This year’s global chip shortage has been relentless on new and used car inventories and pricing. The shortage of chips has led to a shortage of cars, which has, in turn, increased car pricing across the board.
That means that consumers are paying a lot more for new and used cars than ever before and the market values of these cars are increasing as well. And while you would think that any consumer paying more money for a car would handily turn down an extended warranty to go with it, think again.
There has been a large increase in extended warranty purchases this year
Normally, if you’re buying a car, you would most likely turn down the extended warranty, also known as a “vehicle service contract” (VSC). But in today’s car market, it could be a better idea to buy one considering the increase in car values this past year. Auto Dealer Today reported that extended warranty sales have increased by 44% year over year as compared to 2020 – as reported by AUL Corp, an automotive warranty and service contract provider.
“This increase in sales is due in large part to people wanting to protect what has changed from a depreciating asset to what is now an appreciating one, combined with the increasing complexity of today’s technology-focused vehicles,” explained Jimmy Atkinson, AUL’s President, and CEO, to Auto Dealer Today. “The resulting high prices for used cars and trucks are driving more owners and buyers to purchase coverage plans to ensure their vehicles stay on the road longer.”
JD Power recently reported that the average price for a used car surpassed $25,000 this year, which is a tell-tale sign as to why many car buyers are electing to protect their purchases for a longer period of time. Kimberly Kline, a member of YAA and a finance manager of 15 years, recently spoke on the matter in a recent YAA video about extended warranties:
“People want to feel protected when they’re buying a used car especially when they’re spending so much money. Typically, (a car) is a depreciating asset, but that’s not the case right now and people want to protect it with a VSC.”
Is it worth it to buy an extended car warranty?
If the car that you’re buying has a lot of miles on it or you plan to keep the car for a long time, then an extended warranty can be worth the money. Credit Karma notes that an extended warranty can end up saving you money if the car needs repairs that are covered under the plan. It’s also worth it if you actually use it, many buyers purchase extended warranties and never end up actually using them.
Also note that extended warranties can cost a pretty penny and if you purchase one from a dealership, they could mark up the price. According to Ray Shefska of YAA – and car buying advice site – many dealers markup extended warranties by as much as double the price the dealer’s cost. So do your research ahead of time and check out companies like AUL Corp and CarShield to see if you can save some money before heading to the showroom.
It’s possible to negotiate the price of extended warranties
If you do find yourself discussing extended warranties with the Finance Manager when you purchase a car, then make sure to negotiate the price as much as possible. Not many car buyers know that every product being sold to them in the finance office can be negotiated. So take your time and don’t be too surprised when the extended warranty initially costs around $1,995 or more. Finance managers have to eat, too.
But the good news is that you no longer have to fear being sold an extended warranty, especially if the car that you’re buying comes with a higher price tag. In this current market, it could be worth it to protect your investment.