Can a Ford Protect Extended Warranty Help You Beat Inflation?

[Granger Ford]

It is not breaking news that prices are up on everything. Inflation has run high, and the federal reserve doesn’t think the battle is over yet to get inflation back down to 2%. One of the areas that has seen some of the biggest price increases is the automotive repair industry. The Federal Reserve Bank goes in detail to explain the reasons why, but it boils down to a tight workforce that is in high demand as well as a parts shortage.


I was curious to see how much that has affected our service department, so I pulled all our repair orders that were paid by an extended warranty company for 2 time periods (Jan-Apr 2020 and Jan-Apr 2024) to see how it has changed at our shop. Through the first 4 months of 2020 our average repair order covered by an extended warranty was $776, and in 2024? An eye-popping $1841! That is a 237% increase in 4 years. Admittedly we have a small sample size being only one dealership. But for the last 3 years, the federal reserve has registered a 5%, 13% and 8% rate of inflation for motor vehicle repair, well out-pacing overall CPI.

So what can be done to minimize the effects of repair inflation? One of the lesser talked about benefits of an extended warranty is that you are locking in tomorrow’s repairs at today’s repair prices. We work with both Mopar and Ford extended warranties and both of them have many actuaries that determine our cost for their plans. The feedback I’ve received from both manufacturers suggests prices will continue to rise in the future, because repair cost increases are well outpacing the reserves set up to cover them. Ford has scheduled a price increase in August of this year and Mopar just increased its prices in February and is considering doing it again.


I again was interested in seeing what increases we’ve seen over the last 2 years of selling service contracts and our average service contract price has increased 14%, much less than the 23% the CPI repair costs have increased at the same time. None of us can predict the future, but in the past inflation has proven to be sticky and takes longer than anticipated to get fully under control.


Another tool we’ve added to our websites is the ability to pay monthly. We realize increased prices have eaten away at monthly budgets and spending over $2000 on extended warranty coverage can be hard to budget for. So, we added a monthly payment option that allows our customers to pay for their warranty over an 18-month term. Our average monthly payment is taken automatically and comes out to less than $100/month.


You can find our coverage options for both Mopar and Ford on our websites.

www.buymoparwarranty.com
www.grangerfordextendedwarranty.com

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[kappy44]

I have had over 60 vehicles in my life. Each of them had extended warranties that were from the vehicle's manufacturer. Years ago you could get a refund from the dealer for unused time and mileage with proof of sale or trade. Now it is about a six week period to get said refund from the manufacturer. I for the most part keep my vehicles for 2-3 years, but have had a few I kept much longer. With interest rates being what they are and the cost for these vehicles increasing at the same rate the extended warranty is a no-brainer. Just have the cost of the warranty written into your deal if you finance and realize there is a dealer markup on the sale of the warranty so negotiate this "option" as well.

 

[rocks]

I usually buy an online discounted auto manufacturer's warranty. Though, I don't keep a vehicle long, it's a just in case and I get a prorated refund. I think you can beat inflation of repair and part costs over the period of the warranty. Prices always go up.

 

[sajohnson]

Good point, Zach. I don't think I've heard anyone else mention inflation in car repair costs as a reason to consider an extended warranty.

As you said, "We work with both Mopar and Ford extended warranties and both of them have many actuaries that determine our cost for their plans. The feedback I’ve received from both manufacturers suggests prices will continue to rise in the future, because repair cost increases are well outpacing the reserves set up to cover them."

Of course that's always been the case, perhaps to a lesser extent.

All insurance is gambling, and the house always wins. The actuaries have all of the data. When they set the price of an extended warranty they take inflation into account, along with average failure rates over various mileage periods, cost of repair, etc.

There will always be a few "winners' -- and they will generally tell anyone who will listen how they got repairs that cost 3-4x what the warranty cost. The people we generally do not hear from are the much greater number of 'losers.' That can make extended warranties seem like a good deal.

The only way to gain an advantage is if an owner knows their use will be outside the norm (but not 'abuse.') For example extended high-temp operation in the mountains at full GCWR.

Needless to say, I don't care how other people spend their money, but it is accurate to say that with all insurance, the underwriter must take in more than they pay out -- or they will go bankrupt. In fact, I was just reading a KCCI article today about insurance companies leaving Iowa due to all of the severe weather related claims -- hail damage cost them more than tornadoes. I am very sorry to hear that. The same has been happening in CA and FL.

One reason people cite for buying an extended warranty is piece of mind. Can't argue with that. If they want to limit their repair expenses to the cost of the warranty + any deductibles + the opportunity cost (lost interest earnings) and not worry about a potentially larger repair bill, that's understandable.

 

[NMhunter]

Most folks live paycheck to paycheck and aren't prepared for a bill over $1000. For them, budgeting it into their car payment prevents having to put repairs on a credit card later. I tend to self insure, up to a point. I try to use insurance for catastrophic occurances. For many, a $5,000 bill for a new transmission would be just that.

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