From: egreen@east.sun.com (Ed Green - Pixel Cruncher)
Newsgroups: misc.consumers
Subject: Re: Should I buy extended warranty?
Date: 3 Sep 1992 16:59:55 GMT
Organization: Sun Microsystems, RTP, NC
Distribution: world
Reply-To: egreen@east.sun.com
NNTP-Posting-Host: laser.east.sun.com

In article 7631@leland.Stanford.EDU, triumph@leland.Stanford.EDU (Chung-kao Hsieh) writes:
>Dear netters,
>
>	I recently went to Circuit City to buy a refrigerator, a washer, and
>a dryer.  All three machines are made by Whirlpool.  The salesperson was 
>pushing me into buying their extended warranty.  I remember reading somewhere
>saying that it's not worth buying it.  Could someone share theire knowledgeable
>experience with me?  Thank you very much

Refrigerators, computers, motorcycles, and most other consumer goods
are manufactured using statistical methods of quality control.  Every
single unit is not thoroughly inspected and tested.  It is entirely
possible (eventually, a certainty) that some sub-standard units will
slip by such QC and be shipped to customers.  To protect against this
eventuality, the manufacturer offers a warranty on the product.  The
warranty generally covers "defects in material or workmanship" for some
period of time.  At the termination of this warranty period (whether
you ever require service under the terms of the warranty or not), the
manufacturer is reasonably assured that the occasional sub-standard
unit has been found, and he has had the opportunity to bring it up to
his standard of quality.

(BTW, this is all a standard warranty is and all it is intended for, it
is not a promise that product will operate perfectly, and the product
is not designed to fail immediately after the warranty period.  It is
simply a policy which allows the manufacturer to use statistical
methods of quality control, holding down the cost of part of the
manufacturing process.)

With this understanding of the standard warranty, let's now look at the
"extended warranty" (EW). At the termination of the standard warranty,
the manufacturer is reasonably certain all his units are up to his
standard of quality.  At this point, he is essentially making a wager
with you that the product will not fail, in the manner specified in the
EW, during the term of the EW.  If he wins this wager, he keeps the
price of the EW.  If he loses this wager, he keeps that price minus his
repair cost, which may or may not mean he actually loses money on the
deal (depending on the repair cost, of course, which is generally much
lower to him than what you would be charged for the same services).

What does the manufacturer bring to the table in making this wager?
His extensive knowledge of the product, its design and manufacture;
statistical data on the frequency and severity of repair work required
on the product, over its entire history;  the collective knowledge and
expertise of his R&D and design staff on the physics and engineering
principles of the product's operation;  accurate cost models on the
cost of various modes of repair if necessary;  extensive data culled
from *other* EW's;  etc.

What do you bring to the table in making this wager?  For most people,
the answer to this is, "only a vague fear of the product braking down
in the future, requiring repair."  If you have faith that you are
buying a quality product from a reputable manufacturer, why assume it
is going to break down?  If you are buying junk, take the cost of the
EW and buy a higher quality product to begin with.

Aside from that, the fact is that EW's are often sold and serviced by
third parties, who may or may not be able to provide competent repairs
if necessary.  These third party EW's pay a heavy commission to the
salesman/dealer, which is why they are pushed so hard.

If you think about it, to make an EW "pay off" for you, you have to
hope that the product breaks down in a major way!!  Why buy something
and hope it breaks?!?  Take the cost of the EW and apply it towards
tools and education to fix the product yourself (hidden benefit:  you
will learn to do preventative maintenance, and the major break-down
will never occur).  Invest the cost of the EW, and you will have more
money to spend on repair if/when it does break down;  if it never does,
you have the money to buy a new one!

Extended Warranties are almost always a rip-off.

---
Ed Green, former Ninjaite |I was drinking last night with a biker,
  Ed.Green@East.Sun.COM   |and I showed him a picture of you.  I said,
DoD #0111  (919)460-8302  |"Go on, get to know her, you'll like her!"
 (The Grateful Dead) -->  |It seemed like the least I could do...