A number of auto-industry observers and consumer advocate groups are warning new car shoppers about the financial threat posed by dealer service contracts. These dubious deals are sold towards the end of the new-car-purchasing process and can completely cancel out any savings the buyer had just won in negotiations.
The spiel used to move these devious contacts is that you, the buyer, will save all sorts of money by not needing to pay for any maintenance for a set number of years. Of course, this is often not true. After all, if the dealerships were not making a profit by selling these service contracts, they wouldn’t be selling them. In fact, Pam Oakes, owner of an independent repair shop in Fort Myers, Florida and the author of Car Care for the Clueless, says that these contracts can end up costing buyers twice as much as what they’d pay for what three or four years worth of maintenance normally costs.
Consumer Reports, a publication that knows a thing or two about not being ripped off, agrees with Oakes. The publication goes even further though and says that service contracts sometimes do not even pay for what they should.
This does not mean that all post-purchase service plans are a bad idea. Cadillac, BMW and Toyota all have free maintenance plans that are in fact free.