Watch for these sales pitches

Once you’ve settled on the vehicle’s price with the salesperson, you will be passed along to the dealership’s Finance and Insurance manager, sometimes called the “F&I representative.” He or she is the one who determines what credit terms you will be offered and draws up the loan or lease contract. The F&I manager is in fact another salesperson. His or her wares include insurance and loan services, but also such extra-cost items as extended warranties and other intangibles. If you let down your guard, you risk blowing what might otherwise be a great deal.

One of the F&I representative’s pitches will be to finance your car through the dealership. This may be worth considering if the manufacturer is offering a special low-interest financing rate or a subvented (subsidized) lease. But you should already be familiar with what terms are available elsewhere so you can make an informed decision.

If a manufacturer-subsidized deal isn’t available, you might be offered a higher-cost loan than you could find elsewhere. If you haven’t done your financing research ahead of time and now find yourself having to depend on whatever the dealership offers, you may want to put the deal on hold until you’ve had time to compare rates from other sources.

If a sales incentive is available, sometimes you have to choose between a low-interest financing rate and a cash rebate. The rebate can be applied to your down payment and thus reduce your loan principal. Run the numbers both ways to see which option gives you the most benefit. You can use an online calculator.

The F&I representative will almost surely try to sell you an extended warranty or service plan. Most of the time, these plans are a losing bet. A Consumers Union survey conducted in December 2007 proves this point. We polled 8,000 owners of five- and six-year-old vehicles that had been covered by extended service plans. Here are some key findings:

• Sixty-five percent of those surveyed said they spent significantly more for the contract than they got back in repair-cost savings. Respondents said their extended warranty cost them $1,000 on average while providing an average benefit of $700. That means the average loss was $300. A big reason: 42 percent of extended warranties in our survey were never used, in most cases because the vehicle didn’t need repairs or the standard manufacturer’s warranty sufficed.
• Only about one in five respondents said they had a net savings. In general, extended warranties were a better deal for those who bought more troublesome cars, those scoring lower in our reliabil­ity Ratings. When we looked at net costs by car make, only owners of Pontiacs and Jeeps broke even, because on average they had covered repairs that equaled the warranty cost. Other reasons to look askance at extended warranties include these considerations:
• Many consumers consider extended warranties as insurance, but in most states they legally are not. That is, they’re not covered by insurance-type regulations. That means that buyers of extended service contracts in states that don’t consider them to be insurance don’t enjoy the same regulatory safeguards that they get from, say, auto insurance, whose price must bear a reasonable relationship to cost.
• High commissions. Since extended service contract pricing is not regulated, dealers charge whatever the market will bear, and a 50 percent cut for sales commissions is not unusual. By contrast, only 17 percent of your annual premium for auto insurance goes to commissions and other selling expenses.
• Many brochures we reviewed tend to wax eloquent about “comprehensive” coverage for hundreds of parts and other benefits. But they usually don’t say much about numerous exclusions and limitations. To learn that, you need to delve deep into the contract language. For instance, if the failure of a non-covered part causes damage to a covered part, then you may be out of luck. For example, if the timing belt was not covered and it fails, resulting in a badly damaged engine, which supposedly was covered, then you could be on the hook for the entire engine-repair cost as well as the timing belt.

The best course of action for most consumers is to buy a car that gets top reliability scores in our vehicle Ratings, and then you most prob­ably will never need an extended warranty. But if your heart is set on a car with a below-average reliability record, it’s more of a toss-up. You can decide for yourself how much “peace of mind” is worth. For example, the highest usage claims were for Mercedes-Benz, for which we have a few models not recommended due to below-average reliability. But only 38 percent of those owners said they saved money with the extended warranty; their average loss was $100.

An extended warranty kicks in only when the manufacturer’s basic warranty expires and, depending on the contract you purchase, will pay for some or all of the repairs your vehicle may need after the basic warranty expires.

But since today’s new cars are typically covered by bumper-to-bumper factory warranties for at least three years or 36,000 miles, and luxury brands often offer four-year/50,000-mile warranties, it may not make sense to buy a plan three to five years before you need it, if you ever do. If you are borrowing money to finance the car, you’ll be paying interest on the cost of that unused warranty.

Furthermore, if you trade in your vehicle every five years or so, or if you lease a vehicle under a typical three-year plan with a 12,000-mile-per-year mileage allowance, then buying an extended warranty would be a waste of money.

Even if you plan to keep your vehicle longer than three years, think hard before signing up for an extended warranty.

