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Buying Tips
Prepaid Maintenance Plans
Smart Move? Or a Waste of Money?
By Philip Reed, Senior Consumer Advice Editor
Email
You're buying a car that has a great reputation for reliability — and it
even comes with a strong warranty to offset the cost of unexpected repairs. But
just before you sign the contract, the dealer offers you a "prepaid maintenance
plan." The way it's pitched, it sounds tempting. But is it a smart use of your
money? Or is it another profit center for the dealer?
First of all, it's important to understand that a prepaid maintenance plan is
not an extended warranty. Typically, prepaid maintenance plans cover only
the regularly scheduled maintenance listed in the owner's manual. If the prepaid
maintenance plan you purchase is for 36,000 miles and 3 years, then you have prepaid
for just what is listed in the plan's contract — usually comparable to the
maintenance listed in the owner's manual.
Think of it this way: If you're prepaying, what exactly are you prepaying for?
To answer that question, let's look at an average car's maintenance schedule.
Or, more specifically, what is the maintenance that is called for in the first
36,000 miles of a new car's life?
The answer is, not much. Basically, most cars require only oil changes and tire
rotations in the first 36,000 miles.
Some eagle-eyed readers might now be saying: but what about brake jobs? Brake
jobs will usually be required during the first 36,000 miles of a car's use, but
since brakes are considered a wear item, they are not covered under most prepaid
maintenance plans.
Let's take a brief digression. If you are reading this article, and wondering
what maintenance your car requires, there is a very easy way to find out. Check
Edmunds.com's manufacturer's recommended
maintenance schedule for your car. Edmunds has compiled this information in
an easy-to-read format and also included estimated costs for various services.
(When reviewing the information, keep in mind that you will be shown the "severe"
maintenance schedule which calls for more frequent oil changes than is stipulated
under the "normal" schedule.)
Now, back to the question of prepaid maintenance plans. Let's see what the service
on a typical car costs during the first 36,000 miles of ownership. Say the normal
maintenance schedule on your brand-new car requires an oil change every 7,500
miles and that each oil change costs $25. Throw in a tire rotation at 15,000 miles
for about $50. And don't forget the more extensive 30,000-mile check-up, oil change
and tire rotation (usually running about $250). Here's a breakdown of the service
required and the related costs:
| Mileage
|
Estimated
Cost |
Service |
| 7,500 |
$25.00 |
Oil & filter
change |
| 15,000 |
$75.00 |
Oil & filter
change, tire rotation |
| 22,500 |
$25.00 |
Oil & filter
change |
| 30,000 |
$250.00 |
Oil & filter
change, tire rotation, Mechanical Checks |
| |
|
|
| Total |
$375.00 |
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The grand total is $375 for scheduled maintenance for the first 30,000 miles of
your car's life. If you paid $900 for a prepaid maintenance plan that covers this
work, you're probably not feeling very happy right now. If you paid $400, you're
probably feeling OK.
Based on these examples, it's safe to say that, on strictly a dollars and cents
basis, the prepaid maintenance plan is not worth it. But let's look at two related
factors that might make the prepaid maintenance plan more attractive:
- You can negotiate the cost of the plan down to a more reasonable fee.
- The prepaid maintenance plan holds other non-tangible convenience factors.
What's convenient about prepaid maintenance plans? A woman we spoke to, who worked
in the automotive business, bought GM's two-year prepaid maintenance plan for
$375 that covered her vehicle for 30,000 miles.
"I enjoyed the convenience of the plan," she said. "Especially at the end of the
day, with eight people waiting to pay at the cashier's window. With the prepaid
maintenance plan, it was all taken care of. I was in and out of the dealership
while other people were still waiting in line."
Additionally, she knew many other people who bought GM's prepaid maintenance plan
and liked them. "People would spend $400 all day (for the prepaid maintenance
plan) and they just loved them."
One source we contacted, who used to sell the prepaid maintenance plan in the
finance and insurance office of a dealership, said there is also a psychological
advantage to buying such plans.
"By pre-paying for all the required maintenance you never have to worry about
paying for an oil change or budgeting for any other maintenance item for the duration
of the maintenance plan. I believe that the convenience factor is the main reason
why people buy the maintenance plans."
However, this expert also said there was substantial profit for dealerships in
these prepaid maintenance plans and advised buyers to try to purchase them at
a lower negotiated price. Here is his advice on that subject:
"I would suggest asking the service manager of the dealership to give you a list
of all the required maintenance with their prices (they have this list readily
available at most dealerships). Add them all up (the scheduled maintenance), and
this will give you a very good idea about the total cost of maintenance for the
car if you paid for it on your own. Dealer's cost for the maintenance plan usually
runs around 50 percent of this total. So, offer them about half of this total
to begin with." While the dealership will probably make a counter offer, you are
still likely to save anywhere from $50 to $300, he said.
In the final analysis, whether or not to buy a prepaid maintenance plan isn't
strictly a dollars and cents decision. It has to do with your negotiating skill
and your need for financial security and personal convenience. After you weigh
these three factors together, the right answer — for you and your lifestyle
— should be revealed.
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