Changes in the used-car market today are making it a little confusing to sort out separate original equipment manufacturer (OEM) warranties from "add along" or "add on" service contracts. These service contracts, sometimes referred to as "extended warranties" and sold as such, are actually not warranties as defined by federal law, according to Lewis Rose, a law partner for Arent, Kintner, Plotkin & Kahin. Rose worked for the Federal Trade Commission from 1981 until 1987 and has vast experience in marketing law. The similarities and perhaps confusion in these contracts exist in the "promise to pay" or "promise for performance" clauses. And many of the OEM warranty look-alikes seem to be affecting the independent shop to a greater degree than ever before.

Currently available from various entities in the industry are after-warranty contracts. Fleet lease experts offer customers contracts that include certain stipulations aimed at providing an OE "feel" to their lease unit's service warranty. Large corporation lease entities will forego many of the commercial waivers that OEs use, and provide decent coverage for a fleet contractor. This is inherently possible because of the special agreements that allow the fleet leasing agency a special volume consideration and in certain cases specific extensions for OE warranties. These provisions usually carry over past the OE enforcement periods into the later term life of the lease. Usually at this point, however, the lease company is backing the warranty within their own guidelines and very often this is a situation that can cause a problem for an independent service shop. The problem might involve the extent of coverage which the vehicle previously had, versus the lesser degree that it now has because of the reclassification of the warranty itself. The original "come with the vehicle warranty" is now a service contract for all practical purposes and this can be and usually is a completely different playing field with different sets of rules.

With this in mind, it is easy to see why fleet leasing is preferred over out-right purchase by the large corporate clients. This at least holds true for the first three or four years of the new vehicle's service life. By ordering vehicles with similar specs, the fleet comptroller can manage the service and repair data and offer better overall coverage than even OEs are able to offer. Most of the contract coverage is not coincidental with OE emission system or OBD warranties that are part of the original sale and pass on to the lessee. These items, however, can be picked up when the vehicle manufacturers' warranties run out.

Many end users of the majority of "service contracts," so called because they do not come as part of a new vehicle purchase, have found refuge in companies that can offer the same peace of mind as the OE dealer network. In fact, in many cases contractees are able to pick their own service facility and have the vehicle picked up and returned to them with little or no hassle at all. But, because of a few "bad apples," it is wise to be wary of used-car dealership banners and brochures depicting "warranty" advertisements.

Dark days
In the early to mid '80s, manufacturers were not into heavy rebates; the verbiage for warranties on cars and trucks was brief. Import cars had the best record of repair, but were accompanied by the worst warranties among OEMs. Hundreds of unknowing repair shops fell prey to the "warranty contractors" who had become part of the automotive used-car landscape. The pitfalls that were encountered seemed not to be based upon what the warranty contract companies did cover, but more importantly just what they didn't cover! Many repair shop owners have had bad experiences with aftermarket warranty contractors and therefore now refuse to accept service or repairs that have one of these contracts attached in any way. Others will handle specific types of warranty/contract work such as air conditioning or accessory items only. A representative from Don's Auto Air in Springfield, Mo., said that air conditioning systems installed as part of a used car deal and branded with any of the major names that they use will be covered by the same warranty they offer on systems newly installed by their facility. The provisions for the coverage are spelled out in the customer's documentation. Don's Auto has had very little problem with this system.

Rick Hughlet, president of the local ASA chapter in Southwest Springfield, Mo., runs a first-class general independent repair shop. Hughlet's experiences with aftermarket warranties in the late '80s were very negative, but he has acquired an understanding in recent years of the "ins and outs" of most of the operating companies.

His facility will do any or most of the warranty contract work and will provide the customer with the extra services needed to accommodate the transaction. Many times, paperwork must be completed before the vehicle can be accepted as a warranty candidate, and Hughlet's expert staff goes out of the way to help establish contact between the warranty contract administrator and the shop, while keeping the customer inside of the loop.

Hughlet's Automotive Inc. deals with companies that provide payment on demand, or within the agreed-to framework that is decided before the vehicle is accepted. Hughlet says his shop is approached by used-car buyers for implementation of their warranties because of the high standards that are in force in his shop. Many warranty contract companies see this caliber of shop as a plus and also offer, as in Hughlet's case, a "preferred status" for customers calling in to look for warranty service.

Fist-full of dollars
New car companies writing used-car supplemental warranties are disappearing at the dealer level very rapidly. In conjunction with the downward spiral of dealer used-car popularity (cars that are six years or older), dealers have realized that they may have about "rebated themselves" out of the used-car business.

Many big dealer organizations would rather pick up what they can get in wholesale value for older vehicles; many of the smaller car maker dealerships do offer some type of older car warranty to used-car clientele. This "fist-full of dollars" approach has added to the pile of five- and six-year-old vehicles that are good buys for the average motorist but have no OE or other warranty remaining.

Niche entrepreneurs
Eight aftermarket, non-affiliated, service contract, post-OE warranty companies were contacted for this article. Helen C. Sluzis, marketing specialist with Preferred Warranties Inc., Orwigsburg, Pa., provided an inside look at a growing company that is operated in top-notch fashion. With 11 states participating, Preferred has taken only six years to garnish a reputation for reliability that repair shops respect. Products include warranties from three months to 36 months, and three levels of coverage. Vehicles are mainly from four to seven years old, and have less than 120,000 miles on the odometer. Adjusters are either certified by the National Institute for Automotive Service Excellence (ASE) or are working in that direction, and AAA membership is included in selected warranties as a no-nonsense proof of performance.

