Driving competition in the car after-sales market

Check terms and conditions on new car warranties, says OFT

59/04 30 March 2004

The OFT has today launched a campaign encouraging buyers and owners of new and nearly-new cars to check the terms and conditions of car warranties, and to compare warranties when looking for a new or nearly-new car.

Download Buying a new car? (pdf file 176 kb)

Car buyers are warned to look out, in particular, for servicing restrictions that limit their choice of where to get their car serviced, and which may mean they pay more for routine servicing.

Over 2.5 million new cars are sold in the UK each year. All new cars come with a manufacturer's warranty, covering the premature failure of components due to manufacturing defects. Many manufacturers also offer, at no additional charge, 'dealer-based extended warranties'. Under the terms of some of these extended warranties, and some manufacturers' warranties, the car must be serviced at a garage belonging to the manufacturer's franchised dealer network.

Since the launch of an OFT study into the market for car warranties, some car manufacturers have indicated that they are lifting such servicing restrictions. However, at least a quarter of all new cars sold still have warranties with these restrictions. The OFT research shows that over two thirds of car owners assume that their warranty will be invalidated if they use an independent garage, even where this is not the case.

Franchised dealers carry out around 90 per cent of servicing of cars up to three years' old. Servicing at franchised dealers is generally more expensive than servicing at independent garages, averaging £199 and £116 respectively, without any apparent difference in the quality of the service offered.

Penny Boys, OFT Executive Director, said:

'Servicing restrictions, combined with confusion about warranty terms and conditions, restrict competition between garages, driving up prices and reducing choice and convenience for the customer. When looking for a new car, it's worth comparing warranties as well. Check that the warranty gives you what you want, and doesn't include conditions that could cost you money later.'

The OFT has produced a leaflet with ten questions to ask about the warranty before buying a new car. It will be available from RAC sales agents in town and shopping centres and will be distributed by major national car magazines.

NOTES

1. The leaflet Buying a new car? is available by telephone from 0870 60 60 321.

2. The OFT published a study into the effect of car warranties on the car after-sales market in December 2003 (see press release 170/03). Estimates of cost for car servicing from the Department of Trade and Industry mystery shopping research Car Servicing and Repairs, DTI URV02/1293 (2000) and assuming one service per year.

3. Since the launch of the OFT study, DaimlerChrysler and Peugeot have indicated that they will remove servicing ties.

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