Dealerships Defend Their Reliance on 50/50 Warranties:
It's Done for Buyer Peace of Mind, to Control
Costs, and to Share the Risk
Used vehicle dealers reached by Warranty Week said
the problem with 50/50 warranties isn't as much
with the warranties themselves as it is with dealer
fraud. The cost of any repair job can be inflated
-- even those where the customer is paying 100
percent of the cost. And it's no easier to double
the repair bill when the customer is paying half
than it is when the customer is paying for the
Before a customer can be overcharged, he must first
initial a written estimate that includes inflated
numbers for parts and/or labor. If he feels he's
being overcharged, he can take the car elsewhere
for another estimate before any work is done. If the work has already been
done, he can take the paperwork to somebody who can
confirm there's been an overcharge by comparing the
listed figures for parts and labor to the book
|"I thought you understood the
didn't include parts and labor."
After a customer has been overcharged, he may never
again buy a car at that dealership, even if he
passes it every day for the rest of his life. Many
of these small town dealerships are family
businesses, with children taking over from their
parents. Many of the customers also are into their
second or third generations, and most are repeat
buyers who expect to come back in a few years for
their next purchase. In such a setting, a crooked
dealer loses not just a customer, but also their
extended family, friends, and neighbors.
Peace of Mind
If anything, these small town dealers see their
issuance of 50/50 warranties as proof that they
won't be needed. They can't or won't issue 100
percent warranties, primarily for cost reasons, but
they won't sell their vehicles "as is," because it
spooks the customers.
Weldon Sisson, owner of Century Auto Sales in
Irving TX, said the basic 50/50 warranty he
provides with each used car sold is more for peace
of mind than anything. Before he sells a car, he
inspects it so he knows if it will hold together for at least 30
days, or if the engine is likely to drop out onto
the pavement halfway down the next block. The
promise of a 50/50 split in labor costs is his
assurance that he thinks this car will run for more
than a month.
|Century Auto Sales
"Actually, ours is 50 percent of labor and 100 percent of parts,"
he said. "In most cases, that avoids having to
repair things that don't necessarily need to be
repaired," he said, because the customer must pay
for half the labor. Also, because his dealership
doesn't have an in-house repair shop, it's more
important for him to split the labor cost with the
customer. "We can buy parts a lot cheaper than
they can buy parts," he said. And he can be a
better judge of the number billable hours involved
with each job, checking them against the book rate.
"Nobody wants to buy something that's totally
as-is. As a dealership, we pretty much have to
stand behind what we sell," Sisson said. "We've
been in business for 30 years here. My uncle was
in the business for 50 years before that. Most of
our buyers are repeat customers or referrals.
That's because we take care of our cars before we
sell them, and we don't usually have any warranty
problems. But if something unexpected comes up, we
try to help."
Share the Risk
Jeff Thurston Sr., president of Thurston's Marina
in Weir's Beach NH, said he has sold motor boats
and jet skis on the shores of Lake Winnipesaukee
for 31 years. Most of the used models are sold
with a 50/50 warranty.
Thurston's also sells some boats on an "as is"
basis, but usually those are boats the dealership
is selling as a broker for the actual owner. He
advises those owners to offer a warranty for the
sake of the potential buyer's peace of mind, but
some still don't.
Thurston also will remove the warranty option and
make it an "as is" sale if the final negotiated
price for one of his boats falls below a certain
minimum level. But that's only done with the
buyer's agreement to lose warranty protection in
exchange for a very low purchase price, he added.
"If a fella chooses to negotiate a price that says:
'Look I'll take that responsibility. I don't care.
I want the lowest possible price.' I can sell
something to him "as is," but with the clear
understanding that he is in fact bearing full
responsibility for any surprises. People buy stuff
all the time "as is," and I applaud their courage,"
"If a business wants a long-term relationship with
anybody they sell a product to, there's an inherent
responsibility to make sure that the product is
warranty-able," he said. "And that's an inference
that I think we feel comfortable making when we
offer a 50/50. It was not an "as is." There was
no attempt to make the buyer beware. Period."
To him, the 50/50 warranty is an agreement to share
the risk equally. "To try and make our buyers
understand that we're not trying to stick 'em, we
leave our wallet on the table, so to speak, for an
agreed-upon period of time, to say if something
does happen that we're both unaware of, we will
certainly fix it and bear half the cost of
replacing or repairing it," he said.
