What does your motor plan really mean?
Many motorists are ignorant of the details of the service and maintenance plans that come with their new or second-hand cars, according to new research. And in some cases their casual dismissal of the fine print could cost them a bomb.
A recent survey by MotorHappy found that nearly 90 percent of respondents were not properly informed about service plans, maintenance plans and warranties, and 62 percent had only a vague idea when their plans started and ended.
MotorHappy, an Imperial Group subsidiary, deconstructs motor warranties, and service and maintenance plans and provides advice via a call centre, website and other platforms.
MotorHappy surveyed over 900 motorists from across the country and received “unbelievable” feedback from men and women ranging in age from 20 to 60-plus.
Managing director Kerry Cassel commented: “This lack of knowledge is not limited to a single demographic, but is widespread across all age groups, provinces and genders.”
About 85 percent of respondents rated their understanding of their motor plans at two out of 10, where one was defined as “no understanding” and 10 as a “highly detailed understanding”. A formidable 38 percent had no idea what plan they had signed up for, and 50 percent were unsure what the contract included.
Although these complex products are often viewed as a grudge purchase, Cassel says she recommends that motorists explore the options. “It’s all about affordability. The customer is guaranteed approved dealerships, original manufacturer-approved equipment, approved parts, state-of-the-art technology and trained technicians.”
A service or maintenance contract also means that someone else takes on the burden of price increases, she says.
It is vital that motorists know the terms of their service and maintenance plans, Cassel says, citing “nasty surprises”, such as finding out that a service plan does not include replacing the brake pads.
Evidence suggests that consumers are so eager to take delivery of their new wheels that they sign the contracts without studying the specifics of what’s covered and what isn’t, not to mention their contractual obligations. Against that, Cassel says, all product information is available online, “so consumers do have the tools to conduct research and educate themselves”.
Edmin Naidoo, the divisional manager of after sales for Mercedes-Benz cars, says the company expects its customers to receive “a proper and thorough understanding of such contracts” from dealerships. In the experience of Mercedes-Benz, customers generally adhere to the terms, he says, noting that the vehicles themselves provide useful “early warning” reminders on the instrument cluster.
Whereas maintenance contracts provide an income stream for dealerships, Naidoo says “the primary objective is to ensure the customer enjoys hassle-free motoring over the lifetime of the vehicle, as well as preserving the value of the vehicle in terms of future resale, to the benefit of the customer”.
According to the National Association of Automobile Manufacturers of South Africa, there were about 10 million cars on the road in 2015. Although it’s not known how many of these are covered by extended warranties and service or maintenance contracts, it is assumed that a significant percentage have some form of protection.
The bottom line: industry insiders say: when signing up for a service plan, maintenance contract or extended warranty, it is in your interests to study the fine print and ask questions, such as: “If the cam belt fails at 120 000km and the engine is damaged, am I covered?”
A service plan covers the day-to-day running of a vehicle, providing for scheduled services and the replacement of essential components, such as oil, fuel and air filters, lubricants, spark plugs and, in some cases, a cam belt.
Included in the purchase price of a new car, the plan runs for a specific period (usually three years, often longer) or a certain number of kilometres, whichever comes first.
An important proviso is that the work must be carried out by an approved dealer, and any parts that are fitted must be approved.
Car-buyers should be aware that, if they fit a non-approved part to the vehicle – even if it is not a safety-critical component – the manufacturer will void the service plan, as well as the warranty.
The dealer will generally ask for a vehicle identification number (VIN), which identifies the vehicle’s history of ownership and other essential details.
Proponents of service plans for second-hand vehicles believe they offer a variety of advantages, the most important of which is the reduced risk of unpleasant surprises. Since the cost of future services is fixed, owners are protected from increases in the cost of labour and parts. They are assured that their cars will be worked on by approved mechanics, using approved parts.
However, this is not necessarily the complete solution for peace-of-mind motoring. For instance, if a clutch starts to slip and shows signs of imminent failure, a service plan will not take care of the problem: a faulty clutch falls squarely into the wear-and-tear category, and that requires a maintenance plan.
