In this episode of Drive Radio: The Extra Mile, John Rush and Luke Cashman take a deep dive into one of the most misunderstood parts of car buying: extended warranties and service contracts.
What’s the real difference between a factory-backed extended warranty and a third-party service contract? Why do dealerships push them so hard? And where is the real profit being made?
John pulls back the curtain on how F&I departments operate, why many “extended warranties” aren’t warranties at all, and how fine print can determine whether your claim gets approved — or denied. The conversation covers:
The legal difference between OEM
SPEAKER 04 :
This is Thrive Radio, The Extra Mile, with your host, John Rush.
SPEAKER 02 :
All right, welcome back. Another edition of the Drive Radio Extra Mile, I should say, or the Extended Mile. And reality is, this is an hour, and we’ve done it now for two weeks. This will be our third week. And we appreciate you guys listening, and I know you are during this hour, even though we prerecord this hour. So for those of you listening, yes, prerecorded. We do not take calls during this hour. I wish we did because it’s always easier. In fact, personally speaking, it’s easier for me to do a show that is not live or that is live, I should say, versus not live. I like live shows. It just makes things easier. But Luke Cashman is with me today. I’ve got several things to talk about. And as I said last week, it actually lasts two weeks, if there’s a particular topic that Something that you would like us to delve into a little bit more. And you guys are really good about this. You’re giving me almost weekly now. In the last two weeks, you’ve given me ideas for future shows for this Extra Mile program. So thank you for that. And this one today is because of that. And it ties into our last two shows that we did. The first one I did was on new car purchasing and how can you save some money along those lines and what do you do at the dealership and all the ins and outs of that. So I appreciate that. all the feedback that I got on that particular hour as well. Last week talked about used cars. What’s it take to buy a used car? All the ins and outs of that. So today I’ve got two topics. I’ll do my best to get to both. I may not because Luke’s going to chime in here on a few things. So it just depends on how this goes. We may get to both. We may not. First topic I’m going to cover today is and I call them extended service contracts instead of extended warranties. And I’ll explain the differences between those two. So I guess you could say extended warranties will be our first topic. And then I’m going to cover gas. What type? What did you use? I had a question on that earlier this week and actually had a newsletter that was sent to me by somebody. Porsche had sent out a newsletter talking about top-tier fuel, using that only in Porsches and so on. So anyways, I will get into that if we have time. And if not, there’s another week. Again, some of these things, these particular topics, we’re going to spend plenty of time on. And as I said last week, if there’s a particular topic that you would like us to cover, by all means, either send me a text message, go right to the website, drive-radio.com. We’ll have these segments up on there as well. And once again, if there’s something you’d like us to talk about, please do so. So, extended service contracts. Now, I’m going to break this up new versus used and do it in that order because of the last two weeks and how we broke that up. So when it comes to extended service contracts versus an extended warranty, they are two different things. Now, in a lot of cases, especially buying a new car, the dealer will make it sound like they are one and the same. Now, legally, they cannot sell an extended warranty outside of the original manufacturer of said vehicle because it’s extending the current warranty that’s on that vehicle. So I know we call them extended warranties, but in most cases, they’re not. I didn’t look this up. I apologize. I probably should have. I don’t know if I could even get this data. In other words, how many extended service contracts versus extended warranties are sold at dealerships, I’d like to know what that ratio is. Because typically the OEM extended warranty is more money, costs more, at that time than an extended service contract does. And so what a lot of the dealerships will do is they’ll sell you on, well, you know you need X. And I’ve heard the spiel. Well, you know this car’s got 15 computers on it, so if any one of those goes out, it could be this, this, this amount of money, and blah, blah, blah, blah, blah, and that’s why you need this. And the first thing I think of, by the way, is, well, then why am I buying a new car? Luke’s laughing at me, but does that not make sense, Luke? No, absolutely. It’s like, okay, if I’m buying a new car, and you’re basically telling me that you’re not selling me a very good product, and I need a quote-unquote service contract or an extended warranty on this because of all of the problems said car might have, well, then why am I buying the car?
SPEAKER 05 :
No, this car’s great. It’s perfect. It’s everything you’ll ever need, but you also need the extended warranty because it will break on you.
SPEAKER 02 :
And what they tell you isn’t much different than what Luke just said, everybody. And I know we’re kind of making fun, but… But he’s not far off in what he just said because a lot of dealers will really couch it in that way. And I’m one that comes back and says, yeah, you don’t need it. And I’ll explain in this particular episode why you don’t need it. It sounds like they’re trying to sell you a house.
SPEAKER 05 :
The house is move-in ready, but also there’s black mold in the walls.
SPEAKER 02 :
Correct.
SPEAKER 05 :
You can’t say both of those things in the same sentence.
