Buying a used car privately? There’s an extended warranty for that

Extended warranties on used cars are a big business. Dealerships routinely offer them for a fee, or roll them into the sale price, but GuardTree is targeting the private market with a monthly subscription-based model.

As recently as 2018, research by CarFax found that 47 per cent of shoppers looking for a used car online were more interested in vehicle listings that included warranty coverage. Another 33 per cent who bought certified pre-owned vehicles from a dealer cited the warranty as a factor in their purchase. Statistics Canada data show that sales of used cars have been rising steadily for some time, particularly through e-commerce channels. (Online sales of used cars jumped by 48 per cent from 2018 to 2019 alone.)

GuardTree Inc., which is registered across Canada, though currently operates solely in Ontario, says it’s not competing with dealerships, but rather looking to serve used car owners who have purchased their vehicles through private sale, as well as existing owners who have since seen their manufacturer or dealer warranty coverage lapse.

It also charges on a monthly basis instead of locking subscribers in for terms of 12, 24 or 36 months. The service costs between $49.95 or $79.95 a month, depending on the level of deductible and limit per repair subscribers choose. It currently covers used vehicles from about 19 makes, with a multitude of models, all of which must be licensed in Ontario, and not used outside Canada for more than six months a year. Of those makes and models, only those manufactured within the past 13 years and have fewer than 200,000 kilometres on the odometer are eligible.

One of the company’s selling points is that it doesn’t require an inspection for car owners to sign up. Jeff Schulz, executive vice-president of GuardTree, says the company’s own data have shown that inspection reports provide limited information to its claim adjusters as to whether a mechanical or electrical problem existed prior to purchase.

“When there is a doubt about a pre-existing condition, we work with the repair facility (subscribers have chosen) to have a better understanding of the context of a breakdown,” Schulz says. “Often, pre-existing conditions can be determined at this stage. If a direct correlation can’t be made, we give the benefit of the doubt to our subscribers.”

The company does encourage buyers to get an inspection report before paying for a used car, though it’s not required to get coverage. But Schulz also says that some subscribers will take advantage of the program’s looser requirements, albeit “a marginal number in comparison to the rest of our subscribers.”

In a bid for transparency, GuardTree presents the terms and conditions for prospective subscribers to read before signing up, and encourages them to ask questions about any of the provisions. That document then lives in the subscriber’s account page on the company’s website.

One thing the policy stipulates is that the claim limit is $5,000, though Schulz says this is per repair, with a limit of $10,000 over the life of the subscription for that vehicle. Subscribers do have the option to halve that for the lower monthly subscription fee, so that it’s up to $2,500 per repair, and $5,000 on aggregate. Deductibles are set at either $100 or $250. In addition, vehicles are no longer covered once they hit 250,000 kilometres or are in their 15th model year, Schulz says.

“In order to determine the limit per repair, we used data that shows an average claim cost per repair of $800, which means that our $2,500 limit per repair option is three times that amount,” he says. “We based the aggregate limit on the average listed price of vehicles within six and 13 model years, which is $10,500. Although it might be low in particular cases, it will cover a significant portion of the claims should something go wrong.”

George Iny, executive director of the Automobile Protection Association (APA), feels the claim limit isn’t substantial enough, but says that GuardTree’s decision to exclude luxury makes and models is a good step to “stretch your repair dollar,” as is its policy specifying that used parts may be included in repairs.

“The list of included components is impressive and covers electric vehicle (EV) batteries and hybrid components that other companies won’t touch, but a $5,000 claim limit for an EV battery problem is too low,” Iny says.

The APA has scrutinized the automotive insurance industry in Canada, and Iny says warranties can vary by province. For example, several provinces permit selling uninsured warranties, meaning if the dealer or vendor offering coverage closes down, there’s no way to get your money back. Independent warranty companies and dealers use fine print to their advantage when marking up the price of a vehicle or omitting certain key points in the coverage, he adds.

“There’s no co-ordination between the provinces, and little oversight of the business practices of dealers and warranty companies within the provinces,” he says. “It’s a deceptive practice to sell a one-year engine warranty with a claim limit under $5,000 when it’s too low to repair the engine even once. The dealer doesn’t tell you verbally you will be purchasing a glass half-empty, so you learn about the nasty surprises after the sale when you receive your copy of the agreement.”

For its part, GuardTree’s warranties are backed by Trisura Guarantee Insurance Co., and Schulz says GuardTree aims to be completely up front about what is and isn’t covered by trying to address questions from anyone interested in the service. One exception to eligibility is a vehicle classified as “reconditioned,” meaning it has seen extensive repair work in the past, which also happen to be the kind of vehicles used car dealers sell with their warranties.

“Gig economy” ridesharing and food delivery vehicles are eligible to subscribe, as are sole proprietors or workers who use their vehicles for both work and leisure. The agreement includes roadside assistance in partnership with companies offering those services, plus a $50 daily stipend to rent a vehicle during a repair, he says.

“To us, there haven’t really been other players out there offering coverage in a flexible, easy fashion for the consumer to utilize,” Schulz says. “This isn’t an insurance product for collisions, as there are vendors for that; it’s an extended warranty for the vehicle’s mechanics in case something major goes wrong.”

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