Personal Finance : Warranting a good deal

ONCE consumers looking for TVs, hi-fis and washing machines became clued up and started shopping around for the cheapest deal in town, stores started competing aggressively on price.

But people have not woken up to the terrible deals on offer on extended warranties. The Office of Fair Trading and The Consumers' Association turned their attention to this murky area last week.

For a start, there is no choice on offer once you have plumped for a machine in a particular store. Each outlet sells its own version and no other - rather like the financial services industry where most banks and building societies are tied to just one life insurance and investment company.

And again, just as in the financial arena, you are likely to be confronted by a salesman working on commission. He will try pretty hard to convince you of the merits of extending the manufacturer's guarantee for a few more years - his take-home pay may depend on it.

The OFT points out that warranties are usually mentioned by the staff at the last moment as the customer approaches the till, so they are put under pressure to make a snap decision.

Indeed, the tale of the gas showroom workers whose salaries are being cut to bring them in line with those paid by the electrical retailers (while the chief executive gets a huge increase in his already huge salary) perhaps indicates a move to match the electrical retailers and switch from salary-based pay to a greater reliance upon commission.

The cost of warranties varies hugely. For the same television, the same Cornhill waranty is given away free by John Lewis, sold for £57.99 by Argos, and offered for £150 by Dixons.

John Lewis gives away two- year warranties on washing machines, dishwashers, fridges and videos but charges for five-year cover.

It says that, like its credit card, warranties are not designed to make super profits but are a service to customers pitched at a price to cover costs.

While Dixons charges £110 for a five-year warranty (one year from the manufacturer plus four more) for a hi-fi costing up to £500, Richer Sounds charges £9.99 each for cassette decks, tuners and amplifiers and £19.95 for compact discs. James Johnson-Flint, the managing director, says that the stores make a profit on the deals at those prices.

The OFT is talking about drawing up a code of conduct and is urging stores to display the cost of warranties more prominently in the shops, and to make available details of competing warranties sold by other insurers.

If these insurance companies had greater access to consumers, real competition might break out.

The OFT heard tales that manufacturers' guarantee cards were being removed from product packaging to eliminate competition for their own extended warranties. However, it appears that this practice became less prevalent once it became known that the inquiry into warranties was under way.

The problem with warranties is that they usually only cover the period when it is highly unlikely that anything will go wrong.

My guess is that the keen prices of some goods depend on a cross-subsidy from the expensive warranties. So those who take the risk and do not take out the warranty get cheap prices at the expense of those who do.

But it is impossible not to support a shake-up on warranties even if it means "real" prices for both parts of the deal.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Assistant / Buyer

    £15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

    Recruitment Genius: Customer Service Advisor

    £15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

    Recruitment Genius: Compliance Manager

    £40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

    Day In a Page

    Greece says 'No': A night of huge celebrations in Athens as voters decisively back Tsipras and his anti-austerity stance in historic referendum

    Greece referendum

    Greeks say 'No' to austerity and plunge Europe into crisis
    Ten years after the 7/7 terror attacks, is Britain an altered state?

    7/7 bombings anniversary

    Ten years after the terror attacks, is Britain an altered state?
    Beautiful evening dresses are some of the loveliest Donatella has created

    Versace haute couture review

    Beautiful evening dresses are some of the loveliest Donatella has ever created
    No hope and no jobs, so Gaza's young risk their lives, climb the fence and run for it

    No hope and no jobs in Gaza

    So the young risk their lives and run for it
    Fashion apps: Retailers roll together shopping and social networking for mobile customers

    Fashion apps

    Retailers roll together shopping and social networking for mobile customers
    The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

    Gaping hole at the heart of the European Union

    Treatment of Greece has shown up a lack of genuine legitimacy
    Number of young homeless in Britain 'more than three times the official figures'

    'Everything changed when I went to the hostel'

    Number of young homeless people in Britain is 'more than three times the official figures'
    Compton Cricket Club

    Compton Cricket Club

    Portraits of LA cricketers from notorious suburb to be displayed in London
    London now the global money-laundering centre for the drug trade, says crime expert

    Wlecome to London, drug money-laundering centre for the world

    'Mexico is its heart and London is its head'
    The Buddhist temple minutes from Centre Court that helps a winner keep on winning

    The Buddhist temple minutes from Centre Court

    It helps a winner keep on winning
    Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

    Is this the future of flying?

    Battery-powered planes made of plastic, and without flight decks
    Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

    Isis are barbarians

    but the Caliphate is an ancient Muslim ideal
    The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

    Curse of Brink's Mat strikes again

    Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
    Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

    'The ministers talk to us about miracles'

    Why Greeks are cynical ahead of the bailout referendum
    Call of the wild: How science is learning to decode the way animals communicate

    Call of the wild

    How science is learning to decode the way animals communicate