Instead of going down during the coronavirus (COVID-19) pandemic, new car sales continued to move higher, along with the prices consumers paid.
Because there was a supply and demand issue -- factories closed for several weeks early in the pandemic -- at times there were more buyers than there were cars for sale. As a result, dealers had less wiggle room and consumers paid an average of more than $40,000 for a new car in December, according to an analysis from Edmunds.com.
With those higher prices, financing periods got longer. Depending on the amount of the down payment -- and Edmunds says it averaged around 10 percent -- buyers are running the risk of soon owing more than the car is worth.
The Service Contract Industry Council (SCIC), Motor Vehicle Protection Products Association (MVPPA), and Guaranteed Asset Protection Alliance (GAPA) -- trade groups representing products designed to insulate car owners from that risk, say auto service contracts, GAP waivers, and vehicle protection products are now more important than ever.
‘Peace of mind’
"With new vehicle prices and the amount consumers are borrowing to finance the vehicles reaching record highs, consumers need the peace of mind a GAP waiver provides of knowing that if they suffer a total loss due to theft or accidental damage, it's not going to devastate them financially," said Tim Meenan, Executive Director of MVPPA, SCIC, and GAPA.
A GAP waiver, sometimes called GAP insurance, covers the difference between what the vehicle is worth and what the owner owes in the event of damage to or loss of the vehicle. A consumer may pay $40,000 for a vehicle but it is worth significantly less, as far as an insurance company is concerned, once it’s driven off the lot.
"Also, as vehicle options and technology become more complex, repairs become more costly. That's why auto service contracts and vehicle protection products can help save consumers so much down the road," Meenan said.
Service contracts
Service contracts, sometimes called extended warranties, cover some repairs after the manufacturer’s warranty expires. Meenan says they have become more important as consumers have opted to finance their vehicles for six or seven years.
There are important differences when it comes to service contracts. A dealership may provide an extended warranty and may be a convenient option. Keep in mind it may limit where you have your car repaired.
ConsumerAffairs has collected thousands of verified reviews of auto warranty companies. You can check them out here.