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New cars: Longer warranties - good or bad?

When times are tough any revenue stream is a godsend and those that dry up are lamented at length, so as car quality improves, it stands to reason that warranty work decreases.

That’s great for the customer and fantastic news for the manufacturer, but a diminishing source of income is hardly a welcome prospect for the dealer network.

Tackling the area of income loss from the diminishing pool of warranty work proved one thing to be conclusive: this subject is taboo.

Perhaps that’s not surprising. It’s a difficult call to bemoan the loss of revenue simply because product quality has improved.

The manufacturer’s warranty is inextricably tied up with product quality or at least the customer’s perception of quality.

A longer warranty certainly helped Hyundai establish a strong foothold when it introduced its five-year warranty 10 years ago.

Arguably, the current climate has helped stimulate the warranty war which has heightened over the past few years as manufacturers vie for the new car buyer’s attention.

Kia’s seven-year warranty was introduced in January 2010, Toyota’s five-year warranty debuted in June the same year and that was followed closely by Vauxhall’s ‘Lifetime’ warranty a few months later in August.

Renault has since joined the throng, launching its four-year new car warranty in February this year.

However, all these manufacturers operate a 100,000-mileage limit compared to Hyundai’s unlimited version.

While we may be hearing the distant death knell of the three-year warranty, the clanging of this particular bell has been sounding in the workshops of the franchised dealer network for some years.

The reduction of warranty labour sales in the workshop can translate into several thousand pounds of lost revenue which most can ill afford.

Are warranties a double-edged sword?

Like all franchised dealers, automotive group Lifestyle Europe has had to balance the obvious disadvantages of revenue loss with the advantages of selling a better quality product.

Far from being a double-edged sword, the group believes that forward-thinking manufacturers are already counteracting the issue with all-encompassing aftersales packages while customers will be attracted by a product which has boosted its quality image.

These new aftersales products may not pay off in the short term, but are more likely to bring long-term benefits, including keeping the motorist within the franchised network beyond the three-year point when customers are more likely to switch to the independent sector as warranties come to an end.

Click here for aftersales best practice and procurement insight

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  • gezza37 - 05/05/2012 12:00

    A bit naive of Robert Lujan to say Nissan haven't lost sales due to longer warranties elsewhere. I can assure him they have as I know people who have bought Kias and Hyundais just because of the warranty and the ability to sell the car in three years with at least 2 years of manufacturer warranty remaining.Why would you buy a car with a 3 year warranty when you can get one with 5 or 7 years?

  • racer47 - 09/05/2012 13:35

    Very niaive I'd have said. All franchised networks are doing their damndest to get customers through the door. You can argue about customer loyalty but given that 50% of new vehicles are fleet, and the fleet companies are using independants and fast fit to try and chip the maintenance budget down how do you stop that? The only answer is a valued no brainer of a service package i.e. like the BMW/Mini TLC package which is far cheaper than the actual servicing would cost - so even the fleet companies buy it, in addition the Service History adds to the residual value. There are too many companies trying to sell service plans which are at full up cost and dependant on your mileage won't cover the service cost when its due. If the franchised networks want to survive they MUST have vehicles that are sold with a long warranty, and servicing included in the price of the vehicle (a la Renault) and NOT a bolt on! I'd have thought the ideal would be 5 years warranty/roadside and servicing, this also ensures the second or third owner (who's probably never used a main dealer - he just assumes the £4m gin palace down the road is expensive) will use the main dealer. Its not difficult is it??