However, the buyer also has to leave their wallet
on the table, so to speak. If they drive their
boat recklessly out on the lake and it breaks, they're going to
have to pay 50 percent of the repair cost. "Half
of whatever happens involves his pocketbook as
well. They're given some assurance that they're
not getting stuck buying something used. By the
same token, it puts them on notice that their
appropriate behavior is required, or else they're
going to hurt themselves too."
As far as inflated repair costs, that can happen
anywhere, anytime. It doesn't happen only in 50/50
warranty cases. Any crooked repair shop can do it.
But of course, he'd never do it. Besides his
belief that honesty is the best policy, he also
thinks it's too hard to hide.
"There's a clearly published price list. Our work
order lists the part number and the cost of that
part," Thurston said. That goes for
out-of-warranty repairs as well. "Were it done six
months after the warranty expired, he'd still
expect me not to double the price. I think the
concerns being voiced by consumer advocates have
more to do with business practices that are
Volvo for Life
Sheri Edgecomb, general manager at Edgecomb's
Imported Auto Sales and Service in Charlottesville
VA, sells mostly Volvos to repeat customers who
return every few years to trade in their utterly
dependable autos. In this small town setting, she
has to stand behind what she sells for more than 30
days. Volvo buyers expect reliability and safety
from their autos and honesty from their dealers.
In fact, if a used Volvo breaks down in the first
month of ownership, it might as well have happened
in the middle of the street in front of the
dealership. It's bad for business because it
contradicts the reputation for high-mileage
reliability that makes Volvos popular in the first
Furthermore, Edgecomb noted that if her dealership
tried to falsely inflate the cost of repairs to turn a
50/50 warranty into more of a 70/30 or 80/20 split,
her customers could instead hand her back the keys.
Edgecomb's Imported Auto Sales features an
unconditional 30-day money back guarantee, which
allows the customer to return their lemon and
receive all their money back (minus 20 cents for
each mile driven).
"We are not like any other used car lot that you'll
ever see," Edgecomb said. "We also offer a 30-day
money-back guarantee, which was pretty much one of
the first of its kind in the business when we did
it 15 years ago. So our customers know that if we
say it's a $50 repair, it's a $50 repair." These
are her neighbors -- lifelong customers. And
they're buying Volvos, not Yugos.
Edgecomb's also sells used Toyota, Honda, Nissan,
Volkswagen, and Mazda models. All cars, Volvo and
non-Volvo, are sold with the 30-day money-back
guarantee plus a 50/50 warranty good for the first
30 days or 1,000 miles. In addition, any 1993 or
newer Volvo is sold with a one-year, 12,000-mile
50/50 drivetrain warranty. So in that first month,
the buyer has numerous options -- all of them much
better than "as is."
"We cover 50 percent of a whole lot more stuff than
most other dealers cover 100 percent of," Edgecomb
added. Many times, those 100 percent warranties
cover just the drivetrain, she said. "Well, we
sell Volvos. You don't have drivetrain problems
with Volvos. It's extremely unlikely. So that
kind of a warranty on a Volvo is relatively
useless. What Volvos have that every other car has
are little things that go wrong -- a window stops
going up and down." She said that by agreeing to
cover 50 percent of those kinds of repairs,
Edgecomb's is providing something useful to the
At Allen Jones Used Cars Inc. in Steens MS, the
dealership's Web site claims that 50/50 warranties
"Many of the vehicles Allen sells are still under
factory warranty, but even if the factory warranty
has expired on the car or truck you purchase, you
won't be offered a bogus "50/50" warranty. Allen
stands behind his previously-owned vehicles with a
30 day or 1000 mile warranty on every used car or
Chris Jones, the dealership's co-owner and
Webmaster, said he wrote that line on the home page
because of all the unhappy customers he meets.
"We've had a bunch of people here that bought cars
in this area and the dealer tells them they have a
50/50 warranty, and they won't ever stand behind
it," he said. "We do 30-day, 100 percent."
50/50 Is Better Than Nothing
At Jim's Imports in Wichita KS, the Webmaster makes
the point that 50/50 is better than nothing:
"Every pre-owned vehicle we sell is backed by Jim's
Import's own 50/50 warranty (unless sold as-is or
offroad). If you buy from a private individual you
will not get a warranty, and chances are if you
called that individual back for help, all you are
going to get in response is, 'Its your problem now.
I've got your money. Don't bother me again.'"
- The FTC Explains Its Decision
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- How NIADA Did It
- Advice Columns Warn Against 50/50