By Matthew DeWitt, DeWitt Equipment Remarketing
I know, everywhere you go someone is trying to sell you a warranty.
It seems expensive, pervasive and sometimes just silly. I mean, do I really need extended protection on my new $35 hair dryer? No way. Right?
Now think about your $2,500 flat screen TV. Well, maybe. I will not be without my Netflix, NHL or Sunday football.
Now let’s talk about our heavy equipment. In 30 years as a sales rep, manager and business owner in the construction equipment space, I would say that historically, customer participation in extended warranty is hit and miss.
The traditional argument is “why would I buy an extra warranty for a machine that you’ve sold me as the best product? It shouldn’t break, certainly not with low hours.”
Legitimate argument, right? Maybe not so these days.
Construction equipment has undergone a huge technical evolution in the last decade alone. This evolution encompasses some pretty critical systems on your modern machine. New systems with extremely tight tolerances (think common rail fuel system with next to zero tolerance for any dirt in your fuel) can be pretty unforgiving and expensive to repair.
Tier 4 diesel engines often incorporate complex emission after treatment systems that can cause significant downtime if misunderstood or left unattended. Hydraulic pumps and systems are more complex than ever in order to accommodate new operator-friendly technologies.
All of these are, of course, tied together by wires, relays and the ever-dangerous wiring harness — a relatively inexpensive item that doesn’t really like vibration, heat, dirt and other equipment related realities.
I can’t tell you how many downtime incidents (and warranty/policy arguments) are attributable to items like the harness or other delicate and complex items.
Many of these are not covered by extended powertrain warranties. The EPTW covers the big-ticket items like engines and transmissions that we fear the most, but in reality, are a lesser cause of downtime.
These are some of the modern realities of equipment which are the price we pay for greatly improved performance in terms of productivity (often the No. 1 factor determining contractor profit), lower fuel consumption, cleaner emissions and operator friendliness.
The down side is we are now in modern automotive territory.
You (contractor or fleet owner) can’t work on a lot of these systems yet. So, most of us will be working more closely with OEMs and their dealers going forward.
Keeping this in mind, there are three primary reasons to purchase as much warranty as is available.
Dealer service policy
So, you have a mechanical issue. You are just outside or well outside of the warranty hour expiration or more painfully, the date of expiration. Ouch!
The dealer says “sorry, you are outside of the basic machine warranty and our records show that you were offered it and you declined to purchase it.”
You may have even initialled the acknowledgment that you declined it. At this point, things often tend to get ugly.
Now, let’s rewind. Pretend you agreed to purchase the extended complete machine warranty (most comprehensive) three years ago. You have a weird hydraulic-electrical gremlin living in the machine.
You head to your dealer service counter and they inform you that the complete machine warranty timed out two months ago. You, being the dutiful customer you have been, entrusted the dealer to perform routine scheduled maintenance, money well spent when facing potential service disaster.
The service coordinator looks at your service history, warranty purchase, machine hours and the two-month expiry and says they might be able to help you out.
Good dealers and good OEMs will often work closely together to assure customer satisfaction and reward customers that understand how to play ball. Yes, OEMs bank a lot of cash from warranty premiums.
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The flip side of this is that OEMs are getting tougher on warrantable repairs with their dealers.
They are also less flexible in providing any help to those customers who refuse to buy into the insurance of extended warranty.
Although there is no guarantee that you will be the recipient of a policy adjustment, your chances are much better if you buy the warranty and this can save a lot of money on that hi-tech machine you’re pounding around in the dirt.
Yes, you can use this example to value and rate your OEM and their dealer when you have done your part as the customer. Many good dealers and OEMs will allow for a prorated solution or sometimes, a three-way split of repair and parts costs between the customer, dealer and OEM.
I can assure you first hand, that if you are getting out of a lease early, upgrading to a larger machine, unhappy with a machine or just selling a machine, you will recoup a significant piece of the warranty investment at resale.
Purchasers of used equipment can get nervous when looking at a 3,000-hour Tier 4 unit.
Two more years of comprehensive manufacturer’s warranty can calm the most nervous of Nellies.
The leasing advantage
If you are leasing the machine, the extended warranty should be a no brainer.
If the extended warranty component is $8,000 and you are leasing for 48 months with a 50 per cent purchase option at the end, you will, in most cases, only pay for 50 per cent of the comprehensive warranty (plus low interest) during the lease term.
You will protect yourself and your all-important machine through the next four years and ultimately likely lower your operating costs. Maybe you’ll be able to sell the machine for a profit during the lease because you have another year of warranty to offer the purchaser. Work this out at point of sale with your rep.
Numerous manufacturers offer warranties that extend beyond your chosen finance term. Think longer term on this.
Today’s machines are constantly becoming smarter, faster and more complicated.
As well, most OEMS are guarding their intellectual property. This means that you will have limited access to service information and will be more reliant on the manufacturer.
With no dog in this fight these days, I can advise the following in good conscience:
You need to buy the warranty, and the support, from the OEM.