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Pros and cons of an extended warranty program

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You’ve taken the leap and decided to purchase your own truck. Or maybe you run a small fleet and have a handful of trucks. In either case, the next challenge is upon you: maintaining those vehicles, because if a truck isn’t running, it isn’t making any money. So how do you do that? Generally, there are three choices, and which is right for you depends on personal preference and your overall cash flow situation.

First is to spend money on preventive maintenance and then pay for repairs as needed. This may seem like a smart idea, but it can be the most costly. What if you don’t have the cash on hand to pay for the repair? In that case, you most likely are borrowing the money, either through a loan or against a credit card. Both will cost you more through interest payments, and a possible hit to your credit rating, which can affect other business decisions.

The second option, and the one that many experts recommend, is to set aside money for future maintenance. Small trucking business advisor Tim Brady has always recommended calculating your break-even point when determining a hauling rate and including a percentage for operational costs such as regular maintenance, repairs and tires.

The easy advice would be to say set aside 5 or 10 cents from every mile just for maintenance. Save that money in a separate account so you don’t drain it unexpectedly, and then you will have a reserve when needed. The difficult part of this approach is it requires discipline. Discipline to set aside the money, discipline to not tap it for other expenses, and discipline to not drop your hauling rate 10 cents just to get the load, knowing you have this cushion built in.

For those drivers or small fleet owners with the discipline, this can be the best approach. If you have a large repair one month that drains the budget – or, worst case, goes over budget - you can easily adjust the amount you withhold in the following months to pay down the debt and start to rebuild that cash reserve.

It can be tempting when bidding on a load to drop the rate and forgo the extra cash for maintenance, but that is where the discipline must come in.

The third way to prepare for maintenance expenses is to purchase an extended warranty. There are pluses and minus to this approach. From a budget management sense, a warranty plan will generally feature a fixed monthly payment. That makes it easy to account for each month. You know how much it will cost and how much you must set aside.

The downside, though, is what a plan will cover. It is easy to assume the warranty program will cover your repair, but what if it doesn’t? What if the claim is denied? What then? Every policy is a little different, and just because you had a plan previously and it covered one repair doesn’t mean every plan will cover that same repair.

In the case of a warranty program not covering a repair, or the program administrator denying the claim, the result can be catastrophic for an owner-operator who wasn’t prepared. A large bill they can’t afford or a truck sitting idle.

Still, the programs can be tempting if only from the fixed cost aspect of the monthly payments.

If you choose to go the route of a warranty program, what exactly can you expect? National Truck Protection (NTP) is one company that provides programs, with several options available. The company also offers extended warranty programs for fleets looking to sell vehicles, which it says can be attractive to potential buyers, making the vehicle more sellable.

Like any insurance policy, a truck warranty will include a deductible and some repairs that are covered and some that are not. For owner-operators, an NTP program can provide 24/7 breakdown assistance, instant claims payments, nationwide coverage and a single deductible. NTP offers 54 “standard” plan options with various timeframes, from 6-month, 50,000-mile coverage to 36-month, 300,000-mile coverages.

NTP Platinum Plans offer coverage of all internally lubricated parts including coverage for failures due to wear-out and coverage of maintenance items like injectors and turbocharger. The Gold Plan offers coverage of all internally lubricated parts including coverage for failures due to wear-out.

Both programs feature:

  • All Brands
  • Progressive Damage
  • Failure due to Wear Out
  • No Repair cap
  • No Restriction on mileage
  • No Restriction on age
  • 24/7/365 Claims Support
  • Warranty activation immediate
  • Trans & Rear coverage available
  • Up to 2 Years of Coverage Available

If you purchase a truck from someone like Arrow Truck Sales, Penske or Ryder, they too will offer some kind of warranty program.

Regardless of whether you purchase an extended warranty program or just decide to set aside money each month for repairs, the chances are pretty high you will need to tap into those resources as some point. There are advocates on both sides of the argument, but nearly everyone agrees that not having a plan is a recipe for failure. The choice now is, which road do you take?

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