The extended warranty gamble
Many personal finance advisors urge careful assessment of their pros and cons

It was an internal debate for Fiona Skurjat, a Toronto bylaw enforcement officer, when she bought a low-mileage Pontiac Montana from a Scarborough, Ont., GM dealership in September.

Should she get an extended warranty or bank on the 90 days that came with the vehicle purchase?

"I guess if you have the money it would give you peace of mind knowing that the full coverage comes with roadside assistance as well. I didn't get it, thanks. I already have CAA anyway."

The warranties Skurjat was offered ranged from $1,400 for basic coverage, to $2,250 for everything for three years - about standard costs in the industry. Would her car need $2,250 in work over three years, plus $100 deductible each time?

"Who knows. The one thing I know is, if it does, I'm making the interest on that two grand, not the dealership."

And that's where buyers should sense that the whole extended-warranty business definitely is a business.

If you win, you still have the hassle of a car in for repairs. If you lose, you've spent thousands you could have used for something else, according to Rob LoPresti, car-purchase adviser for Metro Credit Union in the Toronto area.

"Are you a gambler? Let's say the manufacturer wants $1,500 to extend your basic three-year, 60,000-kilometre warranty to five years and 100,000 kilometres. Let's add sales tax at 15 per cent and your actual cost is $1,725.

"What if the repairs cost $2,000 and you didn't have a warranty? You would be out an extra $275 as opposed to having purchased the warranty and having it covered. But would that be a great loss? You have had the $1,725 in your possession rather than the warranty company's for three years plus."

He also points out the warranty dictates where you get repairs done and what parts are used.

"Good independent mechanics often charge less and will offer less expensive repair solutions if available. Rebuilt parts or new solutions to common problems are often available at independent shops."

For Darlene Mumby, however, a mid-priced warranty on her Ford Explorer XLT was worth the $1,820 it cost "for peace of mind," particularly when she has her three children with her.

An employee at the Peterborough Regional Health Centre in eastern Ontario, she has a 20-minute rural drive over mainly dirt roads to her farm home and had too many problems in the past with a minivan.

She said the salesman recommended the warranty because she was buying a domestic 4x4 and the Automobile Protection Association agrees with him.

President George Iny says the APA recommends warranties for purchasers of any Cadillac, large 4-wheel drive domestic truck or Saab, based on repair and cost records.

Long-time personal finance writer Bruce Cohen says extending a warranty can be more expensive than it immediately appears, since the manufacturer of your vehicle didn't provide the basic coverage because of a warm heart. You can count on having paid for it in the vehicle's sticker price.

"Extended warranties are usually not a good idea because so much of their time overlaps the warranty you already get," Cohen said.

But if you do insist on buying or leasing a vehicle on high breakdown or high repair cost lists, you're probably wiser shelling out the extra money.

Finding those lists can be done with the help of such organizations as the APA and the CAA, both of which maintain data banks of repair frequency and costs, in large part