Parts and Labour Warranty or Service Plus Contract

[noby39]

Following on from the earlier thread on whether to buy a parts and labour warranty, the discussion there about a service plus contract led me to enquire into that as an alternative to a warranty extension. This appears to be far more cost-effective than buying a warranty extension.

I have been quoted, against an estimated annual mileage of 10K, £42 + VAT (without cover for tyres) per month and £66 + VAT (with cover for tyres) per month on a two and a half year old E270Cdi saloon by two MB dealerships. The sales advisors at these dealerships couldn't see much logic in extending a warranty when what would be covered by a service plus contract would be virtually the same as warranty cover. The "plus" side of the contract covers all parts which fail under wear and tear.

You can only have a service plus contract for a maximum of 3 years from when the usual 3-year MB warranty expires. In my case, the usual MB warranty expires in December 2006. The service plus contract could not run beyond December 2009.

Also, the vehicle is put through a 2 hour check and any parts found to be worn or faulty in that check must be repaired or replaced before the service plus contract can begin. The cost of this pre-contract check is £180 plus VAT. I've just had my E270Cdi serviced at my local MB dealership but that counted for nought at that dealership; it would have been recognised by the other MB dealer who charges £80 + VAT if the 2 hour check is done as part of the service.

A potential drawback in my case could be if, say, a couple of months before December 2009 it looked unlikely that a service would fall due before the service plus contract expired in that month. In that case, it could be tough luck on me. If for example I needed a few thousand miles before a "spanner" sign appeared, I'd have to drive those few thousand miles in order to get the benefit of the contract; and if I didn't do so, then I'd lose what I'd paid for even if the "spanner" appeared a few days after the critical date. So you take a gamble in that respect.

 

[OmniCognateNeutronRangler]

you need to shop around for the cost of the inspection. MB themselves advised me to do this. My local Stealer (Tony Perslow in Guildford) do NOT charge for the inspection (even if you don't take out the cover) which is brilliant because you can get yourself a free vehicle health check!

I know this to be true (when Rory starts saying I don't know what I am talking about) because I have already had my car inspected - passed with flying colours I'm pleased to add.

 

[jberks]

Ok - I've been through this and read the answers from MB on the other thread. I am, by nature and profession, a sceptic. But, however I do the sums, if there really is no difference in practice between the service plus contract and the extended warranty, I really can't see a downside.
The only thing I can come up with is, if your annual mileage changes (mine is a bit unpredictable), because you are locked in.

Even based on my 25k pa quote of £93+vat. That works out at £1311 per year. Seems a lot of money, but if I subtract the £600 I paid for the 4th year's extended warranty, I'm left with £711. Factor in 2 services at the dealer per year and it would come to around the same. If I need a set of brakes, I'm a few hundred up.

Ok - I use an indie, but I'm not that fussed either way. Even with the indie, I'll be maybe £250 up on the servicing aspect, but one set of discs and pads, and that's gone up in smoke.

What I don't get, is that your quote assumes no warranty but 10k pa so 5.9p per mile to cover wear and tear and regular maintenance.
Mine, also pro-rata, is 5.2p per mile, but 2 of the 3 years of the contract would be covered by the original MB warranty, meaning that I get virtually no benefit for having the warranty and I'm effectively paying for something I already have.

 

[Rory]

I know this to be true (when Rory starts saying I don't know what I am talking about)

It's not you :hug: - I just feel certain that you're being mislead.

I hope to God you're right - I can abandon my plans to sell at 3 yrs and instead keep the car for 6. However I note noby39 says "service plus contract would be virtually the same as warranty cover".

It's the 'virtually' bit that scares me. I can cope with a bill here and there for a few hundred pounds. What I want is protection against a catrastrophic failure that's going to cost thousands to put right. Perhaps I'm wrong and MB will cheerfully pay up for anything that happens to the car while it's covered under Service Plus. I just don't think that's true.
We seem to be being offered a free lunch here - but we all know there usually isn't any such thing.

 

[psmart]

As JBerks has mentioned in earlier threads on this

subject, Warranties/Service Warranties are all a bet, you against the insurance company on the chance your car will/will not go wrong.

Lets be factual here, using myself as an example:
Car bought = 36 grand, had for 5.5 years, current private sale price ~15000, thus 21,000 over 5.5 years = 3,818 pounds per year.
Servicing, 1 service per year, with indie, averages (A+B/2) to ~300 per year.
Consumables (brakes, discs, tyres) = ~1000/5.5 = 181

Thus, it costs me, give or take, 3818+300+181 = 4299 to own an ML per year.

So long as any yearly costs in a year dont exceed 4299, which includes expected further depreciation, then I havent lost. Thus if my ML loses 2 grand in the next year, and I need a new gearbox, Im still quids in.

Why pay some insurance company, just so that you feel good? Put your monthly premium into a savings account, so at least you have a cash flow when the bills hit.

 

[OmniCognateNeutronRangler]

Big difference PS is that you paid rather a lot more for your MB than I did so I could not factor in such stellar depreciation. I know it WILL depreciate but to depreciate by £4k p/a I would have to give the car away in 4 years time.

