Extended Service Plans and Buyer Perceptions and Behaviors in Automobile Industry: An Abstract

Abstract

Sometimes called an “aftermarket car warranty,” “vehicle service contract,” or “extended auto warranty,” extended service plan (ESP) market is significant, exceeding $16 billion (Warranty Week 2018). ESPs are typically purchased at the original equipment manufacturer (OEM, such as Toyota and Ford) dealership at the time the vehicle is purchased, but one may often also buy an ESP through a third-party warranty provider at a later time. Unlike other, the so-called manufacturer’s warranties, which are included in the price of the product, ESPs are really vehicle service contracts (or safeguards) against expensive, unforeseen repairs. The term “extended” is also sometimes used because ESPs usually extend the length of the coverage and allotted mileage (and sometimes a few other extra coverages such as roadside assistance) set by the OEM warranty.

The purchasing decision of ESPs is complex, considering the fact that multiple parties from the seller’s side are involved: the salesperson, Finance and Insurance (F&I) personnel, dealership, the manufacturer (auto brand), and sometimes a third-party underwriter. The purpose of this research is to better understand the dynamics of the decision (not) to buy ESPs, given the buyer characteristics and their interactions with the selling parties. The research was conducted by surveying 341 new car owners. Among several findings, our results indicated that the decision to buy an ESP shares no relationship to the degree to which the respondent felt positively toward the F&I person. In line with previous research, attitude and loyalty had significant effects: specifically, consumer’s dealership loyalty (but not automaker loyalty) and attitude toward ESPs.