With extended warranties, you're safe <i>and</i> you're sorry
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Your support makes all the difference.Dixons, the electrical retailer, has decided to go on the defensive. Before a meeting convened by the Competition Commission last Friday to discuss the sale of extended warranties, Dixons wrote to journalists defending Coverplan, its own product.
The Consumers' Association has accused retailers of using "strong-arm tactics" to sell these warranties, which promise repairs on faulty goods beyond the manufacturer's guarantee period. The market is worth about £800m but warranties have been criticised for costing too much, suppressing competition, and encouraging heavy-handed promotion by sales staff who earn commission on them.
Last October, the Office of Fair Trading (OFT) warned shoppers to think twice before buying the warranties and referred the question of whether there is enough competition in the market to the Competition Commission. Its findings will be reported in July, with Friday's meeting a chance for both sides to state their case.
As Dixons is estimated to supply a quarter of all extended warranties, it has a lot to lose if the OFT changes the rules. It argues that Coverplan provides far more than the manufacturer's basic warranty because it offers accidental damage cover, theft insurance and customer helplines.
John Clare, chief executive of Dixons, also says he does not "glean from any of the independent research any reliable evidence of wide- spread pressure selling".
But are extended warranties really good value? At least 45 per cent of washing machines and half of all TVs are five years or older when they are repaired for the first time – in other words, after most warranties have ended.
And if you've ever bought an electrical appliance, you'll know all about strong-arm tactics. When shopping for a new TV recently, I was made to feel I was mad for not taking out the retailer's warranty – even though I would have ended up paying double what the TV cost me. The implication was that it was going to break down as soon as the manufacturer's one-year guarantee ended – and then I'd be sorry.
Some shoppers will always prefer to have the peace of mind that comes with an extended warranty, particularly if they can't afford to shell out several hundred pounds should their washing machine break down. But extended warranties deserve to survive only if the selling of them is regulated, if consumers are offered a range of policies to choose from, and if they are more transparent. Only then will we get both value for money and peace of mind.
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