Good in­fla­tion beat­ers

Finweek English Edition - - Focus On -

IF YOU BOUGHT a car three years ago with a five-year, 100 000km main­te­nance plan chances are you’re de­lighted as no­body back then could have fore­seen in­fla­tion at the lev­els we’re now ex­pe­ri­enc­ing. Though peo­ple in the mo­tor in­dus­try re­gard main­te­nance plans as ex­cep­tional value they have a poor rep­u­ta­tion in some quar­ters – due to a lack of trans­parency.

Gary McCraw, a di­rec­tor at the Re­tail Mo­tor In­dus­try, says con­sumers sel­dom look at what they’re buy­ing while deal­ers sel­dom bother to ex­plain what the plan con­tains. Ter­mi­nol­ogy is also a prob­lem. Peo­ple sel­dom un­der­stand the dif­fer­ence be­tween a war­ranty, ex­tended war­ranty, ve­hi­cle main­te­nance plan and a ser­vice plan.

He rec­om­mends mo­torists opt for the ve­hi­cle main­te­nance plan, as it cov­ers more faults, while a ser­vice plan of­ten just cov­ers the labour and com­mon fea­tures of a mi­nor ser­vice, such as the oil change.

“Peo­ple need to study the con­tent of the plan they’re buy­ing and com­pare it to their ex­pected us­age. A per­son who does low kilo­me­treage would en­joy as much as six year’s ex­pense-free driv­ing from a sixyear, 100 000km ve­hi­cle main­te­nance plan, whereas a high us­age sales rep might blow his three-year 60 000km plan in 18 months,” says McCraw.

Why peo­ple of­ten don’t look at that – and later feel ag­grieved – it is the na­ture of the deal. “Buy­ing a ve­hi­cle is an emo­tional pur­chase, be­cause your car is of­ten viewed as an ex­ten­sion of you, or a fash­ion state­ment. Peo­ple for­get a car is a de­pre­ci­at­ing as­set and a costly one to main­tain. Look­ing at doc­u­men­ta­tion such as main­te­nance plans be­comes very much of sec­ondary im­por­tance,” says McCraw.

How­ever, he says main­te­nance plans of­fered by man­u­fac­tur­ers are good value, whether you read the fine print or not. In fact, most man­u­fac­tur­ers are re­luc­tant to sell a ve­hi­cle with­out a plan, as they feel it may de­grade their brand. No ve­hi­cle man­u­fac­turer wants to see one of its mod­els stuck by the road­side be­cause the buyer was too stingy to choose a main­te­nance plan.

A main­te­nance plan has an­other laud­able by-prod­uct: it en­cour­ages mo­torists to have their ve­hi­cles ser­viced on time, thereby keep­ing the war­ranty in force, and en­sur­ing any pos­si­ble de­fects in the car are ad­dressed in ad­vance.

McCraw rec­om­mends mo­torists ex­er­cise more care when buy­ing a “bolt-on” main­te­nance plan or ex­tended war­ranty – but even here he says there are few he’d hes­i­tate to rec­om­mend. “But they do dif­fer and mo­torists need to be aware of what they’re buy­ing to avoid later dis­ap­point­ment.” The cost also varies from plan to plan and ve­hi­cle to ve­hi­cle, mak­ing com­par­isons dif­fi­cult.

Nikki My­burgh, head of in­sur­ance at Wes­Bank says that bolt-ons are be­com­ing more pop­u­lar as buy­ers are al­lowed un­der SA’s Na­tional Credit Act to pay off car loans over longer pe­ri­ods than 60 months. As that ex­tends longer than most main­te­nance plans, buy­ers want to ex­tend the pe­riod they’ve cov­ered to co­in­cide with their car loan.”

“When choos­ing a main­te­nance plan you’d ideally want to choose a recog­nised name and also care­fully re­view the terms of the con­tract – and specif­i­cally be aware of any ex­clu­sions. The terms are fairly stan­dard and uni­form among the rep­utable firms but beware of oth­ers.”

The most com­mon main­te­nance plan in­de­pen­dent sup­pli­ers are: Mo­tor-rite, In­no­va­tion Group, SA War­ranties and War­ranty So­lu­tions. Dealer groups that pro­vide plans in­clude Uni­trans and McCarthy’s. Such plans are typ­i­cally ne­go­ti­ated at the time of buy­ing and fi­nanced as part of the loan. The plans of­ten in­clude ad­di­tional ser­vices such as road­side as­sis­tance, med­i­cal as­sis­tance, le­gal and map as­sis­tance.

My­burgh sug­gests if it ap­pears the buyer will ex­ceed the kilo­me­treage of­fered on a main­te­nance plan it can be topped up, though that should be read care­fully, as there can be re­stric­tions. It may be that you have to ap­ply within the first year of the plan.

“In my opin­ion, be­cause the main ad­min­is­tra­tors all have good re­la­tion­ships with the dealer net­works and work­shops, and ne­go­ti­ate spe­cial deals, it’s both con­ve­nient and value-for-money for the mo­torist. It’s like hav­ing a sav­ings plan for car main­te­nance. You’re pay­ing to­day for fu­ture costs and the in­fla­tion­ary as­pect is taken care of by in­vest­ing the cap­i­tal for the du­ra­tion of the plan,” says My­burgh.

She claims ser­vice providers don’t pro­vide the ser­vice as a mon­ey­mak­ing of­fer­ing but sim­ply to im­prove their ser­vice to clients. “It’s run at a 100% loss ra­tio – mean­ing the cost of the prod­uct is ex­actly the same as the an­tic­i­pated cost of main­te­nance.

“It’s a value-add for the con­sumer. We know the ve­hi­cle is fully main­tained through­out the term of the loan and the value of the ve­hi­cle is there­fore sig­nif­i­cantly higher at the end of the agree­ment than if there had been no plan. It also has the ad­van­tage that the plan can be sold with the ve­hi­cle.”

It’s a value-add for the con­sumer. Nikki My­burgh

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