SPEAKER 02 :
So you’ve got to buy this to cover that. Yes. No, you’re exactly right, Luke. And that’s one of my pet peeves. And then the other thing they will say is, listen, you know, I can sell you an extended service, extended warranty through, you know, General Motors, Ford, whoever it is. Oh, but we’ve got a better option. Actually, costs less, covers more, and here’s what it runs. Now, some of you are thinking, then if this is just – and I don’t want to call it a scam because you are buying a product. Scams are things that you never get anything in return for, okay? That’s a scam. These aren’t scams. You are getting a product that you’re buying. I’ll get into some of the ins and outs of said product in a few minutes, but you are buying a product. So I don’t want to say that they’re a scam, but keep in mind – that at the dealership level, and this is true new and used, but really more so new car, there’s not a lot of profit in a new car sale. You would think that somebody goes out, the average price of a new car right now is $55,000, meaning some are less, some are more, but average price around $55,000. And most people think, oh, man, they’ve got to be making 15%, 20% on that car. They’re not. They’re not. In some cases, they might be doing well to make $1,000 on that car. And I’m not exaggerating. So it’s more like 5%, not 10%. So a lot of people think there’s a lot of money in the selling of the car. There really isn’t. And most dealership heads, owners, and so on, managers, will tell you what I just said. They will verify that. Where dealerships make their money is the add-ons. OK, what I mean by that is the ceramic coating that they just tried to sell you, the window tint that they just tried to sell you, the paint protection film they tried to sell you, the service contract that we’re talking about right now, the financing on the car and gap insurance. You get my drift. It’s when you get into the F&I, the hot box, we call it. When you get into the hot box, that’s really where the profit for the dealer comes in. And by the way, I’m not trying to slam any dealers. And I know there’s dealerships that will be listening to me and probably even maybe some manufacturers at times. I’m not trying to slam anybody. These are just the facts. This is how it works. Now, I will also say this. There’s some really great dealers out there that I think do a really good job, and it’s not a hot box. And you do go in and talk to somebody that’s very knowledgeable, and they do explain everything to you in a way that you can understand it. And whatever you decide to buy, they’re okay with, and out the door you go. And there’s no high pressure. But unfortunately, that’s the minority of what you find. Most of the time, you get into the hot box, and we call it that for a reason, because in some cases, they will, in fact, raise the temperature up a little bit. They do make it a little bit more uncomfortable. You’re already nervous because you got stuffed into a small room already, and the F&I guy is really trying to push gap insurance and extended contracts and, and, and. Wheel locks and all this crap. I’m sorry. Everything they’re trying to sell you, you can go do on your own for less money. By the way, including if you’d like to buy an extended contract. Now, somebody also asked me about CarShield. Similar situation. I’ll get into that more on the used car side. But here’s my feeling on contracts and warranties alike. Now, I’m going to explain that again. Just make sure everybody’s clear. The only person or the only company… that can sell you an extended warranty, meaning they’re taking the existing warranty. Let’s say it’s a three-year, 36,000-mile warranty, and they’re moving that out to five-year, 100,000, whatever. Don’t know what the terms are. Every one of them is going to be a little different. But whatever they’re doing, that is in fact if it’s sold through the manufacturer so if you buy a jeep and jeep is saying we will extend that warranty you know beyond the 3 and 36 to x and it’s this much money and it changes your payments by x amount that’s a legitimate extended warranty okay Unfortunately, there’s a lot of F&I departments that will sort of mimic, if you would, in the sale process, that extended warranty, and you’re buying a service contract. Third party. Meaning, the manufacturer is not selling you that. And if you’re ever going to buy… and you feel like you need one. Maybe you’re just that person who always has bad luck. I don’t know. You feel like you need to have some sort of an extended warranty on the new car you’re buying. If you’re ever going to buy one, spend the extra money and buy the factory one. Buy the OEM one. Don’t buy anything else. And I mean that sincerely. I don’t care. And I’m sure I might get some emails on this from people saying, oh, I had a really good experience with this company and that company. And you know what? That might be true. But here’s the problem. The company that you had a good experience with might not even be sold at that dealership you’re buying the car from. So for some of you that might say, well, I had a great experience. Well, good for you. I’m glad you did. Not everybody does. And coming out of that world and even owning repair shops for 30-some years and coaching them today, I will tell you that there are some extended service contracts that are really good, and there are some that are awful. And I’ll get into some of those details. So first things first, if you’re going to buy one, Make sure it’s the factory extended warranty. In other words, when you’re signing the paperwork, if you bought a new Ford and you’re buying an extended warranty, it will say all over it, Ford extended warranty, blah, blah, blah, blah, blah. Here’s what it’s covering. Here’s the ins and outs, et cetera, et cetera. And you know it’ll say Ford all over it. Ford Motor Company extends this warranty by on and on we go. It will be literally right in front of your face. If it’s a service contract, and again, they can’t call it a warranty because only the original manufacturer can warranty said vehicle. And there’s a difference between a contract and a warranty. So the service contract, by the way, it’s got all sorts of stipulations in it. And every one of them is going to have different fine print as to what they will and or will not cover. All of them, to my knowledge, including in this case Ford, will require you to still do your standard maintenance, required maintenance on said vehicle or the warranty is void. In the case of a service contract, it’s void. So, in other words, if you drive the car, you know, 20,000 miles and don’t change the oil and the engine blows up, It doesn’t matter. You’re not going to get it warrantied under the original warranty. You’re not going to get it under an extended warranty or a service contract. You’re done. You didn’t meet the requirements of what said warranty said you needed to do to have that in effect. Now, one other misunderstanding that’s out there, and I do cover this quite a bit, but I haven’t done this for quite some time. There is a law, Magnuson-Moss Act, of years ago, and the example is that they use is a washing machine as far as warranty goes. whereby said washing machine company says the only way we will warranty this machine and keep its warranty in effect is if you use our soap. In other words, you’re buying a new XYZ machine. The only way that XYZ machine, that warranty will stay in effect is you have to buy XYZ soap. And they passed a law saying that if that company requires you to use XYZ soap, they have to give it to you free. That’s the law. So, my point is, in all of these extended warranties or service contracts, you, as an owner, have the ability to get that maintenance done anywhere you like, including yourself, if you’re able to do so. You cannot void the warranty by doing your own oil change, for example. Now, you’ll hear a lot of folks inside of dealerships insinuate, they won’t come flat out and tell you, but they will insinuate that the best way, this is how they say it, the best way for you to keep your warranty in effect is have us do your service. See what I said there? I didn’t say you have to, but I sort of insinuated that you don’t really have much choice. And if you do it any other way, you might have a problem. Now, that’s not true, and as long as you keep good records, so even those of you that do your own oil changes, as long as you keep a log, keep some receipts of the oil and the filters and so on that you buy, but if you’re keeping a log and keeping track of all of that and you’re doing it as you’re supposed to, which we talk about that on Drive Radio all the time, and that kind of comes down to driver and vehicle, so I’m not going to get into those details, but if you’re doing proper maintenance, in this case an oil change, and something happens to the engine and you can prove you did the oil changes on time as they were supposed to be done, you’re still good. Doesn’t matter whether you have a quick lube do it, if you have one of our drive radio affiliates do it, whether you do it yourself, whether your uncle does it for you. It doesn’t matter. As long as it’s done and it’s done properly and you can document the fact that it’s been done, you won’t have any issues whatsoever. You’ll be fine. And again, there’s a lot of misconception around that because the dealers themselves, I’ve had some of you even text me and email me and give me the exact wording of what the dealership said. And in some cases, they’re as blatant as if anybody else does the work on this vehicle, you’re voiding your warranty. That is just not true. It’s a lie. And frankly, I wouldn’t do business with people that say that. The problem is a lot of times you won’t hear that until you’re getting the tour of the facility, which is required when they sell you a new car. You may not hear that until after you’ve closed your deal. Deal’s done. Getting the handshake, getting the keys handed over. Oh, let me take you a tour of our facility, by the way, in case you ever need anything, warranty work or maintenance. Let me take you on a tour of the facility. That’s what they’ll do. They’re supposed to. And that’s when what I just said may come up. So I just want to get it out there and make sure that we set the record straight. No, you do not have to use them to do any kind of maintenance on said vehicle. And they are the only ones that can perform warranty work, period, and recalls and so on. Your independent auto repair shop cannot do warranty work, period. There are some exceptions to that. You’re out in the middle of nowhere. There’s no dealership nearby. You’ve got to get something taken care of. That particular facility has the ability to do so. You might be able to get reimbursed for something along those lines. That’s a case-by-case basis. My initial thought is typically there’s a dealer close enough. You should just go to the dealer because working through what I just said becomes a nightmare. So at the end of the day, those are the two differences when you’re buying a new car, whether it’s an extended service contract or an extended warranty. I’ll talk about the car shield stuff here in a moment because that kind of goes along more with the used car side. But that’s the gist of a new car and how the warranties work and so on. So, Luke, questions on that at all?
