Up Your Business - June - 2020

Third-Party Warranties – Don’t Get Tripped Up

Up Your Business is an exclusive GEARS Magazine feature in which I share stories, insights, and reflections about business and life.

“I’m having a problem with my transmission, and I have an extended warranty on my car.” Few statements will evoke more reactive feelings than a customer announcing that they have an aftermarket extended warranty or service contract. Most of these feelings are negative, but why? It doesn’t always turn out bad; does it?

Over the years, many repair shops have gotten the short end of the stick when it comes to dealing with aftermarket warranties and service contract companies. Just like in any industry, there are good ones and bad ones. The problem is that you usually don’t know which is which until you get stung. Some shops are so jaded that they won’t even deal with them, while others tell their customers right up front that they’ll have to pay for it and get reimbursed from the warranty company.

Taking either of the above approaches reminds me of Mark Twain’s observation, “If a cat sits on a hot stove, that cat won’t sit on a hot stove again. That cat won’t sit on a cold stove either. That cat just don’t like stoves.” Just because you don’t like extended warranties (hot stoves), you don’t have to pass up profitable jobs or risk losing a good customer by not being customer-centric. But you don’t want to get burned on an expensive repair bill either.

As an arbitrator for over 30 years, I’ve settled many disputes involving warranty companies. Of course, as a shop owner for over 25 years, I frequently dealt directly with warranty companies on behalf of my business and our customers.

In this article, I’m going to share some tips on how you can protect yourself and your customers when dealing with these companies.

TIP #1

The first rule of real estate is location, location, location. Well, the first rule in dealing with third-party warranties is communication, communication, communication. Almost every dispute I’ve settled as an arbitrator could have been avoided with better communication between the parties – the customer, the warranty company, and the repair shop.

Manage your customer’s expectations by explaining the process and potential complications. Reassure them that you’ve dealt with warranty companies, and they each have different rules and procedures for handling claims. Tell your customer that before you do anything, you’ll carefully review their contract and make sure to follow the procedures. Ask the customer for all their required maintenance service records.

Explain that you’ll serve as their spokesperson with the claims department. First, you’ll carefully document the diagnostic findings and existing damage. Then you’ll prepare an estimate of the price for the repairs, and that you’ll communicate with them and claims adjuster throughout the process to make it as smooth as possible for everyone.

Also, prepare the customer by explaining that some warranty companies are more challenging to deal with than others, and that they might not approve the repair work exactly as you recommend it. Furthermore, in some cases, they might not approve the repair claim at all. But remain positive and reassure them that you will do all you can to protect their interests.

Advise the customer that there will typically be certain things they’ll have to pay out of pocket – deductibles, co-pays, some diagnostic fees, and incidentals. But you’ll let them know before they incur any expense exposure.

TIP #2

For the most part, the contracts sold at the time of a new car purchase are fair-handed and straight forward. These contracts generally cover the major components for several years and 100,000 miles or more after the manufacturer’s warranty expires. You can avoid some of the trip points on these and virtually all contracts with the following practices.

  • Carefully read, don’t just glance over the contract. As you know, there are many varieties out there. The fact that car owners are keeping their cars longer has spawned a multitude of companies – some better than others, but all with one common interest – to make a profit.
  • Confirm that the vehicle is within both time and mileage limits. They’re typically very firm on this.
  • Determine if the customer may choose any repair center other than the dealer, or if the company must approve a non-dealer facility, first.
  • Proof of required maintenance services is going to be required, especially if the customer didn’t have the services done at the dealership.
  • Check to see if the problem is something that’s still covered by the original manufacturer’s warranty or under a recall?
  • Before sending a car back to the dealership for a covered defect, check to see if you can do the repair and get paid by the manufacturer.

If your customer has an aftermarket warranty, be extra cautious! By aftermarket, I mean the type of contracts that are sold by independent used car lots or by direct sales via TV commercials, direct mail, and telephone solicitations. These are the ones that make the too-good-to-be-true offers to cover repairs on vehicles up to 20 years old or with 150,000 miles or more.

Remember that their goal is to make a profit, and they know there will be mechanical problems on these older high-mileage vehicles. So, they’re going to look for ways to avoid paying claims. There’s nothing inherently wrong with making a profit, but making a profit by taking advantage of customers and repair shops is something else. They do what the contract says they’ll do, but what the contract says can be deceiving and confusing.

While not all aftermarket warranty programs are bad, many are, and it’s better to be safe than sorry. The trip points on these contracts are many and often well-hidden within the legalese of the agreement. The following list will give you a good idea of what to look for.

