel and get your money back.) The sales reps and the sample contract were consistent that “platinum” coverage included these items: engine, transmission, electrical, steering and suspension, air conditioning, and brakes. But you need to read your actual contract to know for sure.
Q. What doesn’t it cover?
A. About one-quarter of the lengthy sample contract details items not covered, including “normal maintenance” such as engine tune-ups, oil changes, brake pads and shoes, computer programming, and wheel and suspension alignment. Other examples of exclusions include damage caused by a lack of maintenance or by an act of nature; the normal wearing out of such components as valves, piston rings, and the transmission clutch; the breakdown or failure of parts not meeting manufacturer’s specifications or of parts damaged by parts not meeting specifications; and the cost of diagnosis and teardown if a mechanical breakdown cannot be verified. No claims are paid without prior authorization.
Q. How long does it last?
A. The sales reps said I could get a plan for a fixed monthly premium unlimited in time and mileage. But the sample contract leaves the contract period blank. If you are buying, make sure to discuss expiration date and mileage, if any. In its ads, CarShield says it won’t begin a contract on a vehicle with mileage of more than 150,000.
Q. Does an extended warranty save money in the long run?
A. One bit of research I found online says probably not. In 2013, Consumer Reports got 12,000 responses from a survey of subscribers who said they had purchased an extended warranty on an automobile. Consumer Reports said 55 percent of respondents reported they had never used it and that, on average, those who did use it spent hundreds more for coverage than they saved in repair costs.
Q. What about extended warranties in general, say, for major appliances or electronics?
A. Researchers at Northwestern University found consumers believe that a product is far more likely to break than it actually is, calling the purchase of warranties “irrational behavior,” especially in light of the cost, which can range up to one-quarter of the cost of the product itself.