SPEAKER 05 :
No, no. I mean, I think you laid it out pretty cut and dry, pretty easy to understand. I guess my only, maybe not question, but my concern is… When you’re getting calls, I mean, you hear it all the time. We’re here to talk to you about your car’s extended warranty. Almost always a scam. Yep. But if you’re someone who has purchased an extended warranty through the manufacturer or a service contract, and someone is legitimately trying to contact you, how do you determine what’s going to be the scam? And then what’s a legitimate conversation about the product you’ve purchased?
SPEAKER 02 :
Great point, because sometimes – you bring up a great point, Luke. Sometimes even the original manufacturer – I know for a fact Ram, for example, as you’re getting close to the end of your initial warranty, 3 and 36 in this case, you may be at 28,000 miles or so, and they kind of know how much you drive, and there’s telematics that even kind of tell them that, time-wise and so on, so they know some of these things. And this is where it gets interesting. Great question, by the way, Luke, because as an owner of some said vehicles along these lines – You will get a legitimate email, text message, or phone call from, in this case, RAM. And you’ll get unlegitimate solicitations. And they’ll even use some of the branding, which they’re not supposed to do. It’s illegal to do so. But they will mimic, to Luke’s point, these are the scams. They will mimic… A Ram logo, for example, or they’ll change it just ever so slightly where maybe they’re not violating. They really are. But maybe they’re technically not violating a copyright law, things along those lines. But they’ll make it look as close as they can and make it seem like you’re actually talking in this case to Ram and you’re not. So great question, Luke, because it really is hard to tell. So the first thing that you should do if somebody calls you and you’re really interested, well, number one, if you’re really interested in buying an extended warranty in this case for your new car that’s getting close to the end, which in a lot of cases you can still buy at that point, just contact a dealer. Or contact, there’s an 800 number in your owner’s manual. You can contact that and say, I am interested in extending the warranty, use those exact terms, on my blank. Okay. And in most cases, they will get you a department that can help you with that. And in a lot of cases, probably do it a little bit cheaper than what you would do at the dealership because they’re not paying commissions or anything on that. It’s coming directly from them to you. So great question, Luke, because you can do it. So my point is, just don’t pick up the phone or don’t answer the emails. Just don’t go down that path. If there’s something that you want to do along those lines, pick up the phone and initiate a phone call. Don’t answer those calls or texts or emails coming in. Luke is correct. The majority of those. that come in. In fact, I would probably say 90% of those coming in are scams. Yeah. And they might be selling you a product, but it has so many holes in it that at the end of the day, you don’t want to own it. Trust me. So that was a great question, Luke, because I don’t think most people really understand that you can even buy an extended warranty on your new car. Now, one caveat to that, and I know I’ll probably get some emails on this. So before I do, In some cases, there’s a time limit inside of that new car warranty as to when you can buy the extended warranty. In other words, you may not be able to buy it at, you know, it’s a three-year, 36,000-mile warranty. You’re well under your time, but it’s got 25,999 miles. Sorry, 35,999 miles. You may not be able to buy it at that point. There’ll be stipulation. So my thought is if you’re interested in that, you’re into like year one and you’re thinking, you know, well, you know, maybe, you know, I don’t know. I just have a feeling that I might have some other issues and I want to make sure I’m covered and so on. And yeah, I hear what John says, but I just would feel more peace of mind by having an extended warranty on this. OK, call the manufacturer and buy one. And do it exactly that way. Do not do any of these other third-party folk because, frankly, at the end of the day, there’s enough holes in them that I just wouldn’t go there. So that’s a great question, Luke. All right, let’s do this. We’ll take a quick timeout. We’re going to come right back again. This is Drive Radio, The Extra Mile. We’re talking about extended service contracts versus warranties, new cars. I’m going to talk about used cars in just one moment as well. And I’m also going to tell you how and why you shouldn’t buy these but what you should do instead as soon as we come back.
SPEAKER 03 :
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SPEAKER 04 :
This program was recorded earlier for broadcast at this time. No phone calls can be accepted.
