RVing 101 -

Extended warranties for RVs

This article was written by forum member Kirk Wood and published in the Sept./Oct. 2004 issue of Escapees Magazine. The article is also published on Kirk's web site, and is reproduced here with the express permission of the author.

Extended Warranties are a subject of heated debate in any gathering of RVers. It is a subject that most have an opinion about, but few understand. To make the decision that will be best for you, it is important to understand what they are and what they are not.

An extended warranty is not a warranty at all, nor is it a service contract. A warranty is a guarantee of performance by the manufacturer but even extended warranties sold by the RV dealers are not from the manufacturer. And a service contract takes care of day to day maintenance, but extended warranties don’t. These contracts are really health insurance plans for RVs. They are backed by an insurance underwriter. The underwriter may be several layers down, but they are there. Most plans are run by a company that contracts to administer extended warranties for a fee and if you call seldom do you speak to an employee of the company who sold the plan or who works for the underwriter.

Extended warranties work just like health plans in most respects. Like health plans, there are often two underwriters involved, one to pay small claims and another who pays only for catastrophic illness, or in our case catastrophic failures. In both, there may be several layers of vendor between the customer and the underwriter. Let’s look at how health insurance works.

Each member of the plan or each policy holder pays into the plan a fixed amount that is put into a big pool. (Keep in mind that some of us have health insurance that is paid mostly by our employer and what we pay is between 10% & 50% of the actual cost of our coverage.) From this money all claims are paid and all operating costs and profits must come. Obviously for the company to survive, the average customer must pay significantly more than the amount paid out to each policy holder. So why is this ever a good deal? For a healthy person it is not if you only consider cost versus return. We pay for protection against the possibility of a major medical expense. Insurance underwriters call this “spreading risk.” They know that one person in every “X” number of policy holders will have claims that exceed their premiums. Using that average, adding cost of administration and profits, rates are determined.

With your RV you have exactly the same situation. The underwriter knows from studies, the average cost of repairs for each year of life of any RV, adjusted by age (which health plans do also). They then calculate what will be paid out per year on average, adjusting for administration expenses and profit margin, to determine price. That price is for a prepaid health policy on the RV. The fact is that when you look at each RV individually, it will probably cost more for coverage than to pay out of pocket. Prices vary based upon the deductible and by levels of coverage, just as health insurance does. Just as most health plans have a maximum that they will pay; extended warranties have limits built into their contracts. And as health plans with no payment limit cost significantly more, so do extended warranties. The point is, just as cheap health plans do not pay much of patient’s needs, cheap extended warranties limit their risk by increasing the deductible and limiting what they pay for. It is just a business decision, nothing more. For some reason, many RV buyers who would never consider getting the cheapest health insurance coverage, buy the cheapest extended warranty and are unhappy when a claim is rejected!

The key is to read, and understand the contracts of extended warranties. Most list exactly what they pay for, and while it doesn't say what won’t be paid, that is anything not listed. Recently there have come from the extended warranty underwriters, contracts that list what is not paid for, stating that they will pay for all other repairs. That choice is best in today's market. Understanding is vital. Always insist on taking a blank contract home to read and study before choosing. Don’t sign if you can't take it home to study it. When you shop, you not only need to compare the price and coverage, but like health plans consider what the deductible is and what you must do to get repairs covered. Like health plans, see how they pay for covered repairs. There are very few plans that are really a scam, it is just that cheap plans must show a profit and to do that they limit payment. Since cost of administration is about the same for all plans, the value per dollar paid will tend to be best toward the higher end of the market.

Better plans cost more and price rises quickly with the age of an RV. That is because plans do not pay for repairs covered by manufacturer’s warranty and they know major repairs become more common with age. Like health insurance, you can get a lower price with higher deductibles. Deductibles can range from as little as $25 to $1000, or more. Like health plans, some will limit where customers can go for service and some will have a maximum that they will pay in the life of the contract. These are legitimate ways of limiting exposure and lowering price. It is my observation that most happy customers of extended warranties bought the higher priced contracts, while the majority of unhappy customers have the lower priced ones. There may be SCAMers in the extended warranty business, but most are not. It is true that the companies do pay large commissions to the F&I person who sells it, but few would be sold if they didn’t. It is also true that dealers find extended warranties to be very profitable, but that is because there is little expense involved so profit is high.