Many shop owners have complained of long processing delays and of problems with parts discounting and delays in payment with other companies in the past. With Pre- ferred, vehicle owners are encouraged to take cars or light trucks to the repair shop of their choice. Actually, initial contacts with that shop are considered "precious moments" by Preferred, because they already realize that it may well be necessary to reacquaint the shop with a company that writes service contracts the correct way and pays the bill on time. After a covered repair is accomplished, payment is usually made direct to the shop within five days.

Confusion has resulted in the past between OE warranty extensions and the "contracts" that are sold afterward. It bears remembering that a warranty is something that comes with the new vehicle; a service contract is either a completely different set of coverages or a supplemental set of coverages. Typically, used-car dealers sell such "service contracts" as an alternative to a warranty when the vehicle being sold is out of OE coverage.

Another circumstance might exist in which an OE dealer, tired of doing warranty exception paperwork, just uses a separate service contract for used cars that qualify for such. Mechanical Break-Down Protection (MBP), of Kansas City, Mo., is one such company that works with many Midwestern OE dealers to provide excellent protection for four- or five-year-old or older cars. Wayne Hammack of MBP said the company has been in business for nine years and enjoys an excellent reputation. The preferred client for MBP is the OE dealer with a lot of high dollar cars on the lot without any type of coverage. Hammack said the company serves more than 350 dealers at present and offers several protection plans that are based upon time and mileage for all respective purposes. An example he gave was that a '95 GM car with 39,000 miles would qualify for a four-year/48,000-mile warranty that could be offered or pre-bought by a dealership for less than many 90-day "make-do warranties" that some used-car dealers add on to the price of the sale of the car. More than a dozen of the Midwest repair shops interviewed for this article were familiar with or had done business in a positive fashion with MBP.

Checks and balances
Terry Franklin, service manager and shop director for U.S. Automotive, in Springfield, Mo., has 16 technicians, most ASE-certified, who repair cars and trucks of all makes and models. Franklin likes to work with the warranty companies as long as it is on his own restrictive terms. "Warranties offered by OEs and the service contracts offered by the dozens of companies affiliated with used car agencies are very different," says Franklin. Shop owners can expect to be confused up front if they're not looking at the contracts close enough. Developing a system to deal with the various suppliers of these contracts, Franklin checks out the company first. Even after they have done business, he uses a system of checks and balances. By providing a pre-inspection and working with a check sheet with the administrators of the warranty, while having the customer present and included in the conversations, U.S. Automotive does several of these transactions each month with few problems. Franklin says that despite the good ratio of success, he is always sure to include provisions for payment that require the vehicle be held in the shop's custody until all assignments are completed and remittance is in full. The transmission rebuilding segment of U.S. Automotive is a magnetic attraction to warranty contract service administrators, and according to Franklin, the company's excellent reputation, as well as versatility in service offerings, helps them continue to grow.

A few shop owners interviewed said they would never even consider doing business with an after-the-sale, contract type of warranty provider. Several mentioned bad experiences that were permanent records in their minds of how not to get into trouble again. But the consensus among shop owners interviewed would seem to be that the current operators of the warranty contract business are mostly solid, and worth looking into as a source of new business.

Data merge
Remember it is important to consider that service contract companies can sell to any vehicle dealer they want, including OE dealers. It is also wise to keep in mind that a few have solicited business from used-car purchasers by phone or mail directly. Most service providers interviewed consider this situation an ill-advised business proposition for their own facility involvement. One tire shop located in Arkansas has had dealings with regard to this type of transaction and found that the contract company continued to banter for discounts from the shop's expressed price well into the transaction, and he no longer does business with this type of contract/warranty company.

The future
First it is apparent that more auto makers are going to go for the bona fide "certified vehicle concept;" that is, refurbishing high-end cars to new or like-new condition. By selling these units for thousands less and in many cases tacking on "better than new" warranty (true OE warranty) status _ it seems that this avenue will definitely have a niche beyond the year 2000.

Dan Biggs with Ford related that Ford is currently rolling out their own re-certification for used car vehicles with a program called "Certified Care." Ford will support this venture with the vast experience of enrolled dealership participants. A 100-point safety and service inspection is expected to provide customers with a 12-month/12,000-mile warranty similar to OE bumper-to-bumper coverage sold with new cars. The minimum warranty is 30 days/300 miles, and is offered on the vehicles that are close to the five-year/50,000-mile acceptance criteria applied by the program directors to select vehicles in the Ford pre-owned fleet.

Car depots
Finally, there are the rapidly evolving "Megacenters." Republic Industries, recently in the news for its acquisition of a lion's share of Toyota-Lexus dealerships, operates AutoNation, a used car mega-mart affiliated with its OE franchises.

Another new franchise, Carnection, in Springfield, Mo., is a large, used-car, retail sales/service facility. Carnection offers bumper-to-bumper comprehensive warranty/ contracts on most of the vehicles it sells.

Warranties/contracts include six-month/6,000-mile, zero deduction coverage for most vehicles. A 24-hour road-side assistance program is included as is a one-year free oil change regimen. Other perks by this company include free towing, a nationwide toll-free emergency assistance number, and a six-day return/60-day exchange policy on any vehicle that qualifies for a warranty/ contract.

As of the time of our interview, Carnection allows no outside participation in its service contract program. It would seem the lack of certain aesthetics such as alignment equipment on site might allow for a business agreement by an enterprising independent shop to fill in the blanks while keeping the franchise capital investment to a minimum.

In retrospect
This article is not endorsement of participation at any level in warranty/service contract agreements. However, many good companies are willing to bend over backward to help you and or your customer get a fair shake.

By asking the right questions, your success in this marketing niche could prove to be a very profitable venture. The bright side of the used car market seems to be the willingness of all of the participants to want the system of warranty contracts to work and to provide as good or better coverage than warranty coverage at the OE level.

It will be interesting to witness this evolution and to see how the manufacturers will respond to such an organized effort at garnishing buyers for this endeavor.

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