News

Edmunds: Are prepaid car maintenance plans worth it?

Edmunds: Are prepaid car maintenance plans worth it?
Autos
Prepaid car maintenance plans are one of the most common items a dealership finance and insurance manager will offer you when you buy a new car. The sales pitch promises the advantage of "locking in" maintenance prices at today s rates for a little extra amount added to your monthly payment. Then, whenever you need scheduled maintenance, just roll in, get the service done, and roll out without ever opening your wallet.

The pitch sounds tempting. But what exactly do these plans cover? And are they a smart use of your money?

IDENTIFY THE TYPE OF PLAN

There are two types of prepaid maintenance: one offered by the automaker (or a company it has approved) and another from the dealership.

A car manufacturer s prepaid maintenance plan usually covers the regularly scheduled maintenance listed in the owner s manual and excludes coverage for anything that wears out, such as brake pads or windshield wipers. Typically, any of the brand s franchised new-car dealership service departments will honour it. These plans can be tailored to the length of ownership.

Dealership-based maintenance plans can offer such services as unlimited oil changes, which are useful, but they might not include other maintenance items. Further, prepaid plans that are only good at a single dealership limit your flexibility.

ARE PREPAID PLANS A GOOD DEAL?

According to Oren Weintraub, president of Authority Auto, a car-buying concierge company based in Los Angeles, it s nearly impossible to know if the price for a prepaid plan is a good one as you sit in a dealership s finance and insurance office, signing lease or purchase paperwork.

"People get hit with so much information, and they re unprepared," he said. "They have no idea of the price of the product."

That s because the finance manager will likely present the prepaid maintenance plan in terms of a monthly payment, not the overall price of the plan.

One way to get clarity is to research the cost of prepaid maintenance before you buy the car, when there s no pressure and you have time to compare out-of-pocket and prepaid costs.

Contact the service department of a dealership that sells the vehicle brand in which you re interested, and ask to speak to the service manager or a service adviser. Request a list of all the manufacturer s required maintenance for the vehicle you re interested in, along with the price of each service. If you re planning on having the car for three years, that s the period for which you want the quote. If it s five years, make sure to ask for that.

Also, ensure you re not getting the dealership s service recommendations, which often include work that s not required by the manufacturer.

Armed with the out-of-pocket costs, you can see if the price for a prepaid plan is a good one. If it s too high and you can t strike a deal that s less than what you d pay out of pocket, it s not worth it.

Keep in mind that if you wrap prepaid maintenance into the financing for your vehicle purchase or lease, you will be paying interest on it. If you can t get a good deal on a plan, you d be better off setting up a maintenance savings account and drawing on that to pay for service visits. You d earn a smidge of interest on your money instead of paying interest for the plan.

AN INCENTIVE FOR LESSEES

A good maintenance deal can be had if you re leasing, Weintraub said. Audi and Mercedes-Benz are two carmakers that incentivize the purchase of prepaid maintenance by increasing the residual value, or estimated long-term value of a vehicle assigned by the lender, of the leased vehicle.

With the residual increase, the vehicle is estimated to be worth more at the end of the lease since it would have been properly maintained at the dealership. To incentivize the prepaid plan, the dealership will pass on those savings to the consumer, thereby reducing the price of the plan.

Weintraub gave the example of a lease for a 2018 Audi Q5 with a residual value of 55 per cent. The prepaid maintenance plan s retail cost is $869 for four years, according to Audi.

But if you were to fold the cost of the plan into your lease, Audi would help you get a break by raising the SUV s residual value by 1 per cent, Weintraub said.

If the car s retail price is $50,000, that tweak would add $500 to its residual value. That amount would be subtracted from the $869 maintenance plan, costing you only $369. Figure in tax and interest, and your cost for the plan would be about $410, which buys you scheduled maintenance for up to 50,000 miles, plus brake fluid replacement every two years. Based on price quotes Weintraub received from two Southern California Audi dealerships, the out-of-pocket cost for those service visits come to about $1,910. You would save $1,500 by prepaying.

EDMUNDS SAYS: Prepaid maintenance plans can be a convenient and cost-effective way to service your new vehicle, provided you re willing to research prices ahead of time and aren t shy about negotiating.
Read more on CTVnews
News Topics :
RELATED STORIES :
Autos
A number of automakers have offered free maintenance programs for over a decade as a way to sweeten the deal on a car lease or purchase. But in recent years,...
Autos
A record 4.3 million Americans have vehicle leases that are ending in 2019. If you re one of them and you expect to get the same kind of deal you...
Business
Shop smart. If lease rates are better than financing rates because manufacturers are subsidizing their leases, you’ll win on the lease.    TNS FILE PHOTO    By Gail Vaz OxladeSpecial to the Star...
Autos
While low interest rates and big manufacturer rebates are key drivers in attracting new vehicle shoppers, one often overlooked consideration is the cost of depreciation. Canadian Black Book tracks and...
Autos
Car shoppers often see themselves as targets of opportunity for dealerships and their salespeople. And while a few dealerships do engage in shenanigans, some damage can be self inflicted. Here are...