WARRANTIES AND GUARANTEES



A warranty or guarantee is given to the purchaser by a product manufacturer or provider of a service with the understanding that the manufacturer or provider will replace or repair a defective product or make good an ineffective service within a predetermined span of time. Popularized by national retailers and automobile manufacturers over the last few decades, written or implied warranties have become virtually standard and necessary to secure the trust of consumers. Few things are sold these days without some form of warranty—with the stereotypical exception of used cars where the original manufacturer's warranty has lapsed and dealers often choose not to offer one of their own.

New cars are a different story, however, and provide the most visible use of warranties by manufacturers. Every television commercial for automobiles today touts the length of the warranty. In the 1960s Chrysler Corp. emphasized its generous warranty over the features of its cars, when it created an advertising jingle proclaiming that its cars were covered for "five long years or 50,000 miles—whichever comes first." Korean automobile manufacturer Hyundai also offered generous warranties on its 1998 models in an effort to counteract a reputation for mechanical unreliability. Used car purchasers are sometimes able to enjoy warranty protection, as a secondary industry arose in the late 1990s to sell extended service contracts covering certain repairs on used and leased cars.

In the 1980s and 1990s, consumer activists greatly expanded car warranty coverage with the passage of "lemon laws" in many state legislatures. These laws hold that automobiles should at least work reliably beyond the manufacturers' written warranties. If a consumer buys an automobile that undergoes continuous and unreasonable mechanical problems, lemon laws give the consumer the leverage to force the dealer to remedy the problems. Sometimes the simplest remedy for the dealer is to buy the vehicle back or offer the consumer a reduced price on a new car. This imposes a serious financial burden on dealers, and a dealership of the Ford Motor Company in New Jersey successfully sued the parent company in 1996, claiming that Ford inflated the price of its cars to cover warranty repair costs, to the detriment of the dealers' business. Controversy has also arisen within the automobile industry regarding the responsibility of off-site suppliers of parts for warranty-related customer claims, although many small suppliers claim that they could not survive if made to pay for a portion of automotive warranty claims.

The manufacturers of high-cost electronic products such as computers have incorporated longer warranties as selling points against their competition, implying that any equipment sold with a shorter warranty must be of lesser quality. Often warranties can be extended for a full year for as little as $100, giving peace of mind to computer users while bringing in millions of dollars to computer manufacturers confident that their equipment will function well past the extended warranty date. One study estimated that nearly 40 percent of buyers of electronic products purchase extended warranties as do more than half of car buyers.

New types of warranties were developed in the late 1990s in response to changes in the marketplace and new environmental regulations. The use of home warranties by builders and developers to boost housing sales also became commonplace, and in 1998 the State of California considered extending warranty coverage to automotive emissions inspections and services.

While manufacturers would like consumers to think of warranties as something they provide as evidence of their faith in their products, the truth is that most warranties are covered by local, state, and federal laws. The final judge in this country is the Federal Trade Commission, which uses the Magnuson-Moss Warranty-Federal Trade Commission Improvement Act of 1975 as its guideline. This law requires stores to provide consumers with copies of written warranties for products costing more than $15 if the customer requests them before making a purchase. The retailer should keep a binder or folder of warranties for all the products it carries.

States require that the manufacturer or seller of a product offer an implied warranty—some sort of guarantee that the product will work once it is out of the box and that it will work in the way that its manufacturer says it will. A wet vacuum that is supposed to suck up water from the garage floor has to perform that job, or the consumer has a legal right to return it for one that does. The length of time that these implied warranties are in effect varies from state to state.

There are two types of written warranties: full and limited. A manufacturer offering a full warranty must grant it for a specific length of time, must make repairs at no charge in a reasonable length of time, and cannot require the customer to jump through any hoops in order to invoke the warranty. Limited warranties, which must be labeled so in writing, limit the liability of the manufacturer. A limited warranty may offer to replace defective parts free while still levying high labor charges or require that the consumer ship the product to a manufacturer-approved service center. The distinctions between full and limited warranties and the obligations of manufacturers to honor them vary from state to state so it is up to the consumer to carefully read the literature and understand what is covered before the purchase. Fortunately for consumers, manufacturers are required to follow any implied warranties created by local laws.

