Some dealers DO NOT pay into the reserve, so they do not "transfer the risk". They are gambling with your money. Your warranty is then only as good as the financial status of the dealership. If they hit hard times, your warranty is in jeopardy. If they go out of business, you may also loose your warranty.
If the dealer hasn't "transferred risk" to an administrator that maintains an excellent claims paying ability and the dealership is sold OR GOES OUT OF BUSINESS, you're out of a warranty, and you're out of the money you paid for that warranty.
Why should I care about Vehicle Breakdown versus Wear and Tear?
You should care because you may be covered for one (breakdown) failure
and not for another (Wear and Tear) failure with your current warranty.
A breakdown failure occurs when a component or part BREAKS. A wear and tear failure occurs when a component breaks AND/OR fails to perform up to manufacturer's specifications.
For example, piston rings usually will not break, but they will wear out. This is wear and tear failure, not breakdown failure.
Another example: Suspension items normally do not break. They wear out. This is wear and tear failure, not breakdown failure.
This is a critical distinction because many manufacturer's warranties and after market warranties DO NOT COVER WEAR AND TEAR FAILURES.
Is your vehicle covered for overheating?
A little known section of the fine print in most manufacturer's and
after-market warranties is an exclusion that reads something like this:
"This contract does not cover overheating regardless of the cause."
Most people have seen steaming and smoking vehicles at the side of the road due to city traffic, heavy snow, or extreme heat. Your current warranty may not cover this situation. It probably has an "overheating exclusion." This is a VERY expensive repair and is specifically excluded in most MFG service contracts.
With your current warranty, do you have one deductible?
Probably not, but most extended MFG warranties do. You could be under
a warranty that has a deductible for EVERY repair, as opposed to one for
a single repair visit.
For example: During a repair visit you have the brakes, air-conditioning, and transmission fixed. If you have a deductible for EACH repair under your current warranty, it could take hundreds of dollars ($150.00) out of your pocket.
With my current warranty, can I go anywhere for repairs?
Probably not. Many factory plans require you to go to factory shops,
but usually do not state"where you bought it.".
For example, as of 1999, with a Chrysler warranty you must go to a Chrysler facility.
Many dealer service contract programs (which are different from the manufacturer's warranty), have an unbelievable exclusion: They make it uniniviting for non-dealer repair facilities to honor their vehicle service contracts, which means that you end up having the vehicle repaired AT YOUR DEALER'S REPAIR FACILITIES!
How Dealers get paid twice from one repair.
Occasionally manufacturers will make exceptions in their warranties
to cover special problems or defects with their products. Such exceptions
are referred to as "hidden warranties" (as opposed to vehicle "recalls"
which are items that relate directly to the safety of a vehicle). An unethical
repair facility may charge both the customer AND the manufacturer when
repairing a defect covered by a "hidden warranty."
For example, a consumer may find a problem with their vehicle, bring it into a dealership for repairs, pay for that repair, and NEVER know that the problem was actually being paid for by the manufacturer of their vehicle at the same time. Example: Your warter pump fails, and only costs you $50.00 to repair it. The repair facility may give you a price of $50.00, so you think that's not much, so go ahead and pay cash (which someone may even pocket).. Then it is turned into the MFG for the Warranty, and get paid within alotted guidelines for time and parts, which is usually the MAX for each. I have had this VERY thing happen to an ex-girlfriend of mine.
One reason this happens is because it is not mandatory in most states that a manufacturer reveal to consumers that their vehicle has additional "hidden warranties" not expressed in their original manufacturer's warranty. The manufacturers know that service facilities "double dip" on occasion. They do little or nothing about this practice because it is in their best interest not to disclose defects, newly covered items, or get repairs done at their expense.
Many service facilities know that consumers are unaware of "hidden warranties" and can take advantage of consumers (mostly women) that have a real defect in their vehicles. A consumer can read their manufacturer's warranty countless times but it will never reveal the "hidden warranties."