Extended Warranties

The cost of the extended warranty covers:

  1. The expected costs of labor and parts for the expected repairs over the life of the warranty.
  2. The cost of administering the claims (working with the mechanic, paperwork, etc).
  3. The costs of selling the warranty.
  4. The cost of administering the selling of the warranty.
  5. The commission to the sellers (both salesperson, managers and company/dealer).
  6. The profit to the warranty company.

By not buying the warranty, you save the costs associated with items 2 thru 6 above. You spare your mechanic the hassle of dealing with the insurance company. And you save yourself any anguish over what is and isn't covered. Nothing is.

By not buying an extended warranty, you accept the risk associated with item 1 above and its associated costs. I've heard repeatedly that is, on average, around 20 to 30% of the total cost of the warranty is paid out in repairs. And that seems reasonable given the other costs. But you save the costs associated with items 2 through 6 which are more than twice as costly as the expected costs of repairs.

Extended warranties are like a casino: 

  • some who play will win
  • a very very few will win very big
  • most by far will lose
  • the casino will make a lot of money. 

Only the casino odds are so much better...there the percent returned to the better is generally more than 80% as opposed to the warranty where it approaches 20-30%.  Like a casino, you hear the stories of the people who win big and that persuades you to play. You mostly don't hear about all the many, many more people who lose.

Is the warranty cost worth the 70% to 80% premium to the risk? 

Your answer and my answer may vary. We have different financial situations and different risk tolerances.  (In retirement, I don't have most of my money in bonds or money market accounts. I accept risk and the potential reward premium it can bring over time. Even in 2008!)

I consider if I can afford to (out of pocket or by borrowing) pay for the worst case I'm insuring against. (After all, I do carry house insurance and auto insurance and personal liability insurance so I'm not against all insurances.) If my engine had a catastrophic failure, could I afford to replace it? In my case, the answer is yes. My house burns down? No. So I don't carry insurance for the car and do for the house.

I choose to save the costs of items 2 thru 6 and accept the risk myself. I do this for all appliances, electronics, etc. Over my long lifetime, I'm sure I am many many thousands ahead.

When I bought my 2-previous-owners 43K miles Boxster I could have assumed a warranty for a $100 transfer fee or the seller could have gotten a refund of $3k and reduced the car price by $3k. I took the reduced price. The warranty would now have expired and I'm about $2,400 ahead. But my experience doesn't say much about what your experience would be. 

I recently got a quote for $3600 for a 13 month warranty on an '01S with 54k miles driven 3k a year and with no real history of problems. And then an offer of a $500 discount when I didn't take the initial offer. But for that warranty to make sense, the chance of a failure that would require a total engine replacement would have to be the warranty cost divided by the engine replacement cost...or about 20% chance of a failure within the warranty period of 13 months. Just doesn't seem likely.

Which leaves the question ... should YOU buy one? Only you can answer that question. Because only you understand your financial and emotional reaction should you be one of the few with many or very expensive ($7-18k to replace an engine) repairs.  Yes, it can happen, even to a Porsche.

I would also point out the number of companies offering extended warranties that go out of business only to resume selling under another name in a week or so. Lots of fraud here. So if you do buy, buy only from a company you can trust and make sure of their financial structure and stability. Someone asked me about a company a few weeks ago and I found about 6 different corporate structures involved. Good luck figuring out who was really behind such a policy. To me just another reason to avoid these. Too many are sold by the same guy selling paint protection, rust protection, fabric protection and the like. All produce big profits for the sellers so they can't be very good bargains for the buyers.  And the warranty sellers go out of business regularly, only to emerge under another name a week later.

If you do buy the warranty:.

