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Friday, November 23, 2007

Extended Warranties

Here is an article from Smart Money that is helpful when considering Extended Warranties:
JUST WEEKS BEFORE THE birth of David Bieler's daughter, his digital camera went kaput. No worries, thought the 36-year-old from Poughkeepsie, N.Y. That's what the $100 extended warranty he'd purchased was for. He quickly shipped off the camera along with an urgent-sounding note that he'd need the camera back right away.
Little Jocelyn was nearly three months old by the time the camera was returned to him. He had long since purchased a new one.
Extended warranties on appliances and electronic devices are a huge business. They're offered by retailers and third-party providers on everything from washing machines to Apple (AAPL: 168.46, -0.39, -0.23%) iPods. But what sounds like a great idea when you're in the store, experts and burned consumers warn, might not be worth the added cost. Consumer Reports has concluded that extended warranties are often a waste of money simply because many products tend not to break down during the first few years of service. And even when something does go wrong, you might have a tough time getting it fixed thanks to the small print on your contract or, in Bieler's case, the hassle factor.
Since extended warranties are claimed so rarely, the profit margins on them run as high as 40% to 80%, says Marlys Harris, finance editor for Consumer Reports. That can pad a company's bottom line nicely. During 2004, in fact, nearly 100% of Circuit City Stores' (CC: 5.45, -0.32, -5.54%) and 50% of Best Buy's (BBY: 47.60, +0.24, +0.50%) operating income came from extended warranties, say analysts. Is it any wonder that the big box retailers aggressively push these contracts?

1 comment:

karen said...

I think they are a racket. I bought a very expensive Sony Vaio laptop computer last winter and almost immediately the LCD monitor cracked. No problem - or so I thought - I had a warranty. Well, they told me it didn't cover "accidental damage." I told them there was no accident, but of course they did not accept my statement and denied the claim. I paid for a new monitor. Not 3 months later it happened again. I think there must be some internal defect. At any rate, I didn't even bother trying to explain or get it repaired. At this point I have sunk over 2 grand into what now might as well be a paper weight. No more Sony products for me. Also, no more extended warranties. What a racket.

On a lighter note - Happy Holidays to you! :0)