Who do service agreements really serve?

PACSman: Who do service agreements really serve?

PACSman: I’ve been helping a friend buy a car the past several months - obviously a female friend since a guy would have done his homework in advance, picked out the car online, negotiated the price by phone, and been home watching the game within an hour of pulling into the dealers lot - and came to the part about service agreements. Now contrary to what many might think I am not against service agreements or anti-extended warranties or anti-female- contrary to what Ms P might think or say. It’s just the nature of the beast, Ms P, so don’t get your panties all in a wad over it. When is the last time you saw a guy spend an entire afternoon shopping and buying nothing - unless he’s with his wife or girlfriend that is? When guys have something to buy we go in and buy it - end of story - not spending months going from dealer to dealer trying to figure out what we like and don’t like. That’s why they have the Internet…Now I know - women going shopping is no different then men sitting on their fat a$$es all day watching a football game drinking beer - it’s a social bonding thing - but I’m more an ESPN Highlight Zone kinda guy anyway so I really can’t relate. You know what they say in the South “Don’t bother me with the birthin’ pains, just show me the baby” . I’m sure I’ll hear it from Ms P. for that comment as well even though her babies are the four -legged kind. Blame it on my ADD or some other reason….they are all valid…Just keep in mind that no guy would EVER scratch a car from the list because it didn’t have a lighted visor mirror on both driver and passenger sides… True story…I mean, really, can we talk?

Now I have service agreements on both mine and my son’s car, one on the flat screen TV in the living room and extended warranties on both my waters heaters I replaced a few years ago (I have two in my house, a necessity with two teens living here who take extended showers). I also am getting quotes on 10 year parts and labor warranties on a replacement for my heat pump that decided to quit last week just before the coldest week in Florida history hit, leaving me with no heat and a $399 electric bill from using space heaters from hell. After all I can’t let the Elvis the Wonder Dog get cold now can I even if he is still peeing on my bookcase? And they say God has no sense of humor. Indeed!! So no, Ms P, I am not anti-service or anti woman at all. But I do have to ask who is really served by some of these self-serving contracts?