If my gear box goes (I can hear Rory screaming at his PC now about it not being covered) it's about 1/5 of the value of the car to get it fixed, and the contract only works out a couple of hundred quid p/a above the cost of just having it serviced by a main stealer.

btw, Rory I think we should start a new thread "Rory and OCNR duke it out!" , seriously, despite appearences we are actully in agreement on a lot of points I think I am just a little closer to trusting MB (or their insurers) than you are.. This is odd as I have never trusted an insurance company about anything ever. Oddly the service plus is about 3x the cost of my fully comp insurance which covers the whole cost of the car (of at least the £3.50 they'd probably give me if I claimed).

 

[psmart]

Big difference PS is that you paid rather a lot more for your MB than I did so I could not factor in such stellar depreciation. I know it WILL depreciate but to depreciate by £4k p/a I would have to give the car away in 4 years time.

Just a different way of thinking, ie. an amount per year, regardless. My previous cars cost circa 5grand per year (including a Skoda Estelle!!! all the engine rebuilds, big bore Piper Cross etc) so I'm very happy with the costing of an ML (at the mo).

People tend to forget Depreciation, Finance Charges etc in there initial estimate of owning a car, and grimace when the bills come in. They then look for warranty's to protect themselves, coughing up even more dough and generally find that what goes wrong isnt covered, or the insurance company has a get out clause (ie. you didnt get the car services within 200miles).

Another example of warranties.... health insurance! A friend, for many years had private health insurance, but each year, the cost went up and the list of 'exclusions' grew, such that, anything she were likely to get, ie. stress related, cancer etc, was excluded, so why pay? She worked it out, being Indian, that if she put her monthly premium into a savings account, and the money for a return air fare, if something were to go wrong with her health, she could fly to India into a 1st class hospital and get repaired, being treated for whatever she had got and not worrying about 'exclusions' all within budget! Its all a gamble, like the lottery, sometimes you may get lucky! Just look at all the Insurers driving around in there Flash cars to know something is not quite right!

 

[Rory]

Thus, it costs me, give or take, 3818+300+181 = 4299 to own an ML per year.

Just out of interest, have you ever done a comparison of the above vs getting a new car every 2/3 yrs on a PCP?
Might not work on an ML, but the E Class depreciates so fast, there's a school of thought that a PCP might be the cheapest (overall) way to own one. MB is heavily subsidising the deals on some models.

 

[psmart]

Just out of interest, have you ever done a comparison of the above vs getting a new car every 2/3 yrs on a PCP?

I've only had one car via a lease agreement (see avatar) and never again. The G.Cherokee, when I did the sums, given Tax and VAT laws at the time, seemed very plausable, 499pcm, un-taxed monies, no VAT, could buy the car at end of agreement - laws changed though, had to pay 50% VAT, forced to sell my Cosworth (2nd car @ full taxable rate), fuel and taxation values much higher (you can guess who came into government :evil: ), had to be serviced at a main dealer every 6 months @ ~400. Once your locked in, your stuck! And to kill the goose, at the end of the lease, Glaciers guide put the car circa 11grand, the leasor wanted 18!

Even if a Lease/Contract Plan looked feasible on paper, I wouldnt go this route. Old adage, once bitten twice shy!

 

[Rory]

Even if a Lease/Contract Plan looked feasible on paper, I wouldnt go this route. Old adage, once bitten twice shy!

To be fair, a lease through your company is a different kettle of fish to a PCP though.
With a PCP you know the minimum final value up front, and there no tax issue because you're running it out of taxed money. Obviously your company can pay you a (taxable) allowance and tax free business mileage if that's appropriate.
The main downside of a PCP is the lack of flexibility - you're pretty stuck with it until towards the end of the term, if not right to the end.

The residuals of some MB's are making PCP's look very attractive - I think many people don't like PCP 'cos it feels like your chucking money away, but you're doing that with depreciation anyway.

 

[psmart]

The residuals of some MB's are making PCP's look very attractive - I think many people don't like PCP 'cos it feels like your chucking money away, but you're doing that with depreciation anyway.

Thats the bullet anyone wanting to own a car has to bite, unfortunately, its all money chucked away. I just sat back, said what was I willing to lose per year, and the ballpark figure was 5grand, hence a 270 diesel and not an AMG55!

 

[Retired]

If you finance your car via a PCP I would think its bound to be more expensive than buying it outright as the supplying organisation has to make a profit and you are paying for finance.

A possible reason for going the PCP route is to lock in a guaranteed future value. Might be useful if you think you chosen vehicle could become unpopular in the future and thus depreciate more than expected. I’m thinking here of large petrol engined cars / SUVs.

PCP does not avoid depreciation, it makes it predictable.

 

[Seeker_UK]

PCP does not avoid depreciation, it makes it predictable.

PCP's pay off the depreciation and add interest for the credit arrangement.

Choose wisely (brand new model, coupe, roadster, diesel, auto and desirable spec / colour but don't choose big saloons, poverty spec non metallics or saloons with huge gas guzzling engine) and the equity at the end of the perod will be quite good.

