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Warranties vs. Vehicle Service Contracts

What is a warranty?

When buying a vehicle, most purchases are covered by a warranty, which is a guarantee that the seller will repair or replace a defective good within a given amount of time. Auto warranties can come directly from the manufacturer of a vehicle, and those that do usually only apply to new vehicles. However, it is possible for pre-owned vehicles to be covered by a manufacturer’s warranty if the vehicle was purchased before the manufacturer’s warranty expires. Also, used vehicles that are no longer covered by a manufacturer’s warranty might still be covered under a warranty given by the dealership that sold the vehicle. Sometimes a dealership that sells a used vehicle will give the consumer a warranty from their dealership that will last until a specified period post-sale, and sometimes a dealership that sells a used vehicle will be required by the law(s) of the state that the dealership is located in to give to a consumer a warranty covering the repair of any defect with the vehicle for a specified period post-sale. In the auto industry, the two kinds of warranties that are prevalent are known as express warranties and implied warranties.

Express Warranties

An express warranty is a warranty that is clearly stated by the manufacturer or the seller of a product. This type of warranty can take on written or spoken form and it guarantees that the purchased good will meet a specific standard or quality. If the good fails to meet the specified level of quality during the coverage period of an express warranty given by a manufacturer, the manufacturer must take the necessary steps to repair or replace the good. According to the federal Magnuson-Moss Warranty Act, 15 U.S.C. § 2301, et seq. (“MMWA”), manufacturers that sell goods for over $15 must provide an express warranty for that good. Thus, vehicle manufacturers must give consumers an express warranty for each vehicle that they purchase. Express warranties for vehicles are usually limited by a specific time frame or mileage. For example, a manufacturer may provide a consumer with an express warranty that guarantees that a vehicle will drive for up to 30,000 miles and the manufacturer may provide all maintenance for the vehicle up until that point. If the vehicle breaks down before 30,000 miles, the consumer may request a repair or a replacement. If the manufacturer fails to repair or replace the vehicle, the consumer may be able to claim that the manufacturer breached the warranty.

If a consumer decides to file a breach of express warranty claim, they must do so within the allotted statute of limitations period. For a breach of express warranty claim, the statute of limitations period is usually the same as the statute of limitations period for a breach of contract claim. The specific time period and time of accrual for a statute of limitations period for a legal claim is dependent on which state or federal law applies.

A used vehicle dealer can also provide express warranties from itself to a consumer, stating that for a used vehicle that it might sell the dealer will cover any repairs, or only certain repairs, for a time period post-sale or certain mileage driven post-sale. Used vehicle dealers also can be required pursuant to the state law(s) in the state that they are located in to provide an express warranty that will cover the repair of any defect with a used vehicle that the dealer might sell for a time period post-sale or certain mileage driven post-sale, and this is often codified within a respective state’s lemon law(s).

In some states, it is illegal for a dealer to sell any vehicle without any warranty, which is commonly referred to as selling a vehicle “As-Is”.

Implied Warranties

An implied warranty is a type of warranty that is automatically applied to a good under the law and it provides a base level of protection for consumers. Unlike express warranties, implied warranties are not usually written or spoken. Instead, they arise from the sale of the product.

The most common type of implied warranty is known as the implied warranty of merchantability, which covers both new goods and used goods. In the auto industry, used vehicles are extended legal protection by the implied warranty of merchantability. Under federal law, “merchantable” is commonly defined as: 1) being fit for the purpose that the good is usually used for, 2) conforming to the standards of the trade, 3) being uniform in regard to quality and quantity, and 4) conforming to any promises made on packaging or labels. Essentially, this type of warranty ensures that a good that is purchased will accomplish the purpose that it was made to accomplish, and that it will align with the buyer’s expectations. For example, a vehicle must be able to be driven safely — a vehicle that cannot be driven safely due to the condition that it was sold in would be in breach of the implied warranty of merchantability.

The other type of implied warranty is known as the implied warranty of fitness. This type of warranty guarantees that a product will be able to function for a specific purpose that a consumer purchases it for. The implied warranty of fitness goes into effect when the seller knows about the consumer’s specific purpose for the good and the buyer is depending on the seller to provide them with a good that can serve their purpose. A consumer may be protected by the implied warranty of fitness if the good they purchased cannot serve the specific purpose it was intended for.

The statute of limitations period (the amount of time that a party has to sue another party in regard to a particular legal claim for relief) for a breach of implied warranty claim is generally determined by the statute of limitations period for negligence claims. Like a breach of express warranty claim, a breach of implied warranty claim is subject to state law. In many states, including Massachusetts, the statute of limitations period for a breach of implied warranty claim is three years from the date that the breach was discovered or should have been discovered.

Vehicle Service Contracts

A service contract for a vehicle, properly known as a “vehicle service contract”, and often improperly referred to as an “extended warranty”, is a contract that a consumer can enter into, in order to be provided with repairs and maintenance for their vehicle for a specific amount of time. These can be purchased, often from third-party companies other than the manufacturer of the consumer’s vehicle and other than the dealership who sold the consumer the vehicle; though the dealers often act as agents for the third-party companies that offer vehicle service contracts and make commissions on their sale. Warranties are not sold, but vehicle service contracts are.

Vehicle service contracts are only valid for the specified time period or mileage outlined, and they also vary in their degree of coverage. Many vehicle service contracts do not provide full protection for vehicles, so dealers or repair shops are only liable to make repairs to the parts of the vehicle that are listed in the terms of the contract. It is for these reasons that it is actually a violation of federal law for any company to in advertisements refer to vehicle service contracts as being extended warranties, because they are not the same thing, and it could be deemed a fraudulent, unfair, and deceptive act in some states for vehicle service contracts to be sold as ‘extended warranties’ when they are not extended warranties. Service contracts usually do not apply to common vehicle repairs, tune-ups, towing fees, and issues that arise due to normal wear and tear.

Service contracts can be sold by dealerships, manufacturers, and independent companies. While some dealers may pressure their customers into adding a service contract to their list of purchase add-ons when they are purchasing a vehicle, it is important to remember that these contracts are not mandatory. A consumer generally does not have to buy them at the time of sale, though a dealership might lie to a consumer and tell them that they have to. If a consumer does purchase a service contract, it is important that they compare the terms with the terms of their manufacturer’s warranty as it is possible that the two may cover duplicate parts and the same coverage periods for those parts, which could make it a waste of the consumer’s money to purchase the vehicle service contract. Consumers may want to choose for their service contract coverage to begin only once the manufacturer’s warranty expires. Additionally, a service contract may require for a consumer to stay up to date with routine maintenance for their vehicle in order for the contract to remain valid, so it is important for a consumer to obtain and spend time learning the terms of a vehicle service contract before they purchase one.

In sum, while a vehicle service contract seems similar to a warranty, it is not a warranty. Whereas a warranty is included with the purchase of a vehicle and goes into effect at the time of purchase, service contracts must be added on at an extra cost and can be purchased at any time. Additionally, warranties are provided by manufacturers while service contracts usually are not. If a dealership committed fraud in the course of selling a consumer a vehicle service contract, a consumer should contact an attorney licensed in the state in which the consumer resides, and/or a government agency that can assist the consumer, and/or the consumer’s respective state’s Attorney General’s office.