Why Dealerships Push Extended Warranties

(Photo credit: Thomas Hawk)

You found the car you want at the dealership, you even talked the salesman down to a price you're comfortable paying. You've won the war, right?

That is until the pressure comes in to buy an extended warranty for your "gently used" vehicle. What happens if you blow a gasket? What if the starter goes kaput? Don't you want protection for these repairs?

If you haven't made a lot of car purchases at dealerships it may come as a surprise to you that the real full court press in sales comes after you've likely agreed to buy the car. The extended warranty is where the real money is made it turns out, and that's why your sales person is going to push so hard to buy it. According to Consumer Reports most places earn up to 50% or more margins when they sell an extended warranty.

With profit margins thinning on vehicles, add-ons like extended warranties are increasingly where dealerships make their money. Interestingly, many of these dealerships that won't budge on a warranty's price (should you pursue one) also sell discounted warranty coverage online. This is a perfect example of dealers having their cake and eating it, too. For in house sales they likely offer a commission to the salesperson, but savvy dealerships also set up standalone websites and hock their wares across the country at a discounted rate so they can get a piece of that action as well. While there are third party used car warranty providers like Auto Warranty One, for every one of those there are fifty local dealerships selling GM, Ford and Chrysler backed plans.

So, if you're wondering where the pressure is coming from, it's strictly the dealer's bottom line and honestly it's hard to blame them. If you do want to go down the path of getting a warranty for your used car, though, you're likely to find your best deal online, and not at the dealer.