The question is should you buy an extended warranty? The answer is the same for all insurance questions. The way businesses determine whether or not to insure their assets is to ask, “If we do not insure and the worst happens can our finances survive the cost?” If that answer is yes, they do not buy insurance. This is the way to evaluate an extended warranty. The fact is that statistically you will probably not recover the cost of coverage. In our case, we were buying the RV to go on the road fulltime and were retiring early without access to our IRA's or 401K. A replacement of the refrigerator or a transmission would have been a major disaster. We chose to buy a plan covering as much as possible because we had the money at the time of purchase since we both were still working. Down the road five years was financial speculation so we chose to pay as much as we could up front. For us, an extended warranty from one of the higher priced companies was the answer since it allowed us to hit the road knowing that we would not have that issue to worry about. While all repairs not done by me have been happily paid, we don't really expect it to save money. When we purchased our previous motorhome, we did not buy an extended warranty, which was the right choice for that purchase. Reasoning was that since the motorhome was three years old the price was much higher, though it had low mileage and little use. When we bought it we were both working and it was not our home. If it broke I could take time getting it repaired and probably do most repairs myself.

To say that extended warranties are always a bad choice is as foolish as saying that they are always a good buy. How many people do you know that have ever saved money by purchasing collision insurance for automobiles? If you add up premiums paid and then deduct your claims, you would probably be shocked to see what a poor return on investment insurance really is. We buy it for protection. Extended warranties are no different.

RVing 101 -

Gas or diesel?

edited by Gary Brinck

Technical Guru Richard Mater was asked:

How does a diesel manage to do better? And while on the subject, when is the time to choose a diesel vs. gasoline? I know the diesel costs $10K or so extra and pulls better and gets better mileage and costs more to repair. Is the basic engine and chassis designed for longer life? In other words, if someone was going to buy "one last" coach for many years of use, or planned to really rack up the mileage...are they diesel candidates? I'd like to hear your thoughts on this one.

The following was Richard's response.

Diesel engines operate at a compression ratio near 22 to 1 and, as a result, produce a bigger "bang" for the buck than gasoline versions at 8 to 1. These engines are built like the proverbial brick out-house, and are able to stand these tremendous combustion chamber pressures. In racing (where gas engines rule), whenever more power is needed, most teams turn to superchargers (blowers driven mechanically off the engine), or turbo chargers (essentially the same except driven from escaping exhaust gases). The gas engine's compression is also mechanically modified up to 12 to 1 or more.

Between blowing more air (oxygen) and fuel into the cylinders on each downstroke, and increasing the squeeze (compression) put on this volatile charge, more power is produced--often at very high RPMs. It's not uncommon to find heavily modified gas engines in the 250 to 300 cubic inch range producing over 1,000 horsepower. However, they sure don't idle very well, and are intended to deliver their brute over a relatively short life span (maybe only one race). Plus, the fuel required to support the higher compression isn't even close to being available to the average consumer, and if it were, nobody would want to pay for it. In other words, gas engines can be turned into veritable fire breathers, but at a terrific cost, complexity, and reduced lifespan.

As a result, vehicle manufacturers must settle on gas engines for their "daily driver" vehicles that won't "ping" on the cheapest gas station offering, will run reliably to well over a 100,000 miles, and do it all (in all types of weather) without creating a lot of pollutants. A task and a half, to be sure.

Diesels, on the other hand, are desirable because they can produce a huge amount of power at lower engine RPMs where it can be used by large, heavy vehicles. Because of a diesel's beefiness, it can pull at max power all day long and not even work up a sweat. And since, during idle, very little fuel is injected into the cylinders, such engines can chug along on the hot day in stop-and-go traffic without a trace of overheating. Certainly, these are desirable features of a tow vehicle or motorhome engine. But, as with gas engines in specialized racing applications, there are prices to be paid for having a King Kong diesel engine sitting between the frame rails of one's RV.

These include much-increased cost and weight of the engine itself. Ditto for a motorhome's frame and drivetrain. Also to be factored in is that fact that diesel fuel does not burn as cleanly as gasoline, and as such, contaminates the engine oil at a ferocious rate. Oil and filter must be changed (in the engine group we're considering here) at least every 3,000 miles*. Alternatively, gas engines, thanks to today's much cleaner burning unleaded fuel, can easily be taken to 7,500 miles** between oil changes without threat to internal parts. Now an oil change on typical Ford, Chevy, GMC, Dodge diesel won't break anybody, but it is quite a bit more costly than a big block gas engine. If you're considering powerplants like the big Detroit Diesel, you're up against a different story. Some of these hold up to 25 quarts, and between that and the filter(s), will cost nearly $100 per oil change and lube (done every 3,000* miles).

