On average, I get five phone calls a day from people who have bought defective used cars and are seeking legal help. The question I ask which stumps most of them? Did it come with a warranty? Not knowing the answer to that is akin to not knowing if the car was sold with an engine.
I often write about cars and the law because I practice Lemon Law in the state of Michigan. Generally, that involves defective cars which were purchased brand new. So when someone calls my office, the first question I ask is, “Did you buy the car new?” If they say “No” to that I ask, “Did it come with a warranty?” Many people respond to that with an “I don’t know.”
A few follow up questions usually nail it down. The vehicles were sold As-Is, and with no warranties regarding after-purchase repairs. While I have written about some of these issues before, I think it is important to change one particular way in which many people car shop. Shoppers need to either: 1) Shop for warranties (along with the car) or 2) Price the car based on a lack of a warranty.
A used car sold As-Is with no repair-or-replace warranty or service contract is worth substantially less than one that is. I’ve had people say, “But I paid $30,000 for it!” as if the price was some sort of guarantee. A car could cost $30,000 or $300; it doesn’t matter. Sold As-Is and with no repair-or-replace warranty and no service contracts, the price is not an indicator of the quality of the car. It’s simply what you paid.
Used cars can come with a few different kinds of “repair or replace” warranties. A late model used car might come with the remainder of a factory warranty. This, in my opinion, is the best thing you can get with a used car. You know who backs the warranty, you can take it more than one place for repair, and you know what its terms are. These cars will cost more but they are worth more.
A used car dealer might offer you an extended service contract. Many people use this term interchangeably with “warranty” but there are a few differences. The ESC is usually more limited in its coverage, is often being backed by someone other than an automaker and the terms might be quite limited. Before you buy one of these, read its terms and see what it covers and what it does not. Some are so limited as to make them illusory. That is, they don’t really cover anything in a meaningful way because of their heinous exclusions.
Some manufacturers offer extended service contracts and these are preferable to those sold by others – the so-called “third party” service contracts.
And some dealers offer warranties themselves, where they promise to fix a car if it breaks down for a certain period of time or mileage and under certain circumstances. These are as good as the dealer is reputable, no more - no less.
So, here is what you need to do when car shopping. Find a car you like. Ask if it comes with a warranty. If they say NO, then presumably it is being sold As-Is. Price it accordingly, knowing that the engine could explode and the transmission could fail before you get any use from the car. That risk is part of what you are buying – so factor it in.
Or, keep looking until you find a car for sale with a warranty. When they say YES, ask what kind of warranty is it? Is it a manufacturer’s warranty, an extended service contract or is it a dealer warranty? What are its terms? And where is it in writing?
An extended service contract will often cost you money. Read the coverages and know that you can probably negotiate the price on an ESC. They want $595 for the ESC from a third party? Offer to buy the car if they split the cost with you. The worst that can happen is they say No.
The takeaway here is that a warranty or service contract you get with a car is valuable – and as important as knowing if the car runs. Most people wouldn’t buy a car without at least seeing that it runs. Put just as much effort into determining what - if any - coverage the car comes with. Too many people hear the salesperson say things like “If you have any trouble with this car, bring it back and we will help you,” and think that is some form of warranty. It isn’t. And if you are unsure, ask again: What kind of warranty am I getting with this car and where is that in writing?
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Steve Lehto has been practicing law for 23 years, almost exclusively in consumer protection and Michigan lemon law. He wrote The Lemon Law Bible and Chrysler’s Turbine Car: The Rise and Fall of Detroit’s Coolest Creation.
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