SPEAKER 02 :
All right, we are back. Drive Radio, Extra Mile. Thank you guys for listening. I appreciate it very much. And you can send this episode on to others, by the way. Just go to drive-radio.com. Look for the episodes there. And you can actually send this off to a friend or relative or somebody you might feel would benefit from doing so. So I said a moment ago. Then I’ll get into a little bit of the service contracts, what they mean, some of the outs and different things. And as a provider working with a lot of these companies over the years, I will tell you that some are decent. They’re not all bad. And I want to make sure that I’m clear on that. I’m not throwing all of them under the bus. But some are. Some are downright awful. I mean, I have heard stories from some of you even calling in to drive radio, talking about some of the horror stories when it comes to some of these service contracts and what they would and wouldn’t cover when it actually came time to use it and so on. So some of you have had really great experience. Some of you have not. Now, what should you do instead? This is especially true in a new car. Do your maintenance properly. So budget accordingly. And this is really important when you go to buy that new car. Make sure… Like a new house, you’re budgeting in all of the other things it takes to own said car. Insurance, registration, what do I set a brakes cost, what do I have to do with tires, what are my oil changes going to be, on and on we go. Make sure that you’ve got your bases covered so you can do the proper maintenance. Because, frankly, if you do proper maintenance on the majority of cars today, you don’t need an extended warranty. And I mean that sincerely. And I’m not trying to boast here, but we have a large fleet, buy a lot of new vehicles, and the reality is we have very few problems outside of the original warranty. If you’re going to have a problem, typically it’s in that 3 and 36 window anyways. So outside of that, we don’t have too many problems. And I don’t buy extended contracts or extended warranties. And frankly, I don’t on anything. It’s like you go to Home Depot and you buy a power tool. And what’s the first thing at checkout, even if you self-checkout, what’s the first thing they’re asking you? Would you like an extended warranty, extended contract, adding blah, blah, blah, blah, blah. Amazon, Home Depot, I don’t care where you go. Best Buy. They all want to sell you a warranty. And in some cases, maybe you would feel good having it, but I’m always one of those where it’s like, you know what, I’ll just take my chances. I know there’s no maintenance you do on a big screen TV, for example, but really, what’s the chance of it failing outside of its regular warranty? If it makes it through the burn-in rate, they call it on electronics, the burn-in time, your chances of having something go bad down the road, and by the way, they’re getting cheap enough that even if it lasts two or three years, it’s going to be half the price it is today, so who cares? In fact, it will probably be the price of what the warranty costs. So why buy it? And I’m kind of that way on everything. I don’t buy extended warranties or service contracts on anything I buy, from vehicles to washing machines. I don’t buy them.
SPEAKER 05 :
They wouldn’t offer a warranty unless it made them a stupid amount of money. And it does. And it makes them so much money. That’s the only reason they’re offering it. It’s not for your benefit.
SPEAKER 02 :
It’s so they can make money off of you spending an extra couple bucks and then never using it. In fact, Luke, I think it’s fair to say most of these companies… make far more money off of the extended whatever that they’re selling than said product. And I’m not exaggerating when I say that. The amount of money, Luke is correct, it’s stupid, the amount of money that’s made on extended service, you know, warranties, contracts, things like that. So, and you’re right, if it wasn’t a stupid amount of money, they wouldn’t do it. So where Luke is going with this is, They know the actuaries. They know how much money they’re pulling in. They know how much money they’re pushing back out on non-normal warranty items. In other words, every one of those machines or electronics or whatever has an original warranty anyways, which they know they’re going to work inside of. So when it really comes down to how much money do they actually spend on those particular devices inside of that contract, not as much as you think. And Luke is correct. If that were the case, they’d be broke. They’re not. It’s the opposite. And I should have taken the time. I may, during our next break, look that up to see exactly how much money is made. How much money do companies typically, on average, make on extended service contracts? And Luke, I would bet you that it’s a larger number than most people think. So I’m just one that I just don’t do it. So I am, though, a big one on how… I’m big on doing the proper maintenance. And again, on electronics, there’s no maintenance that you do. It’s more of a luck of the draw. But when it comes to even washing machines and things like that where there are things that you do maintenance-wise and so on, I’m just big on if you do the maintenance, you don’t need anything else. And Luke, it really does come down to that. And it’s true with most things. Anything that has moving parts, that’s pretty much all it is and all you need to do. And the problem is they don’t teach you that because they don’t want you knowing that. Because if they did, they would. Now, I will tell you a company that did a really good job of teaching their people how maintenance works. And frankly, I feel like it’s one of the reasons why they have been touted as one of the best vehicle manufacturers probably in a long, long, long time. Probably still hold the number one spot. Toyota. Toyota for years did a fabulous job of of teaching their people, this is what you do at 15,000 miles, this is what you do at 30,000 miles, this is what you do at 45,000, you get my drift. They did an extremely good job of teaching their people, their customers, these are the maintenance things you’re going to need to do on said vehicle. While most every other manufacturer at that time, this is all the way back into the 70s and 80s, back then, when it breaks, fix it. That was their motto. They didn’t teach you anything about doing regular maintenance or push that hard on the dealership level. And in turn, Toyota started to lead the way in customer satisfaction and their ratings. Now, did they build a good car? They absolutely did. But they also taught their people how to keep that car good, if that makes sense.
SPEAKER 05 :
Because Toyota also, I’m a big Toyota fan, they’ve also done an exceptional job at manufacturing the vehicle specifically so people who aren’t necessarily trained can easily access those maintenance pieces.
SPEAKER 02 :
True.
SPEAKER 05 :
I’ve worked on a couple Audis where you have to dig your hand way up into the engine to unscrew the oil filter versus a Toyota. It’s like they have a nice little cutout slot for you, very easy, very user-friendly approach. to designing their vehicles for self-maintenance.