A maintenance plan takes care of everything included in a service plan, as well as components that need to be replaced because of normal wear and tear. The components may include brake pads, V-belts, wiper blades, the exhaust system, clutch, light bulbs and shock absorbers.
A maintenance plan is included in the price of vehicles at the upper end of the market, and has proved useful in boosting sales of models nearing the end of their run. The plan is valid for a fixed period or number of kilometres, whichever comes first.
Many entry-level and second-hand buyers are prepared to pay for this level of protection, because it delivers financial peace of mind. For example: to extend the standard five-year full maintenance plan for an Audi A3 Sportback 1.8T by 12 months would cost about R23 000; a 24-month contract raises the cost to about R46 000. In Audi’s case, the deal may specify the period of cover, maximum mileage, or a combination of these.
In some cases, buying an extended warranty or even a maintenance plan represents a bet (or, at the very least, a hedge): motorists dig into their pockets on the assumption that they will be covered if something goes wrong, because someone else will pay for the repairs (which may well cost more than the price of the maintenance contract), whereas the manufacturer and dealer are betting that, if customers stick to the rules and look after their cars, they will not suffer mechanical failure, and the sellers will score a useful percentage.
The evidence suggests that, in Toyota’s case, the actuaries have done their homework. The brand is consistently among the top performers in vehicle reliability surveys.
At the upper end of the market, Mercedes-Benz offers PremiumDrive, a standard maintenance plan that covers new vehicles for 100 000km or six years, whichever occurs first, with no contribution required from the customer during this period. Among its benefits are roadside assistance, a towing recovery service, accommodation and car hire. PremiumDrive is not optional; you cannot buy a new Mercedes without it.
Customers may also select from a range of top-up options that kick in after the expiry of the standard PremiumDrive cover. In all cases, these are limited to eight years. So if someone buys an entry-level Mercedes-Benz C 180 sedan (R436 700) now and wants to extend the maintenance plan by two years and add 40 000km to the original mileage allowance, they would pay an additional R46 000-odd for the PremiumDrive 160 product.
Edmin Naidoo, the divisional manager of after sales for Mercedes-Benz cars, said this option provides peace of mind, because it encompasses servicing, wear and tear, as well as major repairs, excluding accident damage. “There are no additional, hidden costs to the customer.”
However, a maintenance plan does not guarantee that motorists will not have to cough up for unexpected events – such as catastrophic gearbox failure – that may occur after the expiry of the vehicle’s original warranty. This degree of protection requires something called an extended warranty.
An extended warranty kicks in only once the manufacturer’s standard warranty (which could be from two to six years) has expired.
Although the extended warranty – in effect, an insurance product – covers some unexpected electrical and/or mechanical failures, it does not provide for service and maintenance work. However, it does cover the really serious problems, which may include engine or gearbox failure, a broken CV joint, propshaft failure, a broken cooling system and wheel-bearing failure.
Before granting an extended warranty, manufacturers will take into account a vehicle’s age and mileage.
For example, a fourth-year (150 000km) “genuine extended warranty” for a Toyota Corolla 1800 Prestige costs R2 410 (quoted in December 2015). A fifth-year (180 000km) warranty comes in at R3 000, and a sixth-year (220 000km) contract ups the ante to R3 890. The warranty has to be taken out during the standard three-year/100 000km manufacturer’s warranty, and the vehicle must have a full Toyota service history.
Toyota also offers a pre-owned warranty for all its passenger and light commercial vehicles, with the exception of the Quantum Ses’Fikile (the ubiquitous minibus taxi). Among the terms: the vehicle should not be older than six years (from the initial date of sale) and may have an odometer reading of no more than 180 000km.
Kerry Cassel, the managing director of MotorHappy, points out that extended warranties will be honoured only if motorists fulfil their obligations in terms of servicing and maintenance at the prescribed intervals or mileage limits.
A second-hand car may qualify for a so-called “balance of warranty” (representing the remainder of the original warranty period). In this case, the new owner will receive the same benefits as the original driver, but the duration of cover will depend on the vehicle’s age and mileage.