Salesmen Pushing Warranties

Yeah…they said, “Look at the margins on extended warranties!!! We’ve got to get the salesforce to push those & push hard!!! OMGWTFBBQ???”

1 Like

So that’s one less ivory backscratcher management can buy??? :wink:

And yeah, I can see management drooling over the extended warranty margins… :roll_eyes:

1 Like

I wouldn’t say that they are never worth the money.

  1. If they were free, would that be worth it? Gonna guess “yes.” So, there’s a low point with a “yes.”
  2. At they worth it at the price they charge? Gonna guess “no.” So, there’s a high point with a “no.”

So, assuming a continuous function, there is some price in between, not the same for everyone, cuz different functions, where each person would be indifferent to buying or not buying.
That’s just simple (to us) math.

BTW, same with leasing a car. If it cost $1 per month to lease a car, it would probably be worth it.

one thing to note, if your car has a factory warranty for 3 years, it’s quite likely to break down right after 3 years. Quality control only goes this far. This was my experience anyway

There is a tradeoff for the manufacturers. Not all breakdowns will be at a predictable time. For marketing reasons, they want the period to be as long as feasible, so they’ll allow for some problems under warranty. Then, because the timing is unpredictable, some cars will last years beyond their warranty.

I’m kind of a sucker for extended warranties on new cars. Mostly because my dad had a truck when I was younger that had a ton of issues that got covered under the basic and extended warranties.

I know I’m not coming out ahead, but I like the peace of mind not to have to worry about major mechanical issues, as long as it’s not too expensive.

Last car we got was a Honda. Warranty seemed super expensive to me when finance guy was pushing it. Guy wouldn’t move off the price much (He came down like 10% maybe) so figured I’d be ok without it. Decided to looked around online and there are a few Honda dealers that sell it online for a lot cheaper. Ended up getting same warranty the dealer was selling for 1/3 the price.

Lol. True. So you’re telling me there’s a chance… This is similar to that “What would it take for you to buy a car today” argument that annoys me and ends up wasting everyone’s time if you decide to play. Yes, if you’d sell it to me for far less than you’d be willing to sell it for, we’d make a deal today.

1 Like

It’s never about coming out ahead. Your expected value should be less than the premium (if it isn’t always, for reasons).
The problem with warranties is they violate a fundamental principle of insurance - the loss should be catastrophic . If it’s not catastrophic, then self insure and save a ton of money with great certainty.

Insure your income, your loss of house, loss of the car. Don’t insure a $500 mechanical repair.

Last car we bought, I listened to the pitch on all the extended crap. The sales rep has to do their thing, so I don’t bother interrupting. I just decline when they’re done talking. They don’t seem to push it with me fortunately.
The only time they got interrupted was when they started to explain compound interest to me. That got a ‘it’s OK, he understands interest’ from my spouse IIRC.

My point is that “never buy a warranty/lease” shouldn’t be the absolute that people make it out to be.
But, yeah, if they’re not budging, then eff them and walk.

Well actually it almost always is. Because on warranties, you are going to pay more than the expected value. I can’t see how it would be otherwise. And likely, a lot more than the expected value. And either way, you can likely afford to eat the costs if your costs do exceed the premiums.
The utility making it worth more than the premiums seems to be something like ‘piece of mind’. For what? You still have to book an appointment and get the car fixed, the only difference is you’re paying through warranty premiums instead of direct repair costs. And again, that’s going to be a LOT more than the repair costs. So, the utility is a sham.

If you don’t want the warranty, I need you to speak with the assistant manager first before we can finalize this sale.

1 Like

True. This is not a bet or a gamble, it is about hedging risk on an expensive asset (the actual gamble) that you are about to own.

It’s more about utility, which adds some amount for uncertainty, than expected value.
And what is the uncertainty? Well, no one really knows. The standard deviation on frequency of breakdown on a new car cannot even be estimated well enough. The job of the salesman of the warranty is to add uncertainty to your head. It works well enough on enough people that they stick to the script.

intentional or…

if you want accurate expected value, self-insure everything.

you’re basing your utility on a $500 repair, so for that it makes sense. My former auto required a $7k repair in year 5 ( 2 yrs after factory warranty expired)

i was stuck between a rock and a hard place. Repair the car, or take the loss and sell it for market price less $7k. I decided on the latter.

That’s only because of the price offered. If the price were a lot less, you might be persuaded. Yes, the price is apparently non-negotiable, but I’m guessing there is A LOT of commission on these warranties earned by the one who sells it, based on the pressure. Now, we’re talking about negotiating his commission more than the price of the warranty. Suppose the price is $1000 for an extended warranty. Seller gets 50%. OK, tell the seller that if he pays you $400 right now, you’ll take the warranty (because $600 is your value of the warranty, for your own utility reasons). He gets essentially $100 right now (more than he had a minute ago), or no sale no matter how long he tries to talk to you. Now, HIS utility value of time is on the line.
Do these tactics work? No idea. I’ve bought three cars in 40 years to avoid car salespeople.

1 Like

If you’re going to try to bullshit them like that, you can either just say ‘whats your drop dead price?’. Frankly if there’s negotiation I normally ask that question anyway.
Or you can offer them a price, but imo it should be your take it or leave it. If you do the final price thing but you’re actually negotiating, I don’t feel it’ll go well.

I did this when we leased my So’s car. They gave me a price, came back with what I expected and was ok with. Asked if they had any wiggle room. They said they could drop it 15 bucks a month to get it below a 100 multiple. I told them not to bother, I’d take their first offer. I dont have a need to win or anything and a 100 barrier isn’t a barrier to me.

I did use the drop dead thing once a long time ago at a gym. Back then they’d add years instead of dropping the price. They offered me 3 years for a price. I pulled out my card, slid it across the table in front of them, left it there and said ‘5 years at that price’. They didn’t say anything, they just took my card and went to process it lol.

There’s two things where I’m probably different though. I might ask, but if I demand something like my final offer is X, I’m prepared to walk away if I tell them that. And salespeople don’t intimidate me. In a room full of salespeople I’m generally confident that I’m at the top of the food chain. My sales approach is radically different than a car salesperson, but I certainly understand what they’re doing as well as they do.

I’ve never heard that one IRL, but have heard references to it…esp Seinfeld.
[Seinfeld link] https://getyarn.io/yarn-clip/1e44b1cd-9a72-4916-afb4-9bc16e5f741a [/linkylinky]

Fyi what a car salesperson does is try and convince you to buy something whether or not you want it. Modern sales methodology is about filtering out people that don’t want or aren’t ready to buy. Traditional.sales would never ask a question that you can answer no to. I do it all the time, right upfront. If it’s a no, thanks, move along.

The simple thing that these people don’t use is called bant. Budget authority need and timeframe. You need to establish all four, by asking.

I had a guy yesterday asking me to quote on a 15k contract or so. I knew he had the authority and need. I asked him what his timeframe was, he said immediately. I asked about budget, he tells me like 3k. So, Im not even going to quote him and I told him that.
Instead I said it would be a 90 day job and we would do half upfront and half when completed in 90 days . Now he’s actually interested. Did I try and close him? Nope. Told him when he has the budget to call me. Then I’ll close.

I could go on at length. And sometimes do.

1 Like