SPEAKER 02 :
You’re right. And while Luke was just talking, I did look up. This isn’t an overall number. It’s just the profit margins and how much money each company on average is making on their extended warranties. On electronics and appliances, the profit margin is about 15% to 20%. That’s typical for the retailer on the product they’re selling. The extended warranty is more than 200%. So they’re going from a 15% to 20% profit to a 200% profit, Luke. Global extended warranty market is estimated to have average margins in the 50% to 70% range in some sectors. For car dealers, one review notes that dealer commissions on extended warranties can approach 50% of the total price. And on the retail side, i.e. Best Buy, their warranties were over 2.8% of their revenue. And given such high margins, they contributed to a large share of their operating profit. Meaning, they make a boatload of money, as Luke said earlier, on these products. So, you guys all know me. I am not against people making money. Not on any level. But for me personally… I just don’t think these are necessities, and they’re pushed in a lot of ways, and they make it seem like you have to buy this, otherwise you’re going to be shortchanged down the road. And that’s how they try to get you to sell it. And by the way, it’s everywhere you go and buy. I mean, you might buy a T-shirt and not be asked that, but if you buy anything else, go to Harbor Freight, for example, go anywhere, and they’re going to ask you, do you want to extend the warranty on such and such? And in some cases, it’s like, I only paid $3 for that. Why would I want to extend the warranty? And I’m exaggerating a little bit, but it might be $30. It’s like, I just paid $30 for something. If it goes bad, I’ll buy another one. I mean, I’ll take my chances. Who cares at the end of the day? And I get it. A car is different. And the problem, though, and this is what I’m trying to teach you guys. A lot of people go in, and I’m reminded of this occasionally from my own family, my wife. I’m never nervous in a car dealership. Ever. I grew up in one. To me, it’s like a second home. I don’t even think twice about it. I can walk in the door and feel just as at home as I am in my own home. And I’m not exaggerating in the least when I say that. So when I walk in and I’m trying to put a deal together on whatever it is, I’ve even helped other people make deals. It’s very natural for me and I don’t have any intimidation, no trepidation, no nervousness, no nothing. It’s a deal. It’s a conversation and a deal, and if we can make a deal, great. If not, I’ll go somewhere else. For me, it’s that simple. Now, I understand not everybody has that same mindset. And, again, my wife and others remind me of that. My wife makes fun of me sometimes. She’s like, you live in another world when it comes to this stuff. You have no idea the amount of stress and anxiety most people go through when they go to buy a car, new or used. And so I have to sit there for a minute sometimes and think, okay, yeah, you’re right. I don’t know that I’ve ever experienced that. Now, I’ve experienced other types of anxiety, and then I can relate to it. For example, I don’t like going to the doctor at all. That gives me anxiety. I don’t get anxious over too many things, but I don’t like that. Now, Dr. Scott, who’s one of my sponsors, a little different with Scott, and once I’ve gotten to know him, I don’t even have that anymore. But at one time, did I get nervous going to the doctor? Sure. Because you never know what the outcome is going to be. It’s that unknown. And I understand that when you go to a dealership for a lot of people, it’s the same unknown. I get that. And what I’m trying to teach you guys, even in this extended contract, extended warranty end of things, is to not be nervous about it. Look at it as a deal, period. It’s that and that alone. And by the way, you can say no all through all of this process and walk out the door. They cannot, you know, here’s in Colorado and around the nation, they can’t take your keys. It’s against the law. So if you’re trying to leave and they have your keys and they won’t give them back to you, call the police. Call 911. Hey, I’m at a dealership. I feel like I’m being kidnapped in a way because they’ve got my keys. I’m ready to leave. I’m not buying the car, and they won’t give me my keys back. That’s a 911 call. That’s not even the other phone number call. That’s a 911 call. I feel like I’m being kidnapped because they won’t let me out the door. They won’t give me keys. Trust me. An officer will show up quickly, and that situation will be resolved, and you’ll leave. They cannot, no business can, handcuff you to the place until you buy something. So never feel obligated to buy anything no matter what you’re doing when you’re at a dealership, new or used. And I’ve said this for years. If it gets to the point where you feel that way, leave. Leave. And if I go back to the original things I talked about over the past couple of weeks, if you’ve given yourself ample time to buy said car, you have plenty of time to walk out the door and go look someplace else. That simple. So, in this case, though, you can, no to gap insurance. No, I’m not buying extended service contract. No, I’m not buying extended warranty. No, I’m not buying window tint. No, I’m, you get where I’m going here. It’s no, no, no, no, no, no, no. It’s like being at a timeshare. No, no, no, no, no, no, no. Get me out of here. It’s no different. And at the end, guess what? The F&I guy is going to look deflated. He’s going to look like he just lost his best friend. He’s going to be a little upset because you’re not helping him with, as I just noted, some of those commissions are really high. That’s a big portion of where his salary, where his money is coming from. And yes, is he going to be disappointed that you didn’t buy anything? Yeah. Yes. He or she is. Absolutely. You know what? There’s another customer coming in right behind you. They can give that their best shot. You, as my listeners, as my family, I guess this is how I look at all of you, I don’t want you being taken advantage of these things, and you don’t need to spend extra money. Spend it on something else. Spend it on maintenance. Spend it on other things you could do to the car. But you don’t need to buy these things. So I’ve covered so far the differences between the two, the extended warranty versus a service contract, and I’ve done that on the new site. Now, let’s move over to the used site. Because it gets worse in most cases. Because once again, the used car dealer, even though, believe it or not, they’re making as much money on the used sale. This is true at a dealership, new car dealership. They’re making more money on the used car than they did the new car. That’s the way used cars are. That’s why there’s a lot of used car dealers out there. The average markup profit, I should say, on a used car is anywhere from three to five grand. which is probably in some cases triple of a new car. And again, I’m not exaggerating, folks. I know the industry. There are exceptions on the new car side where a dealer may make more money than that. But on average, that used car is going to bring two to three times more. than what the new car sale will. That’s why dealers will take your car on trade. They want that car. In fact, in some cases, they might get you a little bit better deal on the new car side if they put a little less money into your car, meaning they can make that back up on the backside by selling