Fleet News

Will five-year cover become the norm?

COMPETITION in the motor industry is fierce when a manufacturer comes up with a pioneering idea lacking in its immediate rivals' array of weapons.

Last week Hyundai announced a UK first in its five-year/unlimited mileage warranty across its car range, and waiting for the other manufacturers to react will be a drawn-out process.

In October 2000 Ford sparked a flurry of activity among volume manufacturers by increasing its 12-month warranty to three years.

When Ford announced its change (which combined a year's manufacturer warranty with a two-year dealer warranty to encourage customers to use the approved network) within days Vauxhall followed suit. Then Citroen, Renault and Fiat announced plans to provide similar cover with other manufacturers jumping on the warranty bandwagon.

However, a three-year/ 60,000-mile warranty was old news for Japanese manufacturers, Volkswagen Group, Rover, Peugeot, Daewoo and Proton, and most of the premium brands.

Mitsubishi's warranty had carried an unlimited mileage tag for some time, while Honda's was set at 90,000 miles and Daewoo and Proton offered a comprehensive warranty since their launch in the UK.

Hyundai was well placed to extend its standard warranty cover in the UK. It will have done all its homework from years of offering a standard 10-year warranty in the US, and have a tried and tested record of how much it is likely to cost to introduce a five-year package in the UK.

Hyundai says its new warranty is part of a wider plan to increase its sales to fleets – particularly those operating fewer than 25 cars – from its current level of about 7% of total sales, and is hoping for a commensurate uplift in its residual values as buyers of three year-old models appreciate the benefits of two further years of manufacturer warranty.

Other manufacturers might argue that with Hyundai's position in the UK market – achieving about 1% of total annual sales in any given year – it is too small a player to have a significant impact on their sales.

But if Ford, Vauxhall or another large volume car maker was to extend its warranty to five years, rivals would be more likely to respond. However, manufacturers are coy about revealing imminent changes to warranties to avoid giving too much away to their competitors.

And often, once the news is out, there is a danger of reacting to the actions of rivals too quickly without fully assessing the consequences. Several years ago, Rover offered a 30-day guarantee scheme where customers could exchange their cars if they were not suitable.

Other car makers were swift to react but had not calculated fully how their schemes would work and had to bring them to a premature end.

Premium manufacturers have recently reviewed their warranty schemes offered in the UK and most have switched from 60,000 mile cover to unlimited mileage.

As with the volume car makers where everyone watches Ford and Vauxhall, here BMW and Mercedes-Benz are the ones to keep an eye on.

Warranties from Mercedes-Benz and BMW, including MINI, now offer unlimited mileage, while Ford-owned companies Jaguar and Land Rover did the same earlier this year. However, Volvo - also owned by Ford but operating in a slightly different area of the market - says it has no plans to change.

Audi, whose warranty reflects other manufacturers within Volkswagen Group, is also sticking to three years/60,000-miles cover, as is Lexus, although a spokeswoman said the subject is always something that the company keeps under review.

Added value packages have also extended to service and maintenance, with BMW offering reduced servicing costs through its £500 Concours package for the 7-series which covers cars for five years/75,000 miles and the £100 tlc package for the MINI lasting for five years and 50,000 miles.

Increases in warranties make life easier for fleet operators and also increase the appeal of personal motoring schemes for employees opting out of company car schemes who would otherwise be nervous of committing themselves to a three-year PCP package with exposure to expensive unreliability issues from the end of the first year.

Manufacturers might also find an incentive in offering improved warranties as standard to ensure customers remain within the established dealer and servicing network as changes to the European car distribution block exemption appear to strengthen the hand of independent garages to compete for service and maintenance business.

If standard long warranties are offered through approved dealer networks – as long as the cars are regularly serviced through the manufacturer networks – it could be enough to persuade customers to maintain relationships with franchised dealers rather than look elsewhere for 'cheaper' deals.

However, this is an area which is causing irritation for some fleets. Most of the volume brands, although offering a 'three-year' warranty, offer 12 months' cover by the manufacturer followed by 24 months cover by the dealer.

Servicing work carried out on the car by non-approved outlets can invalidate the second and third year of the warranty.

A former fleet manager of one of the largest fleets in the UK said: 'Apart from the 'big three' (Ford, Vauxhall and Peugeot), few manufacturers can guarantee to have a franchised dealer within reach of every company car driver. Therefore, in some locations, the ability for competent general garages that can undertake all servicing is almost indispensable.

'The problems with cars managed by fleet management companies is that for the most part servicing is carried out on the strength of their fleet identity cards, without prior authorisation. Only when they find out that cars have been serviced by a non-franchised agent, can they advise drivers not to do so – by which time it is too late.

'It means that no fleet car which enjoys an extension of the manufacturer's warranty from one year to three can safely be serviced other than by a franchised dealer.

'As far as I am concerned, there should not be a two-tier situation. If the manufacturers are bound to honour warranties for the first year irrespective as to whether the servicing was carried out by a franchised dealer or not, then the second and third years should be treated in the same manner.'

The preferred solution would be a clear and unambiguous warranty offered by the manufacturer, but until Ford or Vauxhall decided to underwrite such a scheme, customers could be in for a long wait.

Vehicle warranty fact file
Manufacturer Month/miles Manufacturer + dealer
Alfa Romeo 36/60,000 12 + 24
Audi 36/60,000 24 + 12
BMW 36/unlimited 24 + 12
Chrysler Jeep 36/60,000 36
Citroen 36/60,000 12 + 24
Daewoo 36/60,000 36
Daihatsu 36/60,000 36
Fiat 36/60,000 12+24
Ford 36/60,000 12+24
Honda 36/90,000 36
Hyundai 60/unlimited 60
Isuzu 36/60,000 36
Jaguar 36/unlimited 36
Kia 36/unlimited 36
Land Rover 36/unlimited 36
Lexus 36/60,000 36
Mazda 36/60,000 36
Mercedes-Benz 36/unlimited 24 + 12
MG Rover 36/60,000 36
MINI 36/unlimited 24 + 12
Mitsubishi 36/unlimited 36
Nissan 36/60,000 36
Peugeot 36/60,000 12 + 24
Proton 36/60,000 36
Renault 36/60,000 12 + 24
Saab 36/60,000 36
SEAT 36/60,000 24 + 12
Skoda 36/60,000 24 + 12
Smart 24/unlimited 24
Subaru 36/60,000 36
Toyota 36/60,000 36
Vauxhall 36/60,000 12 + 24
Volkswagen 36/60,000 24 + 12
Volvo 36/60,000 36

Leave a comment for your chance to win £20 of John Lewis vouchers.

Every issue of Fleet News the editor picks his favourite comment from the past two weeks – get involved for your chance to appear in print and win!

Login to comment

Comments

No comments have been made yet.

Compare costs of your company cars

Looking to acquire new vehicles? Check how much they'll cost to run with our Car Running Cost calculator.

What is your BIK car tax liability?

The Fleet News car tax calculator lets you work out tax costs for both employer and employee