What some consumers wish would be part of a warranty might not be. The warranty might cover direct damages such as fixing a broken refrigerator but exclude indirect damages such as the cost of replacing ruined food that was in the refrigerator when it broke down. Some implied warranties exist that manufacturers leave consumers to discover on their own. One example is fixing paint on cars. Automobile manufacturers do not advertise that they can sometimes be persuaded that paint should not flake off a car after the warranty has expired. It may take persistence to get past the local dealer, but every year hundreds of dissatisfied car owners receive new paint jobs, sometimes after negotiations have failed and the car owners have threatened to publicize their cases or purchase competing models.

Extended warranties remain controversial. Manufacturers sell them betting that the extended warranty will not be needed or used, thereby resulting in profits. Consumers buy them for peace of mind, under the assumption that they are protecting their initial outlay of money. The controversy revolves around what the warranties cover. Some extended warranties are actually service agreements, resulting in higher charges than might be expected under a warranty. In other cases the fine print in the warranties exclude the very things that the consumer assumes would be covered. Automobile extended warranties usually require that consumers keep meticulous service records. For example, car owners who do not keep their receipts for oil and transmission fluid changes could find that they have invalidated the extended warranty purchased when the car was new.

Do consumers need extended warranties? One survey found only 38 percent of consumers who had bought extended warranties had ever had anything repaired under them. Of the manufacturers responding to the same survey, 62 percent reported offering extended warranties, but only 13 percent of the warranty work they performed was for a customer holding an extended warranty. By 1996, misuse of extended warranties led more than 30 states to consider or enact regulation of extended service businesses. Manufacturers and contractors in certain industries also began to question the efficacy of extended warranties, with 76 percent of heating and cooling contractors reporting in 1996 that their extended service contract programs were losing money. In fact, difficulties encountered by manufacturers and contractors offering extended warranties and service contracts have given rise to a new industry, in which insurance companies offer companies protection against unexpected levels of extended warranty and service contract claims.

Small, local manufacturers and service providers who believe that adding warranties will make their sales pitches more attractive should carefully review local, state, and federal laws such as the Magnuson Moss Act. Governments take the issuing of warranties very seriously as should any company that issues them.

[ Clint Johnson ,

updated by Grant Eldridge ]

FURTHER READING:

Caplin, Joan. "Home Buying: How Valuable Is a Warranty?" Money, October 1998, 210.

Clay, Jordan E. "Home Warranties Require Close Buyer, Seller Scrutiny." Dallas Business Journal 20, no. 46 (18 July 1997): C16.

Conley, Keri. "Home Warranties Are More Popular as Home Buyers Become Cost Wary." Pittsburgh Business Times 14, no. 30 (27 February 1995): 12.

"Contractors Can Offer Extended Warranties." Contractor 44, no. 3 (March 1997): 5.

Drury, Tracey. "Used Cars Treated Like New Under Terms of Warranty." Business First of Buffalo 13, no. 50 (22 September 1997): 32.

"Great Warranty Debate." Ward's Auto World 34, no. 7 (July 1998).

Heyler, Jack. "Emission Warranties Expanding." Motor Age 117, no. 10 (October 1998): 76.

Mahoney, Thomas A. "Long-Term Warranties Don't Work, Industry Tells the News in Survey." Air Conditioning, Heating and Refrigeration News 197, no. 14 (I April 1996): 1.

Sawyers, Arlena. "Ford to Appeal Ruling that Holds Makers Responsible for Warranties." Automotive News, 25 March 1996, 3.

"Service Contract Bills in 30 States." HFN. The Weekly Newspaper for the Home Furnishing Network, 12 June 1995, 58.

Simison, Robert L. "Hyundai Plans Turbo-Charged Warranty to Beat the Rap of Problems with Quality." Wall Street Journal, 23 September 1998, A4.

Turpin, Joanna R. "Many HVACR Contractors Use Home Warranties to Help Boost Business." Air Conditioning, Heating and Refrigeration News 197, no. 10 (4 March 1996): 22.



User Contributions:

Comment about this article, ask questions, or add new information about this topic:

CAPTCHA