In general, cars have become much more reliable in recent years. Properly maintained, a vehicle’s major components, such as the engine or transmission, should go without a major failure for at least 10 years or 100,000 miles. Many vehicles can reach 200,000 miles without a major breakdown. The chance of needing extended warranty coverage just isn’t as great as it used to be.

If you do decide to purchase an extend­ed warranty, don’t feel pressured to get it the same day you buy the vehicle. You can usually add a plan any time before the basic warranty expires. You can also buy coverage directly from an independent company, which will almost certainly be cheaper than what the dealership offers. Warranty Direct  and 1 Source Auto Warranty are two well-known sellers. (Consumer Reports has not evaluated these companies.) In general, however, we suggest sticking to a plan offered by the automaker instead of a dealer’s third-party coverage, which may vary enormously in quality, coverage, and price.

Review any service plan carefully to find out what is and isn’t covered, who can perform repairs, and how to file a claim. Also determine what you need to do to keep coverage, such as providing proof that you properly maintained the vehicle. (It is always a good idea to keep complete and accurate records of any maintenance and repairs on your car.)

If you buy an extended warranty from a dealer, always negotiate the price. Dealers can mark up the price they pay for the warranty by 100 percent, so there’s lots of wiggle room for negotiation there. And make sure the plan is transferable if you sell the car.

Alternatively, a wiser course might be to skip the purchase of the warranty and put the money you didn’t spend into an interest-bearing savings account and use it only if you have a major problem. If you never dip into it, this account will make a nice partial down payment on your next vehicle.

Another pitch you might hear from the F&I representative is for insurance. Here are some of the policies he or she may offer:

GAP insurance. This is essential protection if you lease a new vehicle. It covers the difference between the payments made over the life of the lease and the remaining value of the vehicle if it is stolen or totaled in an accident. Many lease contracts already include GAP insurance and bundle the premium with your monthly payments. Others may charge you for it as part of the down payment due when you sign the lease. The cost can vary widely, so if it isn’t part of your lease contract, shop around.

Credit life insurance. It guarantees that your survivors will be able to pay off the vehicle if you die before your car payments end. The cost may appear modest but if you already have life insurance, you’re covered. Even if you don’t, the odds are that your heirs will never need this protection anyway. Some dealers may tell customers with poor credit histories that credit life insurance is mandatory. It isn’t.

Credit disability insurance. This is im­­­por­tant coverage for anyone whose dependents rely on his or her earnings to support a household. You may already have disability coverage through your employer; if not, you should be able to purchase it less expensively elsewhere.

Before they let you drive away, dealers may also try to get you to buy extra services that are usually overpriced. These include:

Rustproofing and undercoating. Don’t bother. Today’s vehicles are manufactured with good corrosion protection. In fact, Consumer Reports’ Annual Auto Surveys show that rust problems have almost vanished in modern vehicles. Standard rust-through warranties for most domestic and imported vehicles run five years or more, and many will cover you for an unlimited number of miles during the warranty period.

Fabric protection. This is the most expensive Scotchgard your upholstery will ever see. Instead, spend a few bucks on a can of fabric protector and spray it on by yourself.

Paint sealant. The dealer may tell you that an application of this clear coating will protect your car’s surface for years, but it’s little more than vastly overpriced wax. Just buy a good pro­tect­ant from any auto-parts store and apply it yourself.

VIN etching. This is a service that etches the VIN into the vehicle’s win­dows to deter theft. Some states require dealers to offer this service to customers, but none require you to buy it. It’s not unusual to find a charge for VIN etching pre-printed on the purchase agreement, as if it’s assumed you will pay for the service. We recommend that you refuse this charge, and if it’s printed on the contract, put a line through the entry. Even if you decide you want VIN etching, you can have it done less expensively elsewhere, or even do it yourself with a kit that costs about $25 or less.

Security or anti-theft system. Your dealer may tell you that an alarm system or theft-recovery device will cut your insurance costs; it does. But the discount, which can range from 10 percent to 30 percent of your comprehensive insurance pre­mium, may not warrant an expensive dealer-installed system. Check the price of the system versus how much you’ll save on your insurance discount.

You also might get a sales pitch for LoJack or a similar system that tracks and locates stolen vehicles and might help police get your car back before it’s stripped and the parts are sold.

You’ll spend far less buying an antitheft or vehicle-recovery system from an auto-security specialty shop than from a dealer­ship. But make sure that you install one that’s authorized for your vehicle. If it isn’t, you risk voiding your warranty.