  • Read the contract three times before signing. The actual warranty contract, not the sales literature. If they won't give you the actual contract to read before you buy, walk away.
  • Compare the list of problem areas on Boxsters with the list of covered items. Seals covered? Electronics? Suspension parts? Or only listed parts?
  • Ask the dealer and at least one independent mechanic in your area about their experience with the company. Some companies are low pay (low hourly rate resulting in the mechanic not wanting to do the work), slow pay and find excuses to call things uncovered. Same don't. Some will find ways to do the minimal amount of work instead of doing the repair the right way. Find out if your proposed company does it right. Will they pay their amount if you pay the extra to get it done right? Will the shop even deal with that warranty company (many won't)?
  • Figure out who really is behind the warranty. Often it is not the named seller but some financial entity. There is a list of the company behind the warranty on this Oregon state web site.
  • Many sellers are just brokers. They offer you the warranty that makes them the most money, not the one best for you.
  • Compare the warranty you are offered with one from a big reputable company that markets direct and thus has lower selling costs. Buying from the dealer adds about 3 layers of additional selling expenses (dealer, sales manager, salesperson) that you can avoid by buying direct.
  • Know the deductible amounts (do you pay per visit or per problem or per problem per visit, for example).

Consumer Reports (April 2008 issue, page 26) had an extensive article on Extended Warranties subtitled "High Priced Gamble". Their conclusions didn't differ significantly from those above.

I'm now where I don't know a single extended warranty company I can even halfheartedly recommend.

Oh, and an extended warranty is really just a service contract in legal terms.

Warranties Sold By A Porsche Dealer

There are no warranties backed by PNA (Porsche North America, the Porsche marketing organization in Atlanta) other than the CPO (Certified, Pre-Owned) program warranty available only on certain pre-inspected used cars sold by the Porsche dealer and authorized as CPO by Porsche. You can't buy a Porsche backed warranty for a car you already own or one you bought from other than the dealer. Though there are dealers selling third party warranties who will try and make it look like the warranty is a Porsche warranty, it just isn't so.


Porsche dealers sell Porsche Approved Certified used cars. A “Certified” or “CPO” car goes through a 2-page, 100-point inspection.  The inspection is supposed to cover a lot but the value of the inspection would depend on who was doing it and the care they took. It doesn’t include some things like a compression or leak down test. It does other things less well than I would do them, only providing one reading on tire tread depth per tire rather than the 3 per tire (left, right, center) I would do, for example.

And a “Certified” car doesn’t come with all fluids flushed and replaced like I’d like to see. But it does make the car eligible for a valuable Porsche-backed warranty:

1.       If the qualifying pre-owned Porsche Approved vehicle is purchased while still under the new vehicle warranty, the maximum coverage is 6 years/100,000 miles/160,000 kilometers  from the original in-service date.

2.       If the qualifying pre-owned Porsche Approved vehicle purchased is outside the new vehicle warranty, the maximum coverage is 2 years/100,000 miles/160,000 kilometers, whichever comes first.

“Certified” is a feature the dealer buys from Porsche of North America and is said to cost the dealer $1,550 plus the cost of the labor to do the inspection. For most low to medium miles per year drivers, it gives you an additional 2 years protection against the big failures, not for the little maintenance items. I’d figure it worth $1,500-$2,000. The dealer will try to convince you it is worth $3,600 or so. You can download the brochure that lists what it does and doesn't cover at http://www.porsche.com/usa/pre-owned-vehicles/approved/

In mid-2008, the terms of the CPO changed for the better. The inspection as of 1 August, 2008 is now 111 points, the coverage is exactly the same as the new car warranty in terms of items covered, the term is 2 years (or 2 years longer than any remaining new car warranty) and the mileage is 50k. You still need to get the coverage certification and terms in writing and get the in-service date in writing.

It pays to know which CPO program your car might be covered by and to get it the terms in writing if you are buying a car that was previously CPO'ed.

If you are looking at a CPO car, ask for the inspection and repair report done at the time of the inspection.  You want this report in case there is something you discover later that is at variance with their inspection results.  CPO also gives a towing service coverage that is certainly worth something.

Third Party Warranty

Beware if a dealer tries to sell you a "Porsche" warranty. Unless the car you are buying is a CPO'ed car, the warranty they are trying to sell you isn't anything but a third party warranty marketed by the dealer to make money. And may be accepted by other dealer service departments and independent mechanics, or it may not be.