Tips on Buying Cars: Extended Warranty Advice, vehicle service contract, bmw z4

Question
Hello,
I’m looking to buy a 2003 BMW Z4 with very low mileage.  The warranty is about to expire so I would like to purchase an extended warranty.  Should I buy one from BMW or go with an aftermarket company and if so which one?    Are there some really good deals out there?
Thanks,
Kevin


Answer
Well let’s first get the terminology correct because otherwise, one may misunderstand the product.  The only extended warranties that actually exist are when a manufacturer extends the original factory warranty for one reason or another.  Most often it is when a demo vehicle is purchased new.  Sometimes manufacturers will extend the original warranty by time and/or mileage on a particular troublesome part.  This is generally due to class action or government mandate though some occasionally do this for good will.

Everything else is known as a vehicle service contract.  

A vehicle service contract (VSC) has nothing to do with the vehicle's warranty and is therefore, not regulated by federal law.  While a factory warranty has no deductible, a VSC almost always does.  It is a contract like any other contract.  In exchange for party A doing this,,,,, party B will do this...
A VSC is unlike a factory warranty in that is does not cover nearly as many items.  While a full factory warranty basically covers everything except tires and the battery, (and in some cases the brake linings), a VSC almost always specifically excludes from coverage: tires, batteries, exhaust, body parts, trim, moldings, squeaks, rattles, wind and water leaks, upholstery, carpet, wiper blades, bulbs, brake linings, fluids and filters (unless required as part of a repair),  and glass.  A VSC is designed to cover more "mechanical like" components.  

There are two major types of VSCs.  One is known as "stated coverage" and the other as "exclusionary".  

Stated coverage contracts only cover what is specifically listed in the contract as covered.  If it's not listed in the "Covered Parts" section, then it's not covered.  Some may have exceptions for non-covered components that are damaged by the failure of covered components or that have to be replaced to replace a covered component.  One example would be a new transmission filter which is not normally covered, but is necessary as part of a covered transmission replacement.  Another example would be a fusible link that is blown by a covered starter motor failure.  
Generally, stated coverage contracts are less expensive than exclusionary and offer a range of coverage from basic power train (internal engine and transmission/differential parts) to having just about every mechanical component listed as a covered item.

Exclusionary coverage contracts are the opposite as stated coverage contracts.  Unless an item is specifically listed in the contract as an "excluded" item, then it is covered. These are usually the more expensive VSCs and offer the best protection against most mechanical failures.  

Now both types of contracts carry additional terms and exclusions for coverage.  The most common terms include denial of coverage for commercial vehicles (generally this refers to, emergency vehicles, plumbers, electricians etc. full time delivery vehicles, taxi cabs and sometimes something like pizza delivery.  I've seen VSCs refuse coverage for Domino's drivers and volunteer firemen, but generally a person who just works out of there car would have nothing to worry about, like salespeople or realtors.
Other exclusions will deny coverage if a vehicle has been used for racing, has a failure caused by an accident or other type of loss such as fire or flood etc.  This is what your auto insurance policy is for.  If a non-covered part damages a covered part, then sometimes neither one is eligible for coverage.  

Another thing to understand about VSCs is that they only cover items that have actually failed.  In other words, if the A/C compressor is just worn and makes some noise, that is not a failure but if it stops cooling, then it is a failure. If the engine is burning a little oil, that is not a failure but if it's going through two quarts a week, then there is a failure.  

Here are two other areas that present coverage issues.  They are lack of maintenance and continued operation after a mechanical failure.  If you cannot show verifiable maintenance records relating to the failed component, then your claim could be denied, especially if the poor maintenance caused the failure.  In other words, if your engine is full of sludge and it throws a rod, you won't likely be afforded coverage. Continued operation is when something fails and the vehicle is continually operated with the failed part which eventually causes something else to fail.  An example is a bad brake caliper.  Though there is an obvious problem such as brake noise, pulling etc., some people will continue to drive the vehicle until the brake rotor is damaged.  In this case, the rotor would be denied due to continued operation.  Another term for this is "failure to mitigate damages"  The initial failure may be covered, but additional failures due to continuing to drive the vehicle around with a failure are not.  If your car is overheating, shut it down immediately to save the engine.  This is what tow trucks are for.  For that reason, buy a service contract that covers towing.

The vehicle branded service contracts sold through the manufacturer’s dealer network are generally backed and administrated by very reputable companies.  Otherwise, the manufacture wouldn’t put their name on the product.  Rarely though are these products actually backed by the manufacturer.  Most are financially backed by large “re-insurance” policies and are administrated by outside firms.  I know of one very large VSC company called APCO.  They market their own VSC under the brand of Easycare but also administrate contracts for various OEM’s including Volvo, Honda, Land Rover and also administer for a large insurance company that sells VSCs.  

For VSCs, the best pick is generally the branded product sold by the dealer such as whatever would be offered as a BMW protection plan.  BMW is not likely to align themselves with a fly-by-night administrator.  Easycare is a good product as is Wynns.  Some auto insurance companies sell VSCs and these can often be a great choice as your insurance company may go a little further for customer service as not to lose your other business.  

I know that this may be more information than you wanted, but there is no quick answer on this topic.

Good luck and I’d appreciate your feedback.