Some buyers are interested - many are not. For those that are, they're in lousy position because they don't know what an extended warranty actually costs. The Dealer presents a figure they want you to pay....and you have no base-line figures to compare it to.
Wouldn't it be great if you knew what Dealerships paid for the Extended Warranties they sell....and what they're going to charge for them?
Well, now you can.
It's really very simple. Any new car (or truck) extended Warranty cost is calculated as a percentage of the price - regardless of who makes the car, van, truck or SUV you're considering. Here's how this works.
Let's say you're looking at a new Truck and considering the most common extended warranty - 5 years and 100,000 miles of coverage. The MSRP (the Sticker in the window) says $32,000. The Manufacturer of that truck sells the Warranty to each and every Dealer for 2.3% - 3.5% of the MSRP.
So, for this particular truck we're discussing, the warranty will cost the Dealer between $800 and $1,120 - or 2.3% and 3.5%. That's what he or she will pay the Truck maker.
The Dealer then turns around and adds his or her profit when selling it to you.
In most cases, they will sell the Warranty to you for 60% more than what they paid for it.
So, for this particular truck, the Dealer will sell the extended warranty for between $1,280 and $1,760 (Cost plus 60%)....when it only costs them somewhere between $800 and $1,120.
Here's the formula to use the next time you're considering a Dealers Extended Warranty:
- Total MSRP X 2.3% & Total MSRP X 3.5%. Somewhere in between is the actual Dealer cost.- Total MSRP X 4% & Total MSRP X 5.5%. Somewhere in between is what the Dealer will want you to pay.
So, you know their Cost. And you know the profit they're wanting.
My suggestion is this - when you're presented with the Dealers asking price, tell them you'll pay no more than 10% over cost. That's a far cry from the 60% profit they want - but a much better deal for you.
Make sure you use these simple calculations when you're negotiating the price of a Manufacturers Extended Car Warranty. It should save you a considerable amount of money.
