Caption: Jonathan Tham, CEO of GMR
The COVID-19 pandemic has impacted every industry and person in the world. While most have been negative it has also certainly led to some interesting unintended effects that from certain perspectives are more positive in nature. Take for instance the used car industry, sales have gone up over the past two years, owing to a series of factors including the semiconductor shortages in the manufacturing of new vehicles as well as customers in general looking to tighten their purse strings.
However, with the purchase of a used vehicle, comes the topic of extended warranties - a necessary service that unfortunately has a less than ideal reputation amongst consumers.
Mismatched Perceptions And Unaligned Expectations
To even begin meaningful discussions on the topic, one would have to clearly identify what constitutes an extended warranty - something unfortunately not everyone is equipped with.
When a vehicle is newly purchased, the manufacturer would issue a warranty for a certain period, typically around 5 years or so. Auto manufacturers such as Toyota, Honda, or even Proton and Perodua are large companies that have the resources to ensure that their promises are followed through, and consumers can rely on them in case anything should go wrong with their vehicle and the warranty needs to be claimed.
Second hand, or used vehicles may also come with warranties, but they are usually provided by a third party. These third parties may or may not have the same resources that the auto manufacturers do, resulting in situations where they are unable to fulfil their promises and obligations on this front. Consumers tend to expect the same level of care from extended warranty providers that they get from the primary market. A lack of knowledge on the consumer’s part leads to expectations that cannot be met.
The inability of extended warranty providers to live up to expectations can lead to the mistaken assumption that the industry as a whole tends to be filled with scams and bad actors. It certainly does not help that there are a number of players who engage in bad faith business practices,
leading to a rather tarnished reputation for the industry. Combined, these factors are negatively impacting the second hand car market in general - discouraging purchases that have seen used car sales numbers in Malaysia lag behind our neighbouring countries. The legitimacy of these claims must be checked, to ensure that they are not only legal, but that these are reputable providers who will fulfil their obligations.
Consumers, however, are only one half of the equation when it comes to figuring the answer to the current state of why there is such distrust towards extended warranties and warranty providers.
Small Number Of Bad Actors, Large Industrial Impact
The other half of the puzzle is the providers themselves - and the unscrupulous actions of a few in particular. Bad faith business practices can mean many things, one such example being delayed payments for warranty claims. It is important to keep in mind that almost everyone who owns a vehicle relies on it for a very large and important part of their lives. As such, when a consumer simply cannot stand to wait any longer, they might pay the cost of a repair out of pocket.
Exorbitant promises made by some providers would also sound tempting to an unwary consumer - what may sound too good to be true, often is. Extended warranty providers must be underwritten by existing major insurance providers, as is required by law. This is, among many other reasons, to provide the consumer with a recourse in the event the warranty provider goes bankrupt. For example, if a consumer has unfortunately fallen victim to a dishonest deal and purchased a used vehicle with three years extended warranty, and the provider ceases to exist in one year, the consumer now has no choice but to again, pay out of pocket for any repairs or servicing of the vehicle. Promises that are too good to be true tend to be just that - overblown offers that are unrealistic, and meant to entice customers for a quick buck.
One factor that works to the advantage of certain providers and workshops is word of mouth - if one workshop is known to be good, then the customer’s friends and family members may also come to the same place for repeat business, leading to a positive feedback loop. The good reputations of a few does not take away from the larger, structural issue at hand: regulatory inefficiency.
What is unfortunate is that existing regulations are hardly adequate, with lots of loopholes still in existence to be exploited for a quick profit. A lack of enforcement by the relevant authorities is also concerning, as this is only perpetuating the negativity in the industry. There needs to be, at minimum, swift and unbiased enforcement, coupled with laws tabled by parties knowledgeable in the industry to ensure a safe and fair environment for businesses and consumers alike.
Community-sourced knowledge can be a way to circumvent this issue. As long as one provider is able to solve all their customer’s issues, the reputation they gain will be spread through word of mouth. This reputation will serve as the best source of advertisement.
For example, false advertising can be a problem, as an extended warranty provider can claim that they are backed by an insurer. Some go further to claim that an insurer is not required or bad for them. The previously mentioned lack of enforcement is propagating blatant dishonest practices such as this. A new law that can help with solving other issues in the industry, can be one that addresses the duration for which extended warranties can be provided. If even private companies such as Grab only allow 10 year old or newer cars to be used for their services, then the government should be more proactive in regulations as it becomes an issue of road safety.
The Pandemic’s Effects
As with every other industry, the pandemic has affected this industry as well. On top of unreliable extended warranty providers closing down, even genuine businesses that provide a good service would have also been forced to shut down permanently as a result of the lockdowns and movement control orders that have been issued over the past two years in the nation. In the end, it is the end user, the working class that has to deal with the brunt of the consequences. Their already paid premiums now burned, it is again another occasion where solving an issue with their used vehicle will burn another hole in their pockets.
Fortunately, there exist solutions to make this industry a better place for all. On top of government intervention that has already been mentioned, consumers need to only follow 3 basic rules when purchasing an extended warranty - Ensure that the company is legitimate, it’s not too good to be true, and check reviews. Word of mouth is the most powerful advertising tool, and if a company has not been around long enough to gain a good reputation, or has a bad one, then it is best avoided.
