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A Brief History of Automobile Warranties
Despite the pitfalls, consumers have generally been well served by today’s warranty innovations, which help to differentiate automakers in a hotly contested marketplace.
Folklore has it that when Ransom E. Olds began selling his curved-dash Oldsmobile back in 1901, the guarantee he offered buyers stated that once the money changed hands, the car was theirs and the money his.
Caveat emptor, or buyer beware, was the guiding principle during the earliest days of the automobile era. Cars were an amalgam of crudely tooled parts made from questionable materials and workmanship that varied by the day and the supplier. It wasn’t until Henry Ford perfected the assembly line and supply chains that consistent quality could be assured and backed by a definable warranty.
A 1925 Ford offered the typical warranty of the day: “90 days on material; 30 days on labour. No guarantee whatsoever on fan belts, glass, bulbs, wiring, transmission bands, hose connections, commutator shells, rollers, spark plugs or gaskets.”
The 90-day warranty would outlive Henry Ford and become the industry standard right through the 1950s. While the list of ineligible “wear items” became shorter, manufacturers saw the need for a mileage limit and set it at 4,000 miles (6,400 km).
By 1960 the auto industry was beginning to resemble the market we know today. Imports from Europe and Japan were starting to arrive, prompting Detroit to introduce all-new compacts such as the Ford Falcon, Plymouth Valiant and the air-cooled Chevrolet Corvair.
Other innovations of the time included factory cash rebates and, significantly, Ford’s comprehensive 1-year/12,000-mile new-car warranty, the longest offered by a mainstream manufacturer. It was quickly eclipsed by 2-year/24,000-mile coverage, including “related labour,” on the 1961 Lincoln Continental.
Warranties had become a persuasive marketing tool to sell cars.
“In the early 1960s Chrysler, which had lost market share and profitably due to a string of poor decisions, increased its warranty to one year or 12,000 miles to demonstrate confidence in its new product,” says consumer advocate George Iny, president of the Automobile Protection Association (apa.ca).
By the mid-1960s competition between the Big Three automakers saw their engine or powertrain coverage lengthened to as much as five years or 50,000 miles. But longer warranties proved expensive for automakers pumping out shoddily built cars. In 1965 Chevrolet assembled more than one million Impalas at a ferocious rate that has never been topped – but the quality was lumpy.
“Warranties reverted to one year by the early 1970s as claims and warranty administration had become too expensive,” says Iny. But having seen the positive effect of generous warranties on auto sales, it wasn’t long before Detroit would revisit the subject.
American Motors, which was on the ropes with a spotty reputation for reliability, doubled its bumper-to-bumper warranty briefly to two years. Its enhanced Buyer Protection Plan – which even covered wear items such as brakes and clutches – gave AMC a significant, but short-lived, sales boost.
Despite the introduction of longer warranties, automobile quality had deteriorated so badly that the U.S. Federal Trade Commission launched an investigation into the growing litany of consumer complaints.
A case in point is Irv Gordon, the progeny of a “proud Chevy family,” who grew wary after both of his previous Chevrolets had broken down at every infuriating opportunity. His brand-new 1965 model sputtered and died right after leaving the dealership.
“That’s when the bean-counters took over,” says Gordon of GM and the other Detroit automakers that he claims embraced planned obsolescence as their money-making strategy in the 1960s.
Frustrated by frequent stalling and electrical issues, as well as broken engine rocker arms and pushrods, Gordon abandoned the iconic brand and bought a 1966 Volvo P1800S. Remarkably, the retired New York school teacher has driven 5 million kilometres in his little red coupe to date, a Guinness world record that may very well stand forever.
Death-defying Volvos aside, the commission found that automobiles were not being made to an acceptable quality standard. Manufacturers and dealers were not making the promised repairs and their products required more frequent preventative service than was deemed reasonable.
In response, the Magnuson-Moss Warranty Act of 1975 went well beyond the auto industry to encompass all consumer goods by providing minimum disclosure standards for written warranties against defect or malfunction. It also addressed problems as a result of manufacturers using disclaimers on warranties in an unfair or misleading manner.
The Act doesn’t apply in Canada, though it did introduce language that found its way into warranties here, and inspired similar legislation. The Consumer Protection Act of each province closely resembles Magnuson-Moss by protecting consumers from purposely hidden malfunctions. Essentially, buyers have a right to expect a reasonable product life free of faults.
Warranties began to get longer again in the 1980s. After flirting with bankruptcy, Chrysler offered a 5-year/80,000-km powertrain warranty, enthusiastically promoted by CEO Lee Iacocca, to instill confidence in its new front-wheel-drive K-cars. Japan responded in kind.
“The major Japanese automakers increased coverage during the period of voluntary import quotas in the 1980s,” notes Iny. Honda, Nissan, Subaru and Toyota offered comprehensive coverage of 3 years/60,000 km and 5 years/100,000 km on the powertrain, which forced Detroit to catch up.
Ford offered 6 years/100,000 km on its powertrains, while GM offered 3/80 with a consumer-pay deductible after the first year. Chrysler offered an array of warranties – up to or 7 years/115,000 on the powertrain, depending on the model – in an effort to stay competitive.
The 3-year/60,000-km comprehensive warranty remains the industry standard today, although some automakers have gone further. Virtually every luxury brand from Acura to Volvo has adopted four-year/80,000-km coverage, while Hyundai, Kia, Mitsubishi and Jaguar have gone to five years. Curiously, Volkswagen provides a comprehensive 6-year warranty to U.S. buyers, but four years of coverage in Canada.
Mazda has tried to break the mould by offering Canada’s only unlimited mileage warranty; that is, three years bumper-to-bumper, five years on the powertrain and seven on body perforation and all without regard for the odometer reading.
“We expected Mazda to become the default brand for Uber drivers and delivery people everywhere, but that’s not the case yet,” says Iny. “Mazda told the APA their unlimited mileage warranty has not led to a migration of high-mileage drivers to the brand.”
Iny says Canadians are especially receptive to good warranties, which helps to close deals in the showroom. However, as good as new-car warranties appear on paper, in practice they can sometimes disappoint for a host of reasons.
“Dealers are not compensated adequately for diagnostic time, so the customer sometimes gets the runaround,” says Iny. Dealers are paid less by the manufacturer for warranty claims than they would recoup from a customer-paid repair, so warranty work doesn’t always get top priority.
Similarly, a customer repair may be stalled or a minor tweak done until after the warranty expires. Then the dealer “discovers” the real problem, says Iny, and the customer is saddled with a major engine or transmission repair – a common waiting-room horror story.
Warranty claims may be declined if one or more maintenance records are missing, explains Iny, even if the failure cannot be attributed to a missed oil change. And customers are sometimes charged for filters and fluids which were not due for replacement and should have been included in the price of a major repair.
Despite the pitfalls, consumers have generally been well served by today’s warranty innovations, which help to differentiate automakers in a hotly contested marketplace. But where do they go from here?
It’s hard to imagine a 10-year comprehensive auto warranty, although Mitsubishi offered it briefly last summer to move some aging models off its lots. Iny speculates there may come a day when manufacturers will offer a lifetime motor warranty – as long as you shop for an electric vehicle.
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