Don't overlook the inconvenience of having to deal with special low temperature operating procedures with diesels (the fuel tends to congeal in colder climes, making starting a challenge), or the disaster of having water in the fuel reach the engine. While all credible diesels today come equipped with good water separators in the fuel line, if the owner doesn't maintain this device, catastrophe will strike. Let me spell it out--N-E-W E-N-G-I-N-E!

Also, while no engine responds well to infrequent use, diesel REALLY don't like be left to sit for months on end. The fuel often requires an additive to prevent fungus growth in the tank which, if not kept in check, can plug-up the whole fuel system. Generally, long-term storage is another area where diesel owners are confronted with maintenance costs not shared by their gas-owning contemporaries.

Everything on a diesel costs more - filters (both fuel and oil), water pumps, radiators, etc. And heaven help the person that needs an injector pump outside of warranty. Does the "National Debt" ring any bells here? I have one friend that paid nearly $1,000 just for a water pump replacement on a diesel-powered Ford pickup.

But, but despite what must appear as negative comments, diesels DO have their place IF a person is going to log a huge number of miles throughout the ownership period. However, I think you'll be shocked to learn that even the $500,000+ bus conversions have an average owner turnover rate of every two years and 20,000 miles***. I always hear people talking about how they will get 250,000 miles or more out of their rig's engine before having to have it overhauled. Though I won't do it here, I have run the numbers for the extra initial cost of a diesel rig (including tax and license), the increased maintenance required (diesel vs gas), and higher parts prices, and so on. If you do the same, I think you'll conclude that for all but a high-mile per year, liveaboard rig, gas is the way to go. Besides, the interior amenities are almost as nice on many gas motorhomes.

It has been my experience as an RV technical writer since 1980, that most folks change out their rigs well before they can even begin to hope to recapture their initial investment in diesel power. I can't tell you how many times I have heard someone suggest that THIS one would be their last rig, and they want the best, most reliable machine available. Guess what, they've got something different within five years, after a MAJOR depreciation hit.

NOW, if you or anybody else tells me that they're interested in diesels because of the way they're built, the gorgeous coachwork common to such vehicles, or because they like the power, sound, smell, or whatever, then we're talking a different ball game.

Buying a big diesel rig has a lot to do with ego, usually male ego. There's no way on earth anyone can justify using a $500,000 to $800,000 converted bus as a motorhome, or for that matter, even a $250,000, conventionally-built, rear pusher motorhome. Just run the numbers any one of these examples, and then divide by an average of usage of 45 days per year to come up with a killer, "per night" cost!!!

But justification is not, and should not, be the issue. I have done test reports on Prevosts, MCIs, Eagles, Bluebirds, as well as conventionally assembled, diesel-powered, rear pushers. I'm here to tell you there's no other experience like it! They are a dream to drive and live aboard. They're fun just to be IN. But use caution, because after you've been in the "pilot's" seat of these rigs for more than about 30 seconds, you won't want to relinquish the position.

This, I think, is the real reason people buy diesel-powered rigs. And, it's a good reason. Construction quality and luxury are valid points in any purchase, and I don't take exception with this line of thought whatsoever. I mean, really, I'd like to be trundling down the highways of America in a 45', 102-wide, 500 horsepower, stainless steel-sided bus conversion! Highline diesel rigs are, without question, among the finest built vehicles to ever see a roadway, and that alone is sufficient reason for ownership.

What I do take exception with is when the element of "cost-effectiveness" is brought up as justification for diesel ownership.**** There is simply no way that the extra few miles per gallon achievable with a more expensive (vs gas) "oil burner" powerplant can be used as a reason for purchase. Folks should just bite the bullet and say "I want it because it's NEAT". That's the real reason anyway, so I'm suggesting the potential diesel owners just say this phrase a few times like a mantra, and then write the check.

EDITOR'S NOTES:
* Since this article was written, oil changes intervals on modern RV diesels have been extended significantly, with factory recommended intervals of 5000-9000 miles or more on many models from Caterpiller and Cummins. Pick-up truck diesels, however, remain in the 3000 mile range when used for Severe Duty, which includes trailer towing.

** When gasoline engines are used for Severe Duty, including towing and motorhome usage, the manufacturer recommended interval is typically 3000 miles rather than the 7000 miles of passenger car engines.

*** According to Lazy Days (a huge Florida RV dealer), the average motorhome owner trades every 3.5 years.

**** Even with the extended oil change intervals of modern diesels, the author's conclusion is remains correct - few owners will ever save money with a diesel.