Sunday, August 28, 2005

Excellent discussion of extended warranties or service contracts

To Buy or Not to Buy: The Quandary of Warranties - New York Times

1. The length of a manufacturer's warranty (assuming, unlike Samsung air conditioners, one can find a service center) is a marker of quality. Extended warranties or service contracts are pure insurance plans.

2. The margin on electronics is 25%, the margin on a service contract is 45%. That's why sales people push service contracts.

3. Consumer reports has some specific recommendations:
Consumer Reports generally advises against buying extended service contracts because 'the cost of repair is probably equal to the cost of warranty, so you should probably just keep that money in your pocket,' a spokeswoman, Lauren Hackett, said. One Consumer Reports survey found that three years after purchase just 5 percent to 7 percent of televisions needed repair, and 13 percent of vacuums (not counting belt replacements). But 33 percent of laptops had been sent to the shop or the recycle bin.

The consumer group does recommend extended service policies on three items, Ms. Hackett said: laptops, treadmills (they are too cumbersome to take to the shop, she said, and service calls are expensive) and plasma TV's, because the technology is new and 'if you are spending $5,000 for a TV set, you might want to get a warranty.
A very nice summary, except they forgot that many high end credit cards offer one year extensions to the manufacturer's contract. Once you factor in that option any service contract becomes much less interesting -- even on a laptop.

Another twist: sometimes the manufacturer's service is not the best. Apple's service contract (AppleCare) requires devices be serviced by Apple, and they apparently use psychopathic inmates as their labor force. There are advantages to finding non-Apple service if it's available.

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