Car buyers could win as warranty war heats up
THE new-car warranty war looks like it's about to give buyers another big win.
Australia's third-biggest car brand Hyundai is considering switching to seven-year warranty - which would match its sister brand Kia - as more rivals move to five-year coverage.
Hyundai was the first brand in Australia to offer new-car buyers the peace-of-mind of a five-year warranty, launching the extended coverage in 1999 when the rest of the market gave just three years' protection from manufacturing faults.
However, the company says it is evaluating the merits of taking its warranty a step further.
"Honestly we are studying it," said Hyundai Australia chief executive JW Lee. "Nowadays five years warranty is not that unique … so we need to consider how we differentiate from the others but there are many things we need to take into consideration."
One aspect of extended warranty coverage that may not be obvious to consumers is that it costs money.
Every manufacturer holds back a small portion of the profit from every vehicle to go into a pool of funds to cover future warranty costs.
The longer the warranty coverage, the more money needs to be kept aside.
Some car companies pay for the extra warranty coverage out of their local marketing budgets, others are fully supported by the factory overseas.
Either way it's a big win for buyers. Kia said earlier this year it would consider going up to 10 years coverage if other brands made seven-year protection a long term offer.
More brands switching to five or seven years warranty will put a spotlight on market leader Toyota, which for now refuses to budge.
In a recent interview Toyota Australia sales and market boss Sean Hanley said the company had no plans to increase warranty from three years/100,000km.
"At this stage Toyota Australia has no plans to extend its warranty on new vehicles … we will continue to offer outstanding service to our customers and I can assure you our warranty obligations are aligned to Australian Consumer Law."
Recent changes to Australian Consumer Law have given buyers better protection when it comes to faulty cars.
The growing industry consensus is that the ACL deems it "not fair and reasonable" for a major fault to occur after four or five years - if a vehicle has been properly maintained.
Therefore, many brands are formally increasing coverage from three years to five because they are obliged to fix the car under ACL in any case, providing routine maintenance on the vehicle has not been neglected.
It has been a long road to extended warranty coverage.
It took six years for the second brand to follow Hyundai - Mitsubishi went to five-year coverage in December 2004 - and then more than a decade for most others to follow.
In the past two years so many brands have moved to five-year coverage - including Mazda, Holden, Ford and Honda - that more than half the Top 10 now offer longer warranty as standard.
Nissan is this month offering five-year coverage as a limited-time promotion but it is believed to be in preparation for a full-time switch later in the year. Volkswagen is poised to do the same.
Mitsubishi is currently offering seven-year warranty coverage over the next seven days, up from its normal five years.
Honda also occasionally offers seven years warranty during special promotions. Holden spent much of last year flicking between five and seven years warranty, depending on the model. Subaru offers five year coverage from time to time.
Still, no-one comes close to Hyundai's sister brand Kia, which began its permanent industry-leading seven-year/unlimited kilometre warranty coverage in October 2014.
Kia Australia has doubled its sales over the past four years and the company attributes much of that growth to seven-year warranty coverage.
This reporter is on Twitter: @JoshuaDowling