The car dealer we went to - best known for its “We make it simple” ads in the late 70’s and early 80’s who now believes in “The power of dreams” and makes a pretty damn good lawnmower too– presented a smorgasbord of what I felt was dramatically overpriced service agreements (SA) to consider, using the assumed close “Which of these do you want?”. The cheapest SA offered was around $800.00 for five years/60,000 miles coverage (actually two years 24,000 when you factor in the 3/36 coverage that comes standard with the car). The one my friend bought ended up costing her over $2,300.00 for eight years/120,000 miles (actually 5/84) of coverage. It was her decision and her money but I did let her know there were other options she could consider that would provide her with virtually identical coverage at a fraction of the cost. She wanted the dealer’s coverage though, so being the somewhat logical person I am I told the dealer we need time to consider this before making a decision (actually to give us time to shop around) and will make a decision in a week or so. After all, the car comes with a three year 36K bumper to bumper warranty on it so everything is covered by the warranty for the next three years and 36k miles, right? The answer - “Yes you can wait a week, but if you don’t buy the warranty RIGHT NOW the purchase agreement cost goes up.” I’m like, “OK, ‘splain me that one Ricky!! The car comes with a three year 36K bumper to bumper warranty on it so shouldn’t I be able to buy the warranty anytime before then without penalty?” Not so, Mrs. Ricardo!! Turns out if she waited six months their already hyper-inflated price goes up 30%; wait one year and the price goes up 50% and wait beyond a year and it is solely t the dealer’s discretion to offer a warranty it at all.
Can it get any better (or worse) I thought to myself? “Why cointenly!!” was the answer that came back in my best Curley impression. I asked what happens if she decides to sell the car within the three year period and never gets to use the first lick of the service provided by the service agreement. Does she get her money back? Logic again dictates yes since the contract, while technically in force, was never used or billed against. Silly me again…”The agreement gets refunded on a pro rated basis” was their answer. Huh? Pro rated? We never even used it!! Basically every mile she drove cost her $.02 towards the service contract price which in plain English means she would be out $720.00 of her $2,300.00 (31%) BEFORE the contract even kicked in. My first reaction can’t be published without using a bunch of expletive deleteds (although I did keep my composure at the dealership) and then I just started to laugh. I thought to myself, yup, just like PACS, except PACS doesn’t give you a choice. Sure you have you Bronze Silver and Gold plans that put you light years above the 1-2 scumbags in all of PACS who - gasp!! - elect to go on a time and materials basis. But is a service contract really necessary? After all ,if you have a well trained PACS Systems Administrator (admittedly a big if at that) 90% of your problems can be handled in-house, 5% by the vendor’s technical staff and the remaining 5% are bug fixes that require the vendor to make changes to their software code. Of course to get these bug fixes you also MUST have a service contract as they aren’t offered without them. Once again, 'splain that to me Ricky… The evil empire at Microsoft sends me bugs fixes every week for free, most I don’t even know what they are “fixing”, on a $199 operating system and you are telling me that I just spent $1.5M on a system, 75% of that amount that is for applications software that has bugs in it (as all software does) and I need to pay you 15% of list price per year (actually closer to 20% what you actually paid) to make it run right? Yes I am, AND on top of that you also have to commit to a minimum five year service contract up front as well - again when you sign the contract to purchase and not a moment after. Otay, buhwheat!!! Yes, you heard it right…And yes, it even gets better still!!! If you had bought the hardware direct it usually comes with a three year warranty from the manufacturer but since you are buying the system from the vendor AS A SYSTEM you get the preferred one year warranty on the system - software AND hardware combined. If you want the other two years coverage that you technically paid for already, know they are part of the system service agreement price for years two and three. Now you might be saying “Didn’t I pay for a three year hardware warranty when I bought the hardware?” Yes, but that went away when we integrated the hardware and made it part of a “system” that we delivered. Arghhhhhhhhhh!!!!

PACS, cars, and ink jet printers all share one thing in common - they make their money after the sale on service. The system is the way to the service (on in the case of ink jet printers consumables). Since AMICAS went private Merge is only publicly traded PACS company remaining (outside of the majors who don’t specifically break out their numbers) yet I can tell you that at least 70% of the money that all companies bring through the door comes from service. Without those service dollars companies would be hemorrhaging worse than they are already. That is why they make you commit to along term SA when you buy - because when you see how little you actually use service and what it ends up costing you and you might actually end up saying “Why AM I spending this money anyway?”.

These three entities also get you coming and going. Ink jet cartridges are the highest priced liquids on the face of the earth running from $3,000.00-8,000.00 per gallon, and literally costing more than blood. In addition most ink jet cartridges have short expiration dates so if you buy them in bulk and don’t use them you are outta luck there as well - no deposit, no return.

With cars and PACS there are always hidden clauses as well. The dealer tried to get my friend to buy the $300.00 oil change “special” - 3 years/36K miles which would be an OK (but not great) deal if it were standard oil and she got the oil changed every 3,000 miles (12 changes total). Instead the “deal” she had was offered was 4 synthetic oil changes at $75 each (list price) although she easily could stretch out the interval from 7,500 to 10,000 miles in between changes since 90% of her driving was highway mileage. A rip off? You might say that. With PACS it’s the upgrades (not updates) that aren’t included in the service contract price - or travel time or….100 other small points the vendor neglected to tell you about.

Just like a PACS is often over-engineered, so too were the options she was told she just HAD to have. The $429.00 wheel and tire protection package (fixing a flat costs a whopping $20 - so that’s a whole lot of flats), the $399 “appearance” package (that she got for free anyway when she said no thanks to it), the $699 LoJac so she could find her totaled stolen car faster and easier (ever heard of insurance?) and the $120 GAP insurance offering that she paid her own insurance agent…drum roll please…$4.00 for.

Yessiree - Rosanne Rosannadanna was right- “It’s always something.”



Who do service agreements really serve?