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Insurance and Warranties | Feature

WMS Warranty

Insurance and Warranties | FeatureWould you buy a truck that had clocked up a million kilometres? Given how well-engineered today’s trucks are you just might if it came with a full service history, appeared to be in good overall condition and the vendor was reputable; but you might be happier if it came with a warranty.

Indeed a warranty might just seal the deal – that is certainly Volvo’s thinking.

Last November the first second-hand 1m kilometre truck went on sale at its West Midlands Volvo Economy Centre in Coventry.

Insurance and Warranties | FeatureImportance of Warranties

The Economy brand was set up just over five years ago. The aim was to give the Swedish manufacturer’s used truck operation a dedicated sales channel to market primarily ex-contract or part-exchange trucks sourced from within the Volvo network that are either over five years old, or have covered over 500,000km.

They are vehicles that are viewed as being too good to trade out.

A 14-plate Version 4 FH 6×2 tractor unit with a Globetrotter cab and previously operated by a well-known national fleet, the 1m kilometre Volvo was used to debut a new, basic, unlimited mileage driveline warranty that lasts for six months. The same warranty protects all Version 4 FL, FE and FM models dating back to 2013.

The FH had been covered by a full Volvo repair and maintenance contract since new.

Volvo sells vehicles through two Economy Centres – the other one is in Washington, Tyne and Wear – each of which stocks from 50 to 75 trucks. Most of them are Volvos.

Other manufacturers understand the importance of warranties too.

Promotional material accompanying Scania Direct, a new web-based initiative which gives hauliers a single point of access to the Scania network’s entire used vehicle stock, makes the point that all trucks supplied through it are backed by a driveline warranty. “If an operator sees a vehicle on Scania Direct that they would like to inspect then they can either visit the dealership that holds it or we can arrange for the truck to be brought closer to them,” says Scania used vehicle sales director, Tony Tomsett.

Variety in Packages

New Scanias are sold with a 2+2 package – a two-year warranty plus two years servicing. Similar packages have been made available by other brands and have helped steer service and repair work towards franchised dealers and away from independent and in-house workshops; one of the objects of the exercise.

Running 35 trucks, all Scanias, Felton, Bristol-based tipper and walking-floor-trailer operator Paul Smart says that the warranty’s presence has certainly influenced his acquisition decisions. It gives him peace of mind and enables him to plan maintenance ahead at a fixed cost, he explains.

He readily concedes that Scanias are not the cheapest trucks on the market so far as their upfront price is concerned. “Over the past few years though we’ve constantly checked and compared Scania with other brands, but we’ve stayed with Scanias because no-one beats their lifetime costs,” he says.

There is nothing to stop independent, non-franchised, van and truck dealers enhancing the appeal of any used vehicles they may have for sale by supplying them with a warranty.

A number of companies can put packages together for them for a fee including M B & G Insurance Services, WMS Group, Warrantywise, Warranty Direct and Motorway Direct. The last-named business administers AA-branded commercial vehicle warranties under licence and can act as a warranty administrator for vehicle manufacturers.

The Current Demand

Demand for warranties is rising significantly says WMS Group, possibly because commercial vehicles have become more complicated; and the more there is to go wrong, the more the operator is going to want the comfort of a warranty that can respond.

There are two ways in which dealers can use a warranty; include it in the price of the vehicle as an incentive to purchase, or sell it as an add-on.

Insurance and Warranties | Feature

What may typically happen is that the used van or truck is marketed with a three- or six-month package, the customer likes the vehicle and decides to acquire it and the vendor then offers to provide a 12-month warranty extension for an additional fee.

Aside from the profit that can be made – gross margins can range from 30% to 70% – warranties can boost workshop business. If warranty work needs to be done then there is every chance that it will be carried out at the vendor’s premises, although the van or truck owner always has the option to take it elsewhere.

Be cautious about opting for too fat a gross margin incidentally, tempting though it may be. Do so and you could end up pricing yourself out of the market.

Warranties may also be sold as an extension to the vehicle manufacturer’s own warranty, increasing, say, a three-year package to five years or more.

The scope of cover can vary, from driveline-only to bumper-to-bumper, and some packages may include roadside rescue and recovery, with a year-round

round-the-clock incident helpline.

Bear in mind that a dealership cannot sell an insurance-backed warranty unless it is approved by the Financial Conduct Authority (FCA) or is the appointed representative of a company that is itself approved. Nor can it sell other types of insurance including so-called gap cover – the difference between the value of a written-off vehicle and any outstanding finance that may still be owed.

Obligor Warranties

What a dealer can do, however, is sell what are known as obligor warranties.

With this type of warranty it is the dealership’s own insurance that backs the warranty rather than insurance attached to the warranty itself. That means they are treated as service agreements and are beyond the FCA’s jurisdiction, although this may change in the future.

From the customer’s viewpoint there is no difference to the level of cover provided.

Obligor warranties enjoy two further advantages. They are not subject to Insurance Premium Tax and VAT can be recovered on claims.

Do not be tempted to break the rules. Try to sell products that require you to have FCA approval without first obtaining it and you will soon discover that the FCA has prosecution powers that it is not afraid to wield; and that it can publish the names of dealerships that have misbehaved.

Being named and shamed is unlikely to benefit your business.