your car, they will. Now, this is also just a side note. You hear me talk about this a lot. If you want to maximize the amount of money you get out of your current car, take care of it. And I mean take care of it. Vacuum it regularly. Have it detailed if you don’t like doing it. Make sure that it, you know, just got a text message a minute ago from Roy over at ProTech Auto Shield. Have him detail it and or wax and wash it and ceramic coat it or whatever you want to do along those lines. The better you take care of your vehicle, in other words, when you go to sell it or trade it, the better it looks and the better maintained it is, top dollar. Which again, no different than a house. What houses bring the most money? Those that are turnkey. Somebody walks in, doesn’t have to do a thing, moves their furniture in, done. Those bring the most money. You get to a house that, well, you know, it needs some carpet. Well, you know, I need to update the kitchen. Oh, that bathroom’s looking a little bit edgy. Oh, you know, we need to do some landscaping. Okay, what I just said is the price comes down. Same is true with your car. Oh, man, that car needs tires. Yeah, you know, it’s got a big old dent in the right rear quarter panel. Oh, you know, man, it needs a windshield. I can see a big old crack all the way across the front of it. Oh, man, I can see that they really haven’t taken very good care of this thing because it’s filthy dirty on the inside and out. In fact, it smells. It’s a big one, too, by the way. People don’t like smells. Keep the car where it doesn’t smell. Now, I’ve never talked about this much on Drive Radio. I hate car fresheners. I will not use them. And here’s why. I don’t like the smell. Going back to that, I have learned, and I’m a very particular guy. Luke can vouch for that. I’m extremely particular, especially with my cars. I will tell you this. If you keep your car clean, in other words, wax it on the outside periodically, do ceramic coating, keep it clean on the inside, wash the windows on a routine basis, wipe down the dash, keep the floor mats clean and so on. You know what? If you do that, they don’t smell. There is no reason to put an air freshener in to mask anything because it’s not needed. The car is clean. You don’t have to do anything to make it smell because it already is clean. There’s no reason to add any other flavors, quote unquote, to said vehicle if the car is kept clean. And for some of you listening saying, well, my car stinks like something else, so I’m just masking. Yeah, you’re masking a scent you should get rid of in the first place. And by the way, you can text me. There are products made to eliminate smells on the inside of a car that aren’t there naturally. I can give you individually what those things are. So if you’ve got a smell, a puny smell, or it’s got a vinegary smell, or it smells moldy, or whatever the case may be, you can get rid of those natural smells. The biggest smell that’s hard to eliminate, and this is why I’m so against it, smoking. Smoking. That tobacco smell, pot, by the way, is the same way. Those smells get embedded, literally, they bond cellular, if you would, to those particular items, and they’re extremely hard to get rid of. And I mean extremely hard. There are these, you know, bomb type canisters you can put inside of a vehicle that go off and supposedly, you know, change the molecular structure and get rid of some of that smell and so on. And they work fairly well, although if a car has been smoked in, it’s really hard to get that smell back out. So I am really big on don’t add those things inside your car. If you’re trying to make your car worth more down the road, that is, and trying to maximize its value, which I’m one of these where, you know, some people think they’re going to keep the car forever. That’s my forever car. Kind of like a forever home. No, it isn’t. There’s no such thing anymore. You’ll get tired of it. Five, six, ten years even. You’ll get tired of it. You’ll buy something else. You’re not going to keep it forever. Oh, this will be the last car I ever buy. No, it’s not. You might think it is. No, it’s not. Oh, it’s my forever home. No, it’s not. I mean, very few people can say this is my forever home or my forever car. Because things change. Our needs change. Our age changes. Our ability to get in and out of things change. What we need in size changes. You get my drift. Sometimes our job changes. So, yeah, never say that. So my point is keep your vehicle nice. And then some of what we’re talking about, even the extended contract end of things, you don’t need because you’re taking very good care of the car. This is another tip. Even for some people that do buy an extended contract. And maybe there’s some arguing going on about what are they going to cover. So you’ve taken it into the shop, you’ve got an extended contract, and a timing belt went out or a timing chain went out, whatever the case. And it’s a valid thing underneath the contract that should be fixed under said contract. Well, let me tell you this. When the inspector shows up, because in most cases they will, Which one are they more apt to go ahead and approve? The car that’s nasty and stinky and dirty and hasn’t been maintained and looks like it’s been run through the ringer or the one that looks like mine where it looks brand new and can go back on the showroom floor? You guys get my drift. It’s a pretty easy decision by those inspectors at that point as to which one they’re going to take care of and which one they’re not. Oh, man, I can tell this guy takes this thing. This car is impeccable. I mean, yeah, he takes impeccable care of this car. Yeah, this is going to be a tough one to deny. Versus the one that’s dented and beat up and looks like it’s been run up and down every single four-wheel drive road we’ve got in Colorado and looks like it’s been trashed. Yeah, that one’s going to be harder. And folks, just being honest, this is how I’ve been there. I’ve talked to these inspectors and these individuals. I know exactly what they say in the comments that they make. I can see it in their eyes. I can see sometimes heads shaking. It’s like, you know, geez, really? I’m not joking. It happens. And I think the one thing that we all forget is there’s one side of this equation where it’s a piece of paper stating what they’re going to do. Then there’s the other side where real people get involved and start looking at things in real life, and they’re the ones that actually make decisions. And I get it. Legally, you can go back to the piece of paper. But man alive, folks, do you really want to go to court and everything it takes to get everything handled on this piece of paper versus just keeping things up and maintain and let the adjuster do his job and then off you go? Again, this goes back to even buying some of these products in the first place. All right. I’ve got to take another break. We’ll do this quickly. We’ll come back. I’ll get things finished up. I don’t think I’m going to get to the gas end of things today, which I’m not shocked at because there’s so much to talk about here. But I’ll come back. We’ll talk a little bit more about extended contracts on the used car side. That’s why I’m not saying warranties because you can’t buy an extended warranty on a used car with maybe an exception, which I’ll talk about as soon as we come back.
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SPEAKER 04 :
This program was recorded earlier for broadcast at this time. No phone calls can be accepted.
