IMI Magazine

Warranty & Insurance

With the credit binge over, consumers want a security blanket to protect them from hard times, and for car owners part of that blanket is warranty cover. As Mark Terry, managing director of Chevrolet UK, put it: "Now's the time to give customers more, to take care of them."

To that end, in July Chevrolet launched its 5-Year Promise, which it claims is the UK's best ever combined warranty and aftersales package. As well as a five-year warranty, all new cars qualify for the same period of free servicing, roadside assistance (provided by the AA), annual vehicle health checks and MoT test cover up to £750.

But Chevrolet's promise has since been trumped by its General Motors' partner, Vauxhall, which has pledged a parts replacement warranty on all its new cars until they reach 100,000 miles.

The company describes its ‘Lifetime Warranty' as "an unprecedented industry move" with managing director Duncan Aldred adding "we are making a strong statement of confidence in the quality of our products".

But while all this has obvious attractions for the customer, its main aim is to stimulate sales. Mark Terry is confident the 5-Year Promise will attract conquest customers to the brand. Chevrolet is looking to at least match last year's 18,660 new sales but with a higher retail mix through its 93 dealerships. The package is transferable with the car, which Terry said was "great for service retention". Vauxhall, too, has service retention in mind - to keep its new warranty valid, owners need to visit a Vauxhall retailer annually for a vehicle inspection. 

Carmakers reason that the longer the warranty (Kia has been a leader in this, recently increasing its cover to seven years), the greater the opportunity to retain aftersales business before it moves to the independent sector.

That's had a knock-on effect on established warranty providers like Car Care Plan, where chief executive officer Tim Heavisides reports that new car warranty volumes have dropped by 60% since the 1990s. Today, used approved programmes make up the bulk of CCP's business for 22 brands ranging from Aston Martin to Vauxhall's Network Q operation.

Founded in 1976, the group comprises two companies, having taken insurance in-house in 1993 with the establishment of MICL (Motor Industry Insurance Company Ltd) to underwrite its policies.

"We had used a third party underwriter (Lloyds) but we can provide a better service if the insurer and the administrator are aligned," explained Heavisides. CCP provides manufacturer-branded extended warranties through franchised outlets, a Blackhorse-branded product for independent garages and branded packages for dealer groups in AM magazine's top 100 dealer list.

Heavisides said CCP commanded a 20% share of the UK warranty market and would issue 1m products this year. "The UK accounts for the lion's share, but we also operate in Europe and Brazil," he added.

RAC Warranty, operated by the RAC in partnership with the Warranty Group, reports that buyers began specifying longer warranties with higher levels of cover during the recession. Sales and marketing director Ian Simpson said that even for those confident enough to purchase a car, "they are still nervous about the possibility of any unplanned spending in the future".

However, Simpson went on to say that independent used car dealers lagged some distance behind franchises when it came to selling extended warranties.

"Independents tend to view warranties as simply something that is included in the price of the car and is helping them make a sale by providing the customer with reassurance. To them, a warranty is a cost.

"The better franchises view warranties as an opportunity. Yes, a basic warranty will be included in the price of the car but they also realise that there is considerable profit potential in offering the customer an improved warranty that brings a better level of protection or lasts longer," he explained. "Warranties don't sell themselves. They work best when introduced into the sales process in a structured fashion."

For another player, Warranty Wise, product promotion has focused on its ‘star turn', TV motoring presenter and self-styled consumer champion Quentin Willson.

"We got involved with him after he wrote an article saying used car warranties were not worth the paper they're written on," said MD Lawrence Whittaker. The result, he said, is that "weasel words" have been eliminated from policies to make them easier to understand. ‘Betterment' clauses have also been removed, with Whittaker claiming that warranty providers use these to avoid making full payouts by arguing new parts have left the car in better shape than it was before the need for the repairs.

Whittaker said Warranty Wise pays 100% of any valid claim, and was the only provider to replace parts in pairs so as not to alter a car's driving style. All policies had 0% excess but customers could delete aspects of the cover to bring down the cost.

All that comes at a price, as Whittaker freely admits: "We offer the most expensive cover on the market, we're not ashamed to admit that. More people are realising you pay for what you get. It's impossible to offer all mechanical and all electrical cover for £350 compared to our price of £750."

Tim Heavisides admitted to being mildly irritated by Warranty Wise's "disingenuous" attempt to seize the moral high ground with Quentin Willson and the campaign against the use of "weasel words" in warranty policies.

"We don't have betterment clauses. Our policies have always been in plain English," he said.

On another tack, Heavisides drew attention to the demise of credit insurance provided by dealers, which had led to a surge in ‘gap' insurance (which covers owners of vehicles involved in an accident or theft against an outstanding loan). In CPP's case, cost could range from £100 to £1,000, depending on the type of car, its age, the length of cover and whether it is full or limited.

RAC Warranty points out that the value of a warranty shouldn't just be measured at point of sale. "For every £100 that a dealer spends on a warranty, a significant proportion will find its way back to the workshop in claims," said Ian Simpson. "The warranty creates an almost umbilical link to the dealer."

James Dallas