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| The Basics | Honey, they shrunk the warranty
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Ever-cheaper prices for electronics mean the good old one-year warranty is increasingly a relic.
By Bankrate.com
Free and lengthy warranties that once gave consumers confidence about their purchases are fast becoming a vanishing breed.
On many expensive consumer electronic items and personal computers, warranties are shrinking. Instead of getting a standard one-year warranty for parts and labor, consumers are getting less and are often being pushed by manufacturers and retailers to shell out money for extended warranties that critics say are basically worthless.
"Manufacturers are sending a message. They believe the unit has become disposable. They are telling buyers, 'If it breaks, don't call us. Get a new one,'" says Eric Arnum, editor of Warranty Week, a newsletter for warranty management professionals.
Recently, Dell and Gateway shortened warranties on many of their products from about a year to 90 days.
In the case of Gateway, warranties on eMachines and systems sold at retail shops are still good for one year, but the company has cut its warranties on certain desktop computers and notebooks sold online.
Dell has reduced its standard warranty to 90 days on all its Dimension desktop and Inspiron notebook computers. It has done the same thing for the printers, MP3 players and other hand-held gizmos it sells.
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"They are now charging buyers money for what used to be standard operating procedure (and covered under warranty)," says Martin Bosworth, a staff writer for Consumeraffairs.com, a Web site devoted to consumer news and resources.
In part, shrinking warranties can be correlated to lower product prices, at least according to the companies selling the gear. Dell did not return repeated phone calls, but the company has gone on record as saying that the limits on warranties are just a response to consumer demand for cheaper products.
The company's perspective: Cutting warranties means lowered costs that are then passed on to buyers. The manufacturer also says that most problems and breakdowns appear within the first 90 days, so longer warranties aren't necessary.
A push for extended warranties
At the same time that manufacturers are slashing standard warranties, which cost consumers nothing, they are pressuring people to buy expensive -- and what many critics believe are unnecessary -- extended warranties. "You hobble your own product warranty in order to encourage purchasers to buy the extended warranty," Arnum says.
Bosworth says that manufacturers are using stronger tactics to get consumers to buy extended warranties. He says he noticed that the extended-warranty offer box is automatically checked when you buy a computer online from Dell -- an unobtrusive (some might say sneaky) way to get consumers locked into buying an extended warranty.
Arnum says that when you buy an expensive appliance from one of the major home-improvement chains, you can count on getting a call from a company representative urging you to buy the extended warranty, even after your online purchase. "They know it does take a sale to get the consumer to buy the extended warranty, but it's a sale that is really worth their time."
Manufacturers and retailers have a huge incentive for limiting their standard warranties: They stand to boost profits significantly by selling extended warranties. Arnum estimates that, depending on the quarter, one-third to 38% of Dell's quarterly profits come from selling extended warranties.
"If you look at a warranty as being an insurance policy, Dell is becoming an insurance company that makes computers in order to sell insurance for their computers," Arnum says.
More retailers are getting into the extended-warranty game. Wal-Mart Stores just announced this fall that it would start selling extended warranties.
Inconsistent promises
Not all warranties are disappearing or getting shorter. It depends on the manufacturer and the product category. "The long and short of it is that not every electronic manufacturer or PC maker is doing it," says Bosworth. While some manufacturers are shortening warranties, others are maintaining a year-long warranty for parts but are cutting back strictly on the labor portion of the warranty.
But that's little consolation, since repair or replacement is where the bulk of the expense lies if a piece of electronic equipment fails. It's simply too costly to have items repaired.
The idea behind these extremely limited warranties is to plant the seed with the consumer to simply buy a new item rather than repair it. "They don't ship it overseas for repairs but will just throw it in the scrap heap," Arnum says.
Because many goods are made overseas, the cost of repair becomes prohibitively expensive, providing incentives for manufacturers to get themselves off the hook for repairs altogether.
On the other side of the spectrum, some manufacturers are bucking the trend by offering longer free warranties, particularly for relatively new technologies. For example, some plasma flat-screen television manufacturers are lengthening warranties, says Arnum.
Fujitsu now offers a five-year warranty, up from three years, in an effort to calm what it calls consumers' "unwarranted" fears that plasma TVs won't last.
But even within industry sectors, the length of warranties can vary. While Dell and Gateway have reduced warranties on many of their products, Hewlett-Packard has stood firm with one-year warranties for its printers and personal computers. And if Dell and Gateway get enough heat on this issue, they may revise their warranty policies again, Arnum says.
Of course, in some cases it just doesn't pay to have a standard year-long warranty on low-priced consumer electronic goods -- even for the consumer. Think of the last time a low-budget item, such as a portable CD player or a budget radio, broke. Did you actually find the warranty paperwork and return the item so it could get fixed? Most consumers simply don't want to hassle with a low-cost item, so they throw it away and buy a new one.
Protect yourself
Since fewer manufacturers are willing to protect the consumer, it falls to consumers to protect themselves by reading the fine print. Does the DVD player you're buying have a 90-day or a year warranty? "You've got to go over the warranty with a fine-tooth comb," says Paul Flores, an investment analyst for California State University in Long Beach.
That's just what Flores did when he was in the market for a combined DVD/VCR player. He found that some manufacturers, such as Samsung, continue to offer a one-year labor warranty on such gear. By contrast, Panasonic only offers a 90-day warranty.
It's buyer beware, Flores says. "If a consumer finds a product that he or she wants, they need to look to see what the warranty is."
While reading warranty information could be seen as an insomnia remedy, it has become easier to obtain information before you buy. For example, when conducting research on what digital camera to buy, include a search for "warranty" when you check out specifications on a manufacturer's Web site.
Whatever you do, think long and hard before you sign up for an extended warranty. Consumer advocates say that in general extended warranties are not worth the paper they are printed on. Retailers or manufacturers reap profits, while consumers are basically paying upfront for a repair they may not need -- until the extended warranty has expired, that is.
Managing public opinion
A longer warranty is also not necessarily an indication of the quality of the product. Structuring warranties is one more way to manipulate not just consumer behavior, but how people think about a product. For example, if a manufacturer opts to offer a longer warranty than is standard in the industry, that can send a message to consumers that the manufacturer's product is more reliable than a competitor's.
In a recent article, Arnum profiled Hyundai Motor America. In 1998, the car company began offering a 10-year or 100,000-mile powertrain warranty and a five-year/60,000-mile coverage on the rest of the vehicle. By beefing up its warranties, Hyundai over time improved its quality rating with consumers. Meanwhile, the longer warranties reassured drivers that even if a Hyundai vehicle did break down, it would get fixed for free.
The length of a warranty shouldn't be the sole reason to buy or not buy from a manufacturer. However, it's a variable that a sophisticated consumer should consider when pondering the question: "to buy or not to buy." Read the fine print before you purchase a home theater system or another big-price-tag item.
And despite what your salesman tells you, in most cases you're probably better off skipping the extended warranty. While it would definitely help the retailer selling the warranty, it likely won't leave you better off.
By Jenny C. McCune, Bankrate.com
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