SPEAKER 02 :
All right, welcome back. This is Drive Radio, The Extra Mile. Thanks for listening today. And I just said a moment ago, there might be an exception to actually buying an extended warranty even on a used car. So let’s say, for example, you find a really nice used car, and it’s maybe only got 8,000 miles, and it’s less than a year old. Could you buy the factory extended warranty on said car? Probably can’t. Probably not, well, for sure not from the used car dealer unless it’s coming from, you know, if it’s a Toyota and it’s coming from Toyota, they may offer you an extended warranty. In fact, sometimes they’ll offer those as a part of the package, their CPO package, certified pre-owned. But if you find a really, really nice car at a used car dealer and it’s everything you want and it’s at the right price, but you would like to still have that factory extended warranty, you can most likely buy that on your own. And you could try that out even before buying the car. Call them on the phone. Hey, I’m looking at a used car. This is the VIN number. Blah, blah, blah. It’s got this many miles on it. By the way, not a bad idea to do this anyways because guess what? Let’s say they come back and say, yeah, guess what? We can’t do that on that car. Whoa, why is that? Eh, that car’s been flagged. There’s actually no warranty on that car. Oh, really? Yeah, really. See what I just did there? I just verified… why i would or wouldn’t buy that used car in the first place even though it may be less than a year old so those are things to think about when you’re actually out shopping for used cars and typically speaking typically speaking you can only buy an extended contract on a used car and every every used car dealer and i’m not again not knocking them ridgeline auto brokers who’s one of our great sponsors they sell extended contracts i’m not saying they’re all bad And depending upon the vehicle, the price, maybe not knowing who the previous owners were, maybe for the peace of mind, you want to go ahead and buy that. I mean, I wouldn’t, but in some cases you may want to. It’s another one of those where you can shop around. You don’t have to buy the extended contract that’s being provided by the used car dealer. Because once again, as I stated a moment ago, they’re making solid commission on that. You can cut out that commission, go direct to the source, and actually do it that way if you’d like to. So that’s one tip on the used car side where if you want to buy an extended contract, you can, but you don’t have to. Now, one other thing to remember, this kind of will tie into next week’s topic on fuel. Just remember that if you end up with a problem with a vehicle, and let’s say it’s all carbon up on the inside, and it’s because you haven’t been using solid fuel in said vehicle, guess what? You’re liable to not be covered under the original warranty and or the service contract. Because they’re going to come back and say, yep, lack of maintenance, not using the proper fuel, not using this, not doing that, whatever the case may be, done deal. So just remember that in some cases, they will void your warranty based upon what you’re doing to the vehicle, not the vehicle itself. So something to think about. A lot of people think it’s just really cut and dried that, oh, you know, this happened and they’re going to go and take care of it. Well, maybe not. Now, on extended contracts, watch out for the fine print. What’s the deductible? Is there any deductible? Some will be zero. Maybe it’s 50 bucks. Maybe it’s 500. Maybe for large repairs, it’s 5,000. Read the fine print. What are the deductibles going to be in that? What benefits are there in this service contract? What are they covering, for example? Is it bumper to bumper, full bore? If a screw falls out, they’re replacing it? Or is it only major things? Timing belt, water pump, transmission, transfer case, things like that. Is it handling – because, by the way, they’re not going to handle brakes and tires and things like that because they look at those – well, they are maintenance items. Brakes and tires are maintenance. Now, here’s where it gets a little dicey. Some of them will even say shocks and things like that are because they’re wearable items. They are going to wear out. Everything on the car eventually will wear out. That’s where it gets a little bit dicey. But they’ll word these in such a way where, watch out. And don’t just read the bullets as to what they cover. Read the fine print. Here’s the major items on the car we cover. Boom, boom, boom, boom. Engine, transmission, differentials, blah, blah, blah. Okay, go read the fine print on what they cover on the engine. Is it all of the engine? If it gets an oil leak, do they cover it? If it gets a coolant leak, do they cover it? understand what i’m saying here verify all of that before you actually do anything on said contract and this is why i’m big on not buying it at the time of purchase now a lot of here’s why most people do by the way they can finance it that’s the reason why a lot of service contracts are sold at dealer levels new and used because they can take i’ve got a you know we’ll use round numbers 500 a month payment oh i can add a service contract for 25 a month over the course of the 60-month loan I have. Okay. So they do. That’s why they sell them through the dealer versus you buying it on your own. It’s the convenience factor because it’s wrapped into your payment. You’re still paying for it. In fact, keep this in mind, you’re paying interest on that, which most people forget. So let’s just say, for example, I don’t have the math in front of me, but let’s just say, for example, it is $50 a month. Okay. For 60 months. So 50 times, you know, 5 times 12 is what, 60? Is that right, Luke? 5 times 12 is 60, I believe. So 60 over the course of five years is what, 300 bucks? Actually, no, it’s 600. 600 over the course of five months would be three grand. So they’re basically taking that three grand. It’s 50 bucks a month, but there’s interest on that. So that may have not even been $3,000. That contract might have only been $2,200. They’re selling it to you on $50 a month, but you’ve got to do the math to determine how much interest am I paying on that $2,200. Because you could go out and buy the $2,200 contract on your own. and save a lot of money. Again, a lot of the reasons people don’t do this is because it’s convenient at the dealership level to go ahead and buy everything at one time, wrapping that into your loan, your mortgage on the car, which anymore that’s kind of what they are. I mean, I’m not exaggerating. Literally wrapping that in. And by the way, that’s true for all of the other things that even a used car dealer may be doing. We’re going to go ahead and put some paint protection film on it. We’re going to tint the windows for you. We’re going to do the ceramic coating and so on. And maybe that whole bill is like four grand, three grand, whatever. Just remember, if you add that in, you’re paying interest on that. And that’s where I think a lot of people kind of get deceived because they’re thinking, well, yeah, but it’s only 50 bucks a month. Well, yeah, it is. But it’s three grand over the course of the term of the loan. And maybe that item you bought was only two grand. You just paid a ton. You paid a thousand bucks in interest. on that two grand. So those are things to think through that I’ll be honest, most people don’t. And this is so important. It rarely happens because it’s so fast in the F&I end of it. This is why you should shop on your own. Good luck on reading that contract while you’re sitting there. Luke’s laughing at me, but right, Luke? Yeah, no, they try and get you through pretty quick. They don’t want you sitting there reading that stuff. They’re not even going to tell you where that is. They might not even hand you the contract. They’re going to hand you the cheat sheet that says, oh, here’s your major items covered. Luke knows because you’ve bought cars, but you know exactly what I’m talking about. They hand you the cheat