MONEY COMMENT
Just Say No To Extended Warranties

By Jane Mack (TMFJane)
February 14, 2003

Earlier this month, the Consumers' Association lambasted the extended warranties sold by electrical retailers, saying they were "too expensive, generally go unused and you'll probably get a better deal elsewhere". Last year, the Office of Fair Trading made much the same point.

The new chief executive of Dixons, John Clare, has taken exception to this and has written a public letter in response. You should read it in full, because I suspect you'll find it as absorbing as I did!

If you don't have the time or can't be bothered, I'll pick out a couple of the points in his letter that he makes in favour of extended warranties:

"Many products are complex and have to interact with others already owned. Set-top boxes are used with VCRs and TVs, digital cameras and scanners with PCs and printers. You may end up with a Pace set-top box, a Toshiba VCR, a Panasonic DVD player and a Sony television, all of them joined together with a JVC scart lead. Each will have a remote control. Now if the picture or sound "fails" on the television, where is the "fault" or what is the cause? Who can the customer turn to for help in such a situation? The answer, of course, is the retailer. That is why we have developed our total business model to meet these consumer needs."

Ah, but his "total business model(!)" assumes that I buy all my electrical equipment from Dixons. What if I had an extended warranty for a TV from Dixons, but had bought everything else from other stores at better prices? I doubt Dixons would be happy to help me if the problem is with my non-Dixons VCR or set-top box!

"A manufacturer's warranty will only cover the product for any fault that is deemed to be integral to the product. It will not cover a toddler sticking toast in the VCR, bra wires jamming in the washing machine, dropping a digital camera in the sea or spilling coffee on your keyboard. Nor will it cover the accidental pressing of a mute button, nor the breakdown of a dishwasher because of a problem associated with its installation. Our Coverplan contracts will."

Actually, most of the above problems can and should be covered by your home contents insurance, if you have "accidental damage" cover. Also, your rights under the Sale of Goods Act will cover problems with design, quality and reliability.

In any event, you should set aside money to pay for occasional emergencies that aren't covered by manufacturers' guarantees, your home contents insurance or the law.

One interesting thing about Mr Clare's letter is it includes a chart that compares the Consumers' Association's claim 'probabilities' with Dixons' own claims records. According to Mr Clare, a staggering 71 out of every 100 washing machines sold with an extended warranty incur claims within three years of purchase!

If the warranty extends to five years, this figure rises to 145% of all washing machines (because some people make more than one claim over five years). Eek!

So, isn't Mr Clare suggesting that the products he sells are highly unreliable? Admittedly, he says that it's difficult to know how reliable his products are because the way they're updated and manufactured changes so often.

But that's precisely the difference between his company and the Consumers' Association. In Which? Magazine, the CA tests many widely available products to the nth degree, so that we find out which are the most reliable and the best value for money.

If the CA can do it, I don't see why Dixons can't. And then there'd be little need for those over-priced extended warranties, would there?

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