 

[Rory]

If you finance your car via a PCP I would think its bound to be more expensive than buying it outright as the supplying organisation has to make a profit and you are paying for finance.

Some manufacturers - and Mercedes is doing this with B class, and did it on the last of the old E class's - subsidise the deposit, the interest rate, and give a higher final value. They prefer to do this covert discounting rather than overtly reduce the price of the cars.
I was offered a loan to buy my car that was at a lower rate than my wife gets after basic rate tax on her internet bank account.
This is all possible because the tranfer value of the cars to the finance arm is at a huge discount. Look at Ford & GM - they're losing stupendous amounts of money making cars but their finance arms are keeping them afloat.

There was certainly a discussion a while ago amongst E Class owners, that the monthly PCP quotes they were getting were lower than the depreciation they were suffering on their old cars.

 

[jberks]

There was certainly a discussion a while ago amongst E Class owners, that the monthly PCP quotes they were getting were lower than the depreciation they were suffering on their old cars.

I suspect they were suffering from the last of line syndrome. If you have a 210 that you bought just as the 211 came out, ok you'd get a good deal, but that was generally a generous extras list rather than a big discount. But come trade in time, you'd pay for it. Hence their view of depreciation was inflated.

PCPs come out and they give you a high GFV. Great you say, thats what they reckon the car will be worth and that's higher that I would get as a trade in so it must be a good deal. But that's the con. You don't own the car. They do. So, that's what you pay to buy it back, or more often the difference between that and the true trade value (bugger all or even a -ve figure) is what you have left in it. In short, a high GVF is actually a bad thing for you.

What people also conveniently ignore is that sure the payments are low, but you normally gave them your old car as a deposit. I had this with the Jeep. Great deal with very reasonable payments, 'good' GFV. I even added up the payments over the period and it was very reasonable, almost less than the depreciation - how could i lose?. Or as my sceptical mind said, how do they make a profit then?

It suddenly dawned that whilst they would take the Audi off my hands and pay off the remaining finance, when I bought the Audi, I'd given them our old Rover, worth around £6k. The difference between the cost and trade in on the Audi were roughly equivalent to the payments I'd made, so the £6k, whilst hidden, remained in the car. The Jeep would be worth roughly the GFV, maybe £2000 more against a new jeep - possibly . So now I have £6k, and at the end I'd have nothing and would either have to stump up another £4-6k to start again, face a massive increase in payments next time or pay the inflated gfv to keep the car. Factor that lost £6k into the payments and it didn't look so good anymore.

 

[Retired]

A high guaranteed minimum future value could be useful as its what they will allow you as trade in against a new vehicle. However, if its higher than the actual value of the vehicle that doesn’t put you in much of a negotiating position trying to obtain discount / free extras. (Your deal may be presented as high trade in or big discount or some combination of the two. However its dressed up cost to change is the number that matters.)

The other use of the GMFV is as the ‘balloon’ payment. I.e. the amount you have to pay to acquire the vehicle at the end of the contract term. A high value here would seem to count against you.

But what happens if, for example, your GMFV is £20k but the actual value is £15k? You want to buy the vehicle but, clearly, don’t want to spend £20k on something worth £15k . If you don’t buy it the finance company has something on its hands worth £15k. It would seem to be in the finance company’s interest to accept an offer from you of say £17k for the vehicle. Anyone know if it works like this?

 

[Retired]

Please ignore the first para of my previous post, its rubbish the GMFV will not be your trade in value. I blame early onset senility..........

 

[OmniCognateNeutronRangler]

Well, I have decided to go with service plus and I am getting the paperwork through tomorrow. I have been sent a quote for 1 year at £63 p/m + VAT (works out at £77.50). This is based on 20,000 p/a and works out at £930 p/a.

Based on main stealer service prices I would need 2 services and an MOT during that time, 1 A and 1 B. The A costs around £300 and the B around £600 (asuming they find nothing wrong). This is based on actual service costs of £250 and £515 quoted by the stealer, and I have allowed for a little extra to be on the safe side. There is also a minimum of £45 for the MOT.

This works out at £945 p/a (roughly) or £15 more than the service plus cover which also covers me (arguably) for other failures as well as pads, plugs etc. Assuming that I would have my car serviced at a main stealer this seems a bit of a no-brainer.

The reason I have gone for 1 year is that A) I will probably sell the car after a year anyway B) if I go wildly over my estimated mileage I'll just take my 2 services and not tell anyone at MB that the mileage has gone over and C) if it turns out not to cover as much as MB claim, or my car never has any problems then it'll end in a year anyway and D) I can just renew it in a years time if it turns out to be worthwhile or I keep the car.

This seems a bit of a good deal to me.

btw, it says on the quote that I can not claim for the first 3 months, or 3000 miles which ever comes first but I have nearly 7000 miles until my next service so baring any major failures I should be fine.

 

[Blobcat]

Well, I have decided to go with service plus and I am getting the paperwork through tomorrow. I have been sent a quote for 1 year at £63 p/m + VAT (works out at £77.50). This is based on 20,000 p/a and works out at £930 p/a.

There has been much discussion on this subject, I'm pleased that you are taking it up. Pls report back for the rest of us as to how it works out for you.