NARDA Counters Consumer Reports' Warranty Warning

By Alan Wolf -- TWICE, 12/4/2006

Glenview, Ill. — The North American Retail Dealers Association (NARDA) has come out swinging against a public education campaign by Consumer Reports that advises shoppers against buying extended service plans.

Consumer Reports kicked off the campaign last month with a full-page advertisement in USA Today and an email blast to 825,000 subscribers warning that extended warranties on CE and majap products have become big business for retailers but a waste of money for consumers.

The non-profit consumer advocacy magazine noted that dealer margins on service plans can reach 50 percent or better, and that products seldom break within the typical extended warranty window of three years. In the event that they do, repairs on consumer electronics and major appliances often cost about the same as the price of the warranty plan, the magazine reported.

The publication estimates that consumers will spend about $1.6 billion on extended warranties for brown and white goods this holiday season. Almost all of it – with the exception of coverage for rear-projection microdisplay TVs (three times more likely to need repairs than other types of TVs, the magazine said) and Apple computers (due to a paltry 90 days of tech support) – "will be money down the drain."

While Consumer Reports and its parent company, Consumers Union, have long advised shoppers to steer clear of service plans in print and online, the campaign represents the first time that the organization has mounted such a widespread public education effort, prompting NARDA to take action. Finding the campaign "misleading, a disservice to consumers and a threat to NARDA members who sell these programs," the educational trade association has provided members with a fact sheet and action plan developed by warranty expert Gary Chaves, and has challenged Consumer Reports directly in a letter to Editor-in-chief Margot Slade.

"We think that Consumer Reports slanted the data they collected and did not present a balanced view," said NARDA president/CEO Tom Drake. "We are not going to let our members be taken to the woodshed for offering their customers the opportunity for protection. Extended warranties are not for everyone, and certainly retailers make money on selling them. However, a simple fact of life is that everything eventually breaks, whether it's the human body, a refrigerator or a television. Extended warranties offer consumers the opportunity to have piece of mind as well as save time and money."

Chaves recommends that dealers familiarize their sales staffs with the Consumers Union report to better understand customer qualms, and then offer additional information about their extended warranties including:

The convenience of the program;
Value added services such as free technical support, unlimited service calls and money-back-if-not-used incentives;
The costs of unexpected repairs due to the complexity of today's products;
Reduced manufacturer warranties.