Used Car Market & Extended Auto Warranties

Topics: specialty risk

Summary: What’s going on with the used car market? A lack of inventory for various reasons is making used car owners hold on to their vehicles longer than normal. Find out more about current used car market trends, and learn why used car owners should consider purchasing extended auto warranties, also known as vehicle service contracts.

Current Used Car Market Trends

The COVID-19 pandemic left its mark on many industries across the country and around the globe, from healthcare and hospitality to retail and manufacturing. The automotive business in the United States, likewise, has not emerged unscathed and continues to recover, even into the third quarter of 2021.

Used car values have soared over the last several months, with the average price increasing 21% compared to the same time a year ago. On the same note, the cost of a new car has gone up 4.9% year over year. While higher used car prices can be good news for buyers looking to get the most for their vehicle trade-in, dealerships are scrambling for inventory and coming up empty-handed, making it more difficult for those buyers to purchase the car of their dreams.

What happened to cause this lack of new and used car inventory? In the early days of the COVID-19 pandemic, travel screeched to a halt and rental car companies began selling off their fleets to stay afloat. Dealerships saw a decline in the number of used cars on their lots as a result. Additionally, the new car market suffered a global shortage of microchips, impacting production and leading to demand outpacing supply.

Used Cars and Vehicle Service Contracts

used car market and extended auto warranties

Until new car inventory returns to normal levels, the demand for used cars is expected to remain high. And, current owners of used cars may find themselves holding on to their vehicles longer than they initially expected they would. Economists estimate that used car prices won’t start to decline until later this year, so many people may keep their current cars until the market begin to turn around a bit.

Of course, holding on to a car for several years can mean extra expenses as the inevitable wear and tear begin to happen. Many used car owners may seek options to protect their vehicles – and their wallets – once the original factory warranty has expired to avoid paying for pricey repairs. One option for such protection is the purchase of an extended car warranty, also known as a vehicle service contract (VSC).

Are Extended Car Warranties Worth It?

“Whether or not to purchase an auto extended warranty can be a challenging decision for consumers,” said Bruce Saulnier, President of AmTrust Specialty Risk, a division of AmTrust Financial. “With the recent market shortage of new vehicles due to the global microchip scarcity, auto extended warranties could protect against unexpected out-of-pocket costs.”

Extended car warranties or vehicle service contracts can offer peace of mind and help reduce financial stress when a car breaks down. When purchasing a used car from a dealership, buyers are usually offered an extended auto warranty along with various additional coverages like dent and ding repair, tire and wheel repair, windshield repair, to name a few coverages. Or, extended warranties can be bought post-purchase as an aftermarket offering. The contract will detail how many years the warranty is for as well as what items are covered and which are excluded.

An extended car warranty goes above and beyond standard automobile insurance, too. In fact, they cover very different things. Most extended warranties are flexible, require no down payment and allow the consumer to cancel the policy at any time. In this market, used car owners should consider how long they plan on keeping their current vehicle and determine the cost of coverage versus the cost of anticipated repairs.

Economic concerns make auto warranties more desirable, especially with the average payout for vehicle service contracts increasing by 14.9% since 2015, as reported in the AmTrust 2020 Extended Auto Warranty Advisor.

What Does an Extended Car Warranty Cover?

Each VSC is different, so car owners should thoroughly review their contract before moving forward. The warranty will have a list of inclusions and exclusions and a breakdown of covered repairs. In general, some of the items extended auto warranties cover include:
  • Transmission and engine systems
  • Exhaust system
  • Steering system
  • Heating and air conditioning
  • Drive train
  • Pumps, alternators and manifolds
Most vehicle service contracts exclude items such as routine maintenance, tune-ups, brake pads, spark plugs and filters.

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Vehicle Service Contracts from AmTrust Specialty Risk

As one of the nation's largest warranty writers, AmTrust Specialty Risk has been customizing innovative insurance solutions for over 20 years. Our coverage team works directly with the industry's largest manufacturers and administrators worldwide to create vehicle service contracts, Guaranteed Asset Protection coverage and ancillary protection products for the automotive, RV, motorcycle, marine and powersports industries. For more information about partnering with AmTrust Specialty Risk, please contact us today.

This material is for informational purposes only and is not legal or business advice. Neither AmTrust Financial Services, Inc. nor any of its subsidiaries or affiliates represents or warrants that the information contained herein is appropriate or suitable for any specific business or legal purpose. Readers seeking resolution of specific questions should consult their business and/or legal advisors. Coverages may vary by location. Contact your local RSM for more information.

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