  • Beware of the phrase “Mechanical Breakdown.” If they only cover mechanical breakdowns, it could mean they won’t pay for repairs on a car with a problem, but it’s still operable – certain types of noises, for example. To exaggerate the point, if it even starts and moves, it’s not a breakdown.
  • Look for contradictions. For instance, the contract states that damage caused by leaks or overheating is not covered. However, as you know, leaks and overheating can be the result of the damage rather than the cause. So, which came first? If you report leaks or overheating, they’ll generally decline the claim. I heard a case where the company refused to pay because there was evidence of a coolant stain near the thermostat housing. They said that indicated that it ran low on coolant and overheated. The stain was from the thermostat being replaced with a new radiator over a year earlier, and it was not leaking, nor had the vehicle overheated since.
  • Similarly, they like to decline claims based on continued driving with a problem. Driving with a check engine light illuminated is a big one. The problem is, who knows how long the light was on? Many times, the light comes on, and the problem occurs before you can do anything about it.
  • Look at the provision that lists what is covered by the contract. The longer the list of what is covered, the more careful you must be. They’re attempting to make it look comprehensive with a long list. However, they exclude whatever is not listed, and that includes many more things.
  • Next, look at what is not covered. Usually, a short list of reasonable exclusions is preferable to a long list of covered items. This is the opposite of the previous scenario.
  • Beware of any clause that excludes damage that is the result of gradual degradation or normal wear and tear. This is vague, and many of these older high-mileage vehicles are already on the verge of a major component wearing out. • While some contracts cover electronics and computers, many do not. And if they don’t, they’ll generally exclude coverage on mechanical failures resulting from an electrical or computer problem.
  • Another catchy one is an exclusion on coincidental or consequential damage to a non-covered part or component. The real problem is when they say if a non-covered part or component fails and coincidentally damages a covered item, there is no coverage. This is like the overheating exclusion. If the cooling system isn’t covered and the engine is damaged by overheating, there is no coverage.
  • Exclusions on commercial or farm use vehicles is a common clause. However, in some states, those are the only two classifications of licenses for trucks and many vans. If that’s the case, they shouldn’t have issued the warranty in the first place.
  • They love to exclude coverage for “modified” vehicles. And they’ll stretch the definition of modified to include just about anything other than factory specs, including exhaust and suspension.
  • Related to this one is when the plan covers powertrain only, and they state that only the failure of internally lubricated parts is covered. They exclude failed seals and gaskets unless they are replaced as part of the repair and were not leaking before the failure. They’ll also decline coverage on an engine failure if the heads are warped – even if the head gasket didn’t fail. Put a flat edge on any used head, and there’ll be some warpage, that’s why there’s a head gasket.
  • Many companies will limit their exposure with life of the contract clauses stating: only one claim per component, the aggregate total of all claims cannot exceed a specified dollar value, or the total claims cannot exceed the value of the vehicle.

TIP #3

Be proactive and be prepared. If you discover any potential trip points, discuss them with your customer. Maybe they can explain or provide documentation that will provide a counterpoint. Prepare your presentation to the claims adjuster, so you don’t open the door to any of their wiggle room exclusions. You can count on the fact that they’ll use them. So, why not be prepared to counter them or cover them in your explanation.

They’ll often want to have an “independent inspector” look at the damage. This is to prevent fraud against the company but make no mistake, their inspector isn’t all that independent. When the inspector shows up, you need to be involved. Don’t let the inspector intimidate you. Try to get them to tell you what they’re looking for. Most won’t say much but be persistent – it’s your customer’s car, and you’re their representative.

Many plans state that they can replace a failed component with “like kind and quality.” This means they can order a used unit or authorize a “substandard” repair. If this happens, talk to your customer to see if they want to pay the difference to get it done right.

If they decline the repair altogether, don’t give up. Some companies will initially decline every claim. They probably decline all claims first and only pay all or a portion of disputed claims. They’re hoping the customer won’t fight them. When this happens, don’t roll over – help your customer. Often, you’re going to have to make a little more effort. Don’t be afraid to argue with them. Ask to speak to a supervisor or a VP.

This really takes some courage but ask them to describe a repair that would be covered. For example, “Please give me an example of a repair that would be covered on a transmission, in a 2008 Ford F-150, with 135,000 miles on it.” Then you can use their own exclusions to decline their example. For instance, “These transmissions are virtually worn out at this point. So, you’d decline based on normal degradation and wear and tear.”

TIP #4

What about getting paid? The best advice is to get paid before you release the car. Legitimate warranty companies can and will pay by credit card – sometimes, you’ll need to push a little. There’s nothing wrong with asking your customer to pay and get reimbursed from the warranty company. Most important, go with your gut. If you get a bad feeling about the company, protect yourself – don’t be a pushover. It’s your money!

About the Author

Thom Tschetter has served our industry for nearly four decades as a management and sales educator. He owned a chain of award-winning transmission centers in Washington State for over 25 years.

He calls on over 30 years of experience as a speaker, writer, business consultant, and certified arbitrator for topics for this feature column.

Thom is always eager to help you improve your business and your life. You can contact him by phone at (480) 773-3131 or e-mail to coachthom@gmail.com.