| Honey, they shrunk the extended
warranty |
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Manufacturers and retailers have
a huge incentive for limiting their standard warranties: They stand
to boost profits significantly by selling extended warranties. Arnum
estimates that, depending on the quarter, one-third to 38 percent
of Dell's quarterly profits come from extended warranty sales.
"If you look at a warranty as being an insurance
policy, Dell is becoming an insurance company that makes computers
in order to sell insurance for their computers," Arnum says.
More
retailers are getting into the extended warranty game. Wal-Mart just announced
this fall that it would start selling extended warranties. Inconsistent
promises
Not all warranties are disappearing or getting shorter. It depends
on the manufacturer and the product category. "The long and
short of it is that not every electronic manufacturer or PC maker
is doing it," says Bosworth. While some manufacturers are shortening
warranties, others are maintaining a year-long warranty for parts
but are cutting back strictly on the labor portion of the warranty.
But that's little consolation,
since repair or replacement is where the bulk of the expense lies if a piece of
electronic equipment fails. It's simply too costly to have items repaired.
The idea behind these extremely limited warranties
is to plant the seed with the consumer to simply buy a new item
rather than repair it. "They don't ship it overseas for repairs
but will just throw it in the scrap heap," Arnum says. Because
many goods are made overseas, the cost of repair becomes prohibitively
expensive, providing incentives for manufacturers to get themselves
off the hook for repairs altogether.
On the other side of the spectrum, some manufacturers
are bucking the trend by offering longer free warranties, particularly
for relatively new technologies. For example, some plasma flat-screen
television manufacturers are lengthening warranties, says Arnum.
Fujitsu now offers a five-year warranty, up from three
years, in an effort to calm consumers' "unwarranted" fears
that plasma TVs won't last.
But even within industry sectors, the length of warranties
can vary. While Dell and Gateway have reduced warranties on many
of their products, Hewlett-Packard has stood firm with one-year
warranties for its printers and personal computers. And if Dell
and Gateway get enough heat on this issue, they may revise their
warranty policies again, Arnum says.
Of course, in some cases it just doesn't pay
to have a standard year-long warranty on low-priced consumer electronic goods
-- even for the consumer. Think of the last time a low-budget item, such as a
portable CD player or a budget radio, broke. Did you actually find the warranty
paperwork and return the item so it could get fixed? Most consumers simply don't
want to hassle with a low-cost item, so they throw it away and buy a new one. Protect
yourself
Since fewer manufacturers are willing to protect the consumer, it
falls to consumers to protect themselves by reading the fine print.
Does the DVD player you're buying have a 90-day or a yearlong warranty?
"You've got to go over the warranty with a fine-tooth comb,"
says Paul Flores, an investment analyst for California State University
in Long Beach.
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