sheet. Here’s the major items covered, bullet point by bullet point. They don’t go into the details of how that works. You don’t get that until you sign off on things. So I am still one where if you are going to decide to buy a contract… Buy it on your own. Go shop around. Look at the reviews of the ones that are out there that are good, that have solid ratings and this, that, and the other. Even check with some of your, some of you have memberships, AAA, Costco, et cetera. See if they have some programs that might also fit into this. And if so, you could buy it through them. Bottom line is, do your homework. Research what you’re doing. Go back to what I’ve talked about the last two weeks. If when you’re buying a new or used car, you’re not on a whim on a Friday night buying it, which I’ve said not to do. I even had some of you texting me, how much time should I allow for it, John? A month. If you give yourself a solid four weekends to really do your shopping and figuring out what you want to do. You can usually by then, new or used, find the car that you like, that fits your needs, works out. All of that’s good to go. That’s typically what you want to do. And if you give yourself enough time, you can do this. And I was telling this to one of my clients today. There’s this old saying. You can either pay now and play later, or you can play now and pay later. Either way, you’re going to pay. And that’s true with all of life. Whether you were talking about having families, raising kids, working, going to college, whatever the case. Projects. You can either work really hard on the front side and then play on the back side because you’ve got the ability to do so. Or if you want to play on the front side, you’re going to pay on the back side. Same is true with this. My point with buying a car. If you want to quick go buy a car, make it really fast, get the deal done, great. You played on the front side in that case. You didn’t pay anything because you did it really, really quick. Now, you paid for the car, but my point is you didn’t do a lot of work to get the car. You didn’t do much research. And then you end up with buyer’s remorse. And, oh, man, I think I bought a lemon. Oh, I should have done this. I should have done that. It’s the shoulda, coulda, wouldas afterwards. And then you’re realizing, oh, man, I should have done what John said and given myself some more time and worked more on the front side because now the backside would be easier. Folks, it’s a law of life in every area of our life. Health, exercise, buying cars, buying homes, having kids, whatever the case may be. You either pay now and play later or play now and pay later. So my theory always has been, and kind of what I live by, pay on the front side. It’s always easier. It’s why I get up early in the mornings. It’s why I do what I do. It’s why I typically am at my desk even in my home office by 7 a.m. I mean, I’m working when most people are still sleeping. And I’m not saying that to brag, but it’s the only way I know to get ahead. And it’s true with the rest of the things we’ve talked about here the last couple of weeks. I look at even the service contract end of things. And again, I’m not trying to criticize anybody because some of you out there listening have bought these. But honestly, it’s the lazy way out. What you’re really saying is, oh, you know, I can be a little lax in some maintenance, and I’ve got this contract, so I don’t have to worry about this. And, you know, if something happens, they’re going to cover it for me anyway, so I don’t really have to worry about it too much. Well, wrong attitude. Wrong way – and I’m going to throw this in. We don’t typically get political on these shows because Drive Radio is sort of an apolitical show. I don’t go down that path. But I am a person – And so are my shows that believe heavily in personal responsibility. And I mean that sincerely. I mean, I want to be personally responsible for my actions. Meaning, if I take care of things properly on said item, vehicle, washing machine, whatever it is, do I need that extended contract? And you know what the answer typically is? No. No. No. I get it. There’s always those extenuating circumstances where something just breaks and it’s right outside of the warranty. Now, let me talk about that for a moment. There’s ways around that as well. Let’s say you’ve got that three-year, 36,000-mile warranty, bumper to bumper, and you’ve done a really good job of maintaining things, and the car looks great. In fact, it looks brand new. And let’s say you’re $40,000 and the transmission goes out. You know you have a really high chance of probably getting the manufacturer to still buy you a transmission if it’s well cared for, like I just said. Now, you’re not going to get it at 60, but if you’re within 5,000 or so and that thing happens, you’re probably going to get it taken care of. They want you back as a customer. You can almost – the dealer may not approve it, but you can typically talk to somebody somewhere and get that handled. So, again, at the end of the day, not that difficult to do some of these things. You just have to be proactive. It goes back to the working on the front side versus the back side. So one other thing. Let me close with this. If you’re really worried about that vehicle and you took my advice, you’re not going to buy a contract, okay, do this instead. If, for example, that extended contract was going to be $50 a month, go open up a bank account at your local credit union or wherever you bank, separate account, call it your car account, take that $50 a month, make an automatic payment out of your checking account every single month to go there. Guess what? You’ll have three grand at the end of five years. Meaning, if something does happen, you’re covering it yourself. You’re self-insuring essentially is what you’re doing. If I could get people to do that versus buying contracts, you’d all save a lot of money. In fact, more people would have savings because right now, about half of Americans can’t handle a $1,000 hit. You would be able to if you used my method. In fact, after year two, you’d have $1,200 in the bank after year two. Now, remember, we’re doing this when the car is already new anyways. Or in the case of a used car, usually you’re buying a fairly good car. You’ve already had it inspected. You’ve done the pre-purchase, all the things that we talked about last week. You’ve done all of that properly. Well, now you’ve got the ability to take that one step further, start putting some money in the bank. And if you do that, you’ll be in a lot better shape. Luke, any last questions before we get out of here? I think we’re good. I think we got it all. Covered a lot. And that’s what this show is designed for. You guys probably by now know that I can take a lot more time. I just dedicated an entire hour almost. to talking about service contracts and extended warranties. I’m lucky to get five minutes of that on the regular show because, and this is the way the show is designed, because you call in, we get questions, all of that. I can’t spend an hour there. You guys would be bored stiff if I did because it’s not the right format for that. This is different. This is the format for this and why we’re doing what we’re doing. All right, I’m going to get out of here, make sure we’ve got enough time for Charlie to add in a few little things here. And yes, we’re pre-recording a week in advance. As I said earlier, as I opened up the show, if there’s a topic that you’d like us to get into more depth on, on any level, car-related, auto-related, please let me know. I’ll include this. We’ll add it to our notes. We’re going to do this now for, gosh, I don’t know, indefinitely, until proper broadcasting says, get out of here, John. We’re going to keep doing it, so… Luke, I appreciate you very much. Thanks for all you do for me on a weekly basis.
SPEAKER 05 :
Oh, thank you, John.
SPEAKER 02 :
All right, man. You guys have a great week, and thank you so much again for listening to